CISG CASE PRESENTATION

ICC Arbitration Case No. 8769 of December 1996

Reproduced with permission of the Uniform Law Review (2001-1) 220

A French and an Austrian company entered into a manufacturing contract. The contract provided for the application of French law and the 1980 Vienna Convention on Contracts for the International Sale of Goods (CISG).

A dispute arose, and in awarding interest the sole arbitrator pointed out that Article 78 CISG does not specify the applicable rate. The sole arbitrator therefore decided to apply an interest rate that he deemed commercially reasonable, i.e. the interest rate of the currency in which damages had to be paid (Austrian Schillings), and in support of his finding he referred with no further explanation to Article 7.4.8(2) of the UNIDROIT Principles.

Facts

Claimant [buyer] and Respondent [seller] entered into two contracts, one for the production of an electrical appliance and the other for the purchase of the toolings needed to manufacture the appliance. [Buyer] asserted that [seller] had breached the contract by failing to act in accordance with the technical specifications, by failing to give adequate advice concerning competition, and failing to guarantee patent registration. [Seller] alleged that the electrical appliance delivered was of good merchantable quality and, therefore, [buyer] was not entitled to unilaterally terminate the contract. [Seller] counterclaimed for damages resulting from [buyer's] wrongful termination of the contract.

Applicable law

Both contracts provided that "the arbitrator will interpret the contract and settle the dispute in accordance with French law and suppletorily with the United Nations Convention on Contracts for the International Sale of Goods, concluded in Vienna on 11 April 1980."

The Arbitrator interpreted this clause to mean that the parties intended to have all international sales law disputes resolved in accordance with the CISG and all other aspects governed by French law. In addition, the CISG would fill any gaps where the French law was silent. [page 69]

Applicable CISG provisions

Article 74 (lost profits)

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." CISG Article 74 (emphasis added).

[Seller] alleged that [buyer], without any justification, stopped purchasing the agreed quantities. [Buyer] asserted that "the lost margin counterclaimed is equal to the anticipated profit, which is obtained after deducting all expenses associated with the operation and therefore, this counterclaim cannot logically stand alongside other counterclaims …" The Arbitrator applied CISG Art. 74, which "does not exclude that at party might claim both damnum emergens and lucrum cessans. There is nothing illogical about that since by receiving damnum emergens the damaged party is only put at break-even, and lucrum cessans comes on top."

Article 74 requires that both elements of damages be foreseeably caused by the fundamental breach. [Buyer] failed to challenge the lost profits claim with reasonable particularity. Thus, the arbitrator held that there was "no reason to doubt that for [seller] a large order … would have been foreseeably profitable in a way comparable to the profits expected by [buyer] itself …" [page 69] [Seller] was awarded the lost profits claimed.

Article 78 (interest)

"If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74." CISG Article 78.

[Seller] claimed interest at 10.5%. CISG Art. 78 does not specify a particular interest rate. The arbitrator considered it appropriate to apply a commercially reasonable interest rate in accordance with Art. 7.4.9 of the UNIDROIT Principles. Finding that the interest claimed was commercially reasonable, [seller] was awarded interest as claimed. [page 70]