A. The aggrieved party is entitled to any net gains prevented as a result of the breach.
B. Lost profits recoverable under Article 74 may include loss of profits that are expected to be incurred after the time damages are assessed by a tribunal.
C. Lost profits include those arising from lost volume sales.
A. In calculating the amount of damages owed to the aggrieved party, the loss to the aggrieved party resulting from the breach is to be offset, in principle, by any gains to the aggrieved party resulting from the non-performance of the contract.
B. Punitive damages may not be awarded under Article 74 of the Convention.
"[I]f recovery were limited to what a claimant has spent in reliance on a contract which has been breached, an incentive would be created which is contrary to the contractual morality: obligors would generally find it in their interest to breach contracts which turn out to be valuable to their co-contractant. Parties do not enter into contracts involving risk in order to be repaid their costs. To limit the recovery of the victim of a breach to its actual expenditures is to transform it into a lender, which is intolerable when that party was full risk for the amount of the investments made on the strength of the contract."162.4 Furthermore, from a policy perspective, the breaching party should not be able to escape liability because the breaching party's wrongful act caused the difficulty in proving damages with absolute certainty.17 As one United States court noted, "it is particularly in the area of quantifying the amount of lost profits that courts impose the risk of uncertainty on the breaching party whose breach gave rise to the uncertainty."18
"[O]n several occasions the Convention refers to the parties as 'reasonable' persons (see, e.g., Articles 8(2) and (3); 25; 35(1)(b); 60; 72(2); 75; 77; 79(1); 85; 86; 88(2)), requires that a particular act must be accomplished or a notice given within a 'reasonable time' (see, e.g., Articles 18(2); 33(3); 39(1); 43(1); 47; 49; 63; 64; 65; 73(2)), and distinguishes between 'reasonable' and 'unreasonable' expense, inconvenience or excuse (see, e.g., Article 43; 37; 48; 87; 88(2) and (3)). These references demonstrate that under the Convention the 'reasonableness' test constitutes a general criterion for evaluating the parties' behavior to which one may resort in the absence of any specific regulation."222.7 Requiring the aggrieved parties to prove, with reasonable certainty, that that party suffered a loss is consistent with the UNIDROIT Principles and the PECL.23 The UNIDROIT Principles states: "[c]ompensation is due only for harm, including future harm, that is established with a reasonable degree of certainty."24 The comments further provide that this "reaffirms the well-known requirement of certainty of harm . ..."25 The PECL states: "[t]he loss for which damages are recoverable include: (a) non-pecuniary loss; and (b) future loss which is reasonably likely to occur."26
"The contract provided for the sale of 100 tons of grain for a total price of $50,000 FOB. When the delivered grain had more moisture in it than allowable under the contract description and, as a result of the moisture, there had been some deterioration in quality. The extra cost to Buyer of drying the grain was $1,500. If the grain had been as contracted, its value would have been $55,000, but because of the deterioration caused by the moisture after it was dried the grain was worth only $51,000.Contract price $50,000 Value the grain would have had if as contracted $55,000 Value of grain as delivered $51,000 $ 4,000 Extra expenses of drying the grain $ 1,500 Loss arising out of the breach $ 5,500"
"The loss recoverable by the aggrieved party includes future loss, that is, loss expected to be incurred after the time damages are assessed. This requires the court to evaluate two uncertainties, namely the likelihood that future loss will occur and its amount. As in the case of accrued loss before judgment ... this covers both prospective expenditures which would have been avoided but for the breach and gains which the aggrieved party could reasonably have been expected to make if the breach had not occurred."77
"If a private party agrees to sell his automobile to a buyer for $2,000, a breach by the buyer would cause the seller no loss (except incidental damages, that is, the expense of a new sale) if the seller was able to sell the automobile to another buyer for $2,000. But the situation is different with dealers having an unlimited supply of standard-priced goods. Thus, if an automobile dealer agrees to sell a car to a buyer at the standard price of $2,000, a breach by the buyer injures the dealer, even though he is able to sell the automobile to another for $2,000. If the dealer has an inexhaustible supply of cars, the resale to replace the breaching buyer costs the dealer a sale, because, if the breaching buyer had performed, the dealer would have made two sales instead of one. The buyer's breach, in such a case, depletes the dealer's sales to the extent of one, and the measure of damages should be the dealer's profit on one sale."793.22 Accordingly, it is consistent with the principle of full compensation for an aggrieved party to recover lost profits for lost volume sales. However, an aggrieved party may not recover lost profits for lost volume under Article 74 and, in addition, damages under Article 75's substitute transaction formula because, in that circumstance, the aggrieved party would receive double recovery.80
"[A] buyer who has received non-conforming goods, the non-conformity not amounting to a fundamental breach of contract allowing avoidance, must be allowed to conclude a cover purchase in order to continue with his production and/or perform his contracts with his clients. Despite the absence of avoidance and, therefore, the inapplicability of Article 75 of the CISG, the buyer must be allowed to calculate its damages on the basis of the costs of the cover transaction."121
"The aggrieved party must bring into account in reduction of damages any compensating gains which offset its loss; only the balance, the net loss, is recoverable. Similarly, in computing gains of which the aggrieved party has been deprived, the cost it would have incurred in making those gains is a compensating saving which must be deducted to produce a net gain. Compensating gains typically arise as the result of a cover transaction concluded by the aggrieved party. But it is for the non-performing party to show that the transaction generating the gains was indeed a substitute transaction, as opposed to a transaction concluded independently of the default. A compensating saving occurs where the future performance from which the aggrieved party has been discharged as the result of the non- performance would have involved the aggrieved party in expenditure."1269.4The Secretariat Commentary provides the following illustrations of the appropriate measure of damages under Article 74:
Example [A]: The contract provided for the sale for $50,000 FOB of 100 machine tools which were to be manufactured by the seller. Buyer repudiated the contract prior to the commencement of manufacture of the tools. If the contract had been performed, Seller would have had total costs of $45,000 of which $40,000 would have represented costs incurred only because of the existence of this contract (e.g., materials, energy, labour hired for the contract or paid by the unit of production) and $5,000 would have represented an allocation to this contract of the overhead of the firm (cost of borrowed capital, general administrative expense, depreciation of plant and equipment). Because Buyer repudiated to [the] contract, Seller did not expend the $40,000 in costs which would have been incurred by reason of the existence of this contract. However, the $5,000 of overhead which were allocated to this contract were for expenses of the business which were not dependent on the existence of the contract. Therefore, those expenses could not be reduced and, unless the Seller has made other contracts which have used his entire productive capacity during the period of time in question, as a result of Buyer's breach Seller has lost the allocation of $5,000 to overhead which he would have received if the contract had been performed. Thus, the loss for which Buyer is liable in this example is $10,000. ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼
Contract price $50,000 [less] expenses of performance which could be saved $40,000 [equals] loss arising out of breach $10,000.
Example [B]: If, prior to Buyer's repudiation of the contract in Example [A], Seller had already incurred $15,000 in non-recoverable expenses in part performance of the contract, the total damages would equal $25,000.
Example [C]: If the product of the part performance in Example [B] could be sold as salvage to a third party for $5,000, Seller's loss would be reduced to $20,000.127
*To be cited as: CISG-AC Opinion no __, Calculation of Damages under CISG Article 74. Rapporteur: Professor John Y. Gotanda, Villanova University School of Law, Villanova, Pennsylvania, USA. Adopted by the CISG-AC on its Spring 2006 meeting in Stockholm, Sweden. Reproduction of this opinion is authorized. Jan Ramberg, Chair Eric E. Bergsten, Michael Joachim Bonell, Alejandro M. Garro, Roy M. Goode, John Y. Gotanda, Sergei N. Lebedev, Pilar Perales Viscasillas, Peter Schlechtriem, Ingeborg Schwenzer, Hiroo Sono, Claude Witz, Members. Loukas A. Mistelis, Secretary. The CISG-AC is a private initiative supported by the Institute of International Commercial Law at Pace University School of Law and the Centre for Commercial Law Studies, Queen Mary, University of London. The International Sales Convention Advisory Council (CISG-AC) is in place to support understanding of the United Nations Convention on Contracts for the International Sale of Goods (CISG) and the promotion and assistance in the uniform interpretation of the CISG. At its formative meeting in Paris in June 2001, Prof. Peter Schlechtriem of Freiburg University, Germany, was elected Chair of the CISG-AC for a three-year term. Dr. Loukas A. Mistelis of the Centre for Commercial Studies, Queen Mary, University of London, was elected Secretary. The CISG-AC has consisted of: Prof. Emeritus Eric E. Bergsten, Pace University; Prof. Michael Joachim Bonell, University of Rome La Sapienza; Prof. E. Allan Farnsworth, Columbia University School of Law; Prof. Alejandro M. Garro, Columbia University School of Law; Prof. Sir Roy M. Goode, Oxford; Prof. Sergei N. Lebedev, Maritime Arbitration Commission of the Chamber of Commerce and Industry of the Russian Federation; Prof. Jan Ramberg, University of Stockholm, Faculty of Law; Prof. Peter Schlechtriem, Freiburg University; Prof. Hiroo Sono, Faculty of Law, Hokkaido University; Prof. Claude Witz, Universität des Saarlandes and Strasbourg University. At subsequent meetings, Prof. Jan Ramberg was elected as the Chair of the CISG-AC for the term June 2004 to June 2007 and the CISG-AC elected as additional members Prof. Pilar Perales Viscasillas, Universidad Carlos III de Madrid, Prof. Ingeborg Schwenzer, University of Basel, and Prof. John Y. Gotanda, Villanova University School of Law. For more information please contact L.Mistelis@qmul.ac.uk.
**This opinion is a response to a request by _______. The question referred to the Council was: “In the case of a breach of contract governed by the CISG, what types of damages are available under Article 74 and how should such damages be calculated?” ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼The scope of the Opinion is thus limited and does not examine in depth issues concerning causation, foreseeability and mitigation.
1The Secretariat Commentary provides: Since article 70 [ draft counterpart to CISG Article 74] is applicable to claims for damages by both buyer and the seller and these claims may arise out of a wide range of situations, including claims for ancillary damages to a request that the party in breach perform the contract or to a declaration of avoidance of a contract, no specific rules have been set forth in article 70 describing the appropriate method of determining “the loss . . . suffered . . . as a consequence of the breach.” The court or the arbitral tribunal must calculate the loss in the manner which best suits the circumstances. Secretariat Commentary, art. 70 [draft counterpart to CISG art. 74], ¶ 4, reprinted in Honnold, Documentary History of the Uniform Law for International Sales, Kluwer 1989, p. 449 [hereinafter “Secretariat Commentary”], also available at http://www.cisg.law.pace.edu/cisg/text/secomm/secomm- 74.html. There exists no official commentary on the CISG. The Secretariat Commentary is on the 1978 Draft of the Convention. Nevertheless, the Commentary reflects that Secretariat’s impressions of the purposes and effects of the Commission’s work and provides a helpful analysis of official text of the CISG. See Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Kluwer, 1989, p. 2 (“[The Secretariat] Commentaries are the closest available counterpart to an Official Commentary on the Convention and, when they are relevant, constitute the most authoritative citations to the meaning of the Convention that one can find.”).
2See Schlechtriem/Schwenzer/Stoll/Gruber, Commentary on the U.N. Convention on the International Sale of Goods, 2nd ed., Oxford, 2005, art. 74, ¶ 2; Honnold, Uniform Law for International Sales, 3rd ed., Kluwer, 1998, p. 445 (citing Treitel, Remedies for Breach of Contract, Oxford, 1998, p. 82).
3See Farnsworth, Damages and Specific Relief, 27 Am. J. Comp. L. pp. 247, 249 (1979); Sutton, Measuring Damages Under the United Nations Convention on the International Sale of Goods, 50 Ohio State L.J. pp. 737, 742 (1989).
4CISG arts. 74, 77.
5See Harris/Tallon, Contract Law Today: Anglo-French Comparisons, Oxford 1989, p. 274; Draetta, et al., Transnational Contract Law in The Law of Transnational Business Transactions, Federation Press, 2003, § 4:50; Robinson v. Harman 1 Exch p. 850 (1848); The Unique Mariner  1 Lloyd’s Rep. 37, 54; Waddams, The Law of Damages, Canada Law Book Limited, 1983, ¶ 536; Corbin, Corbin on Contracts, West, 1952, p. 525; Canada, Asamera Oil Corp. v. Sea Oil & General Corp., Supreme Court of Canada, 1979, 1 S.C.R. p. 663.
6UNIDROIT Principles art. 7.4.2; PECL art. 9:502.
7See Sapphire International Petroleums Ltd. v. National Iranian Oil Co., Arbitral Award, 15 March 1963, reprinted in 35 I.L.R. pp. 136, 182 (1967); Delagoa Bay and East African Railway Co. (U.S. and Great Britain v. Portugal) (1900), summarized in pertinent part in Whiteman, Damages in International Law, William S. Hein & Co., 1943, vol. 3, pp. 1694, 1697; see also Westberg, International Transactions and Claims Involving Government Parties: Case Law of the Iran-U.S. Claims Tribunal, Int’l. Law Inst., 1991, p. 190. The arbitrator in the celebrated Sapphire case explained this principle as follows: According to the generally held view, the object of damages is to place the party to whom they are awarded in the same pecuniary position that they would have been in if the contract had been performed in the manner provided for by the parties at the time of its conclusion. . . . This rule is simply a direct deduction from the principle of pacta sunt servanda, since its only effect is to substitute a pecuniary obligation for the obligation which was promised but not performed. It is therefore natural that the creditor should thereby be given full compensation.This compensation includes loss suffered (damnum emergens), for example expenses incurred in performing the contract, and the profit lost (lucrum cessans), for example the net profit which the contract would have produced. Sapphire, 35 I.L.R. pp. 185-86.
8CISG art. 6.
9Farnsworth, Farnsworth on Contracts, Aspen, 2004, vol. 3, § 12.18.
10Commentators have asserted that the CISG imposes a burden of providing evidence of damages on a claimant. See Enderlein/Maskow, International Sales Law, Oceana Publications 1992, p. 298. However, the CISG does not expressly require that damages be proved with certainty. See Saidov, Methods of Limiting Damages ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ under the Vienna Convention on Contracts for the International Sale of Goods, § 5 (2001), available at http://www.cisg.law.pace.edu/cisg/biblio/saidov .html.
11See United States, Delchi Carrier S.p.A. v. Rotorex Corp., U.S. Court of Appeals (2nd Circuit), 6 Dec. 1996, CISG-online.ch 140; see also Finland, Helsingin Hoviokeus, 26 Oct. 2000, CISG-online.ch 1078; Switz., Bezirksgericht der Saane, 20 Feb. 1997, CISG-online.ch 426; Arbitration, ICC Court of Arbitration, 23 Jan. 1997 CISG-online.ch 236. One commentator examining CISG cases in the Russian Federation concludes that arbitration tribunals there have consistently applied their own discretion to determine the level of proof necessary. See Saidov, Cases on CISG Decided in the Russian Federation, 7 Vindobona J. Int’l Com. L. & Arb. pp. 1-62, 50 (2003).
12See United States, Bagwell v. Middle S. Energy, U.S.Court of Appeals (5th Cir.), 1986, 797 F.2d p. 1298; United States, Locke v. United States, U.S.Court of Claims,1960, 283 F.2d p. 521; Unites States, Kozlowski v. Kozlowski, New Jersey Supreme Court,1979, 403 A.2d p. 902; Chitty on Contracts, 24th ed., Sweet & Maxwell, 1977, vol. 1, §1562; Carter/Harland, Contract Law in Australia, 4th ed., LexisNexis, 2002, ¶¶ 2117; see also Restatement, Contracts (Second) § 352 (1981) (U.S.); Dobbs, Law of Remedies, West, 1993, §§ 12.4(3), 12.9(2); McGregor, McGregor on Damages, 14th ed., Sweet & Maxwell, 1980, § 261; see also Waddams, op. cit., ¶ 1051; Arbitral Award, Final Award in Case No. 78445 of 1996, reprinted in XXVI Y.B. Com Arb. pp. 167, 175 (2001) (citing India, State of Kerala v. K. Bhaskaran, AIR (1985) Kerala p. 55); Robert Dunn, Recovery of Damages for Lost Profits, 5th ed., Cromwell-Smith, 1998, § 1.6; Gotanda, Recovering Lost Profits in International Disputes, 36 Geo J. Int’l L. p. 61 (2005).
13See Simont, Belgium, in Transnational Litigation, Oceana, 2003, p. BEL-64; Vargas/Lira, Brazil, in Transnational Litigation, Oceana, 1997, p. BRA-11.
14Wirth et al., Switzerland, in Transnational Litigation, Oceana, 1997, p. SWI-77.
15The Helsinki Court of Appeals dealt with a similar scenario, where the seller had refused delivery of plastic carpets that the buyer had not previously been in the business of selling. See Finland, Helsingin hoviokeus, 26 Oct. 2000, CISG-online.ch 1078. In this case the buyer had entered into a requirements contract with a third party for the resale of the plastic carpets. Id. The court, in estimating the buyer’s damage as a result of the seller’s breach, held that the buyer’s sales goal could not be used as basis for estimating lost profits. Id.
16Arbitral Award, Himpurna California Energy Ltd. V. P.T. (Persero) Perusahaan Listruik Negara, Final Award of 4 May 1999, reprinted in XXV Y.B. Com. Arb. pp. 13, 83-84 (2000).
17See United States, Southwest Battery Corp. v. Owen, Texas Supreme Court, 1938, 115 S.W.2d p. 1097 (“A party who breaks his contract cannot escape liability because it is impossible to state or prove a perfect measure of damages.”); United States, Super Valu Stores, Inc. v. Peterson, Alabama Supreme Court, 1987, 506 So.2d p. 317 (“[T]he risk of uncertainty must fall on the defendant whose wrongful conduct caused the damages.”)
18United States, Mid-America Tablewares, Inc. v. Mogi Trading Co., U.S.Court of Appeals (7th Cir.), 1996, 100 F.3d p. 1353.
19See Zeller, Damages under the Convention on Contracts for the International Sale of Goods, Oceana, 2005, pp. 158-59 (noting substance-procedure distinction allows courts to apply local law that they are familiar with and leads to forum shopping, and, in some cases where procedural law has been applied instead of an international convention, “the application of domestic procedural law disported the process of what could have been a uniform application of substantive law”).
20See Orlandi, Procedural Law Issues and Law Conventions, 5 Uniform L. Rev. p. 23 (2000); See also, United States, Sun Oil Co. v. Wortman, U.S. Supreme Court, 1998, 486 U.S. p. 717 (“Except at the extremes, the terms ‘substance’ and ‘procedure’ precisely describe very little except dichotomy, and what they mean in a particular context is largely determined by the purposes for which the dichotomy is drawn.”); United States, Hanna v. Plumer, U.S.Supreme Court,1965, 380 U.S. p. 460 (“The line between ‘substance’ and ‘procedure’ shifts as the legal context changes. Each implies different variables depending upon the particular problem for which it is used.”); see also John Y. Gotanda, Awarding Interest in International Arbitration, 90 Am J. Int’l L. p. 40 (1996) (noting that “many countries regard the awarding of interest as substantive, while others deem rules concerning interest procedural”).
21See Bianca/Bonell/Knapp, Commentary on the International Sales Law, The 1980 Vienna Sales Convention, Giuffrè, Milano, 1987, art. 7, ¶¶ 2.2.1-2.3.1 (stating that in cases of ambiguities or obscurities in text and gaps, “courts should to the largest possible extent refrain from resorting to the different domestic laws and try to find a solution within the Convention itself” by looking “to the underlying purposes and policies of individual provisions as well as of the Convention as a whole”).
22Bianca/Bonell/Bonell, op. cit., art. 7, ¶ 18.104.22.168.
23See Eiselen, Remarks on the Manner in which the UNIDROIT Principles of International Commercial Contracts May be Used to Interpret or Supplement Article 74 of the CISG, ¶ k, available at http://www.cisg.law.pace.edu/cisg/principles/uni74.html; Blasé/Höttler, Remarks on the Damages Provisions in the CISG, Principles of European Contract Law (PECL) and UNIDROIT Principles of International Commercial Contracts (UPICC), available at http://www.cisg.law.pace.edu/cisg/text/peclcomp74.html.
25Art. 7.4.3 cmt. 1 (emphasis added).
26Art. 9:501(2) (emphasis added).
27See Hahnkamper, Austria, in Transnational Litigation, Oceana, 1999, p. AUS-88; Simont, op. cit., p. BEL-63 (Belgium); Wirth, op. cit., p. SWI-76 (Switz.) (citing Gauch/Schluep, Schweizerisches Obligationenrecht, Allgemeiner Teil, Zürich, 6th ed., 1995, vol. 2, pp. 2624, 2630, 2726; Restatement, Contracts (Second) § 352 (1981) (U.S.); see also Gotanda, Lost Profits, op. cit., p. 87 (“[I]n general, the claimant must prove lost profits with reasonable certainty. In many countries though, the certainty rule applies only to the fact that the breach resulted in claimant’s loss of future revenues and not to the amount of profits it lost.”).
28Finland, Helsingin Hoviokeus, 26 Oct., 2000, CISG-online.ch 1078; Russia, ICA Arbitral Tribunal, 27 July, 1999, CISG-online.ch 779; United States, Delchi Carrier S.p.A. v. Rotorex Corp., U.S.Court of Appeals (2nd Circuit), 6 Dec. 1996, CISG-online.ch 140.
29Cf. C.c. art. 1226 (Italy); BW art. 6:105 (Neth.); United States, California Lettuce Growers v. Union Sugar Co., California Supreme Court, 1955, 289 P.2d pp. 785, 793. Comments to the American U.C.C. “reject[s] any doctrine that damages must be calculable with mathematical accuracy,” stating that “[c]ompensatory damages are often best approximate; they have to be proved with whatever definiteness and accuracy the facts permit, but no more.” U.C.C. § 1-106 cmt. 1 (U.S.). The UNDIROIT Principles states that “where the amount of damages cannot be established with a sufficient degree of certainty, the assessment is at the discretion of the court.” UNIDROIT Principles art. 7.4.3(3).
30See United States, Butler v. Westgate State Bank, Kansas Supreme Court, 1979, 596 P.2d p. 156; United States, Alliance Tractor & Implement Co. v. Lukens Tool & Die Co., Nebraska Supreme Court, 1979, 281 N.W.2d p. 778; United States, Houston Exploration, Inc. v. Meredith, Nevada Supreme Court, 728 P.2d p. 437 (1986); United States, Edwards v. Container Kraft & Paper Supply Co., California Court of Appeals, 1958, 327 P.2d p. 622; Restatement, Contracts (Second) § 352 cmt. b (1981) (U.S.). In one tribunal in a non-CISG case, the claimant calculated its claimed lost profits on the basis of detailed forecasts of expected results during the relevant time period, including the forecasted production capacity of a factory that the respondent failed to complete, the forecasted sales of the product that was to be made at the factory (based largely on statements from the claimant’s customers that they would have bought certain quantities of the product at prices that were competitive with those offered by the claimant’s competitors). The tribunal “accept[ed] that the claimed amount of loss of profit fairly represents what the claimant would have earned during the relevant period of time, if production according to the Agreement had been performed.” Sweden, Arbitration Institute of the Stockholm Chamber of Commerce, Interim Award of 17 July 1992 and Final Award of 13 Jul. 1993, reprinted in pertinent part in XXII Y.B. Com. Arb. p. 197 (1997).
31As the tribunal in Final Award in Case No. 8362 of 1995 pointed out, in a non-CISG case: With respect to the calculation of the amount of damages, counterbalancing factors are taken into account under the law: on the one hand, there must be a sound basis upon which alleged damages are to be calculated. They cannot be the product of sheer speculation unsupported by tangible evidence. On the other hand, the law will not reward a party in breach by depriving the other party of compensation merely because no precise basis for determining the amount of damages exists. ARBITRAL AWARD, Final Award in Case No. 8362 of 1995, reprinted in pertinent part in XXII Y.B. Com. Arb. pp. 164, 177 (1977).
32Farnsworth, op. cit., § 12.9; see, e.g., Germany, LG Trier, 12 Oct. 1995, CISG-online.ch 160. The Secretariat Commentary provides: If the goods delivered had a recognized value which fluctuated, the loss to the buyer would be equal to the difference between the value of the goods as they exist and the value of the goods would have had if they had been stipulated in the contract. Since this formula is intended to restore him to the economic ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ position he would have been in if the contract had been performed properly, the contract price of the goods is not an element of the calculation of damages. Secretariat Commentary, op. cit., art. 70 [draft counterpart to CISG art. 74, ¶ 7.
33See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶14. The Secretariat Commentary states: Where the seller delivers and the buyer retains defective goods, the loss suffered by the buyer might be measured in a number of different ways. If the buyer is able to cure the defect, the loss would often be equal to the cost of the repairs. If the goods delivered were machine tools, the buyer’s loss might also include the loss resulting from lowered production during the period the tools could not be used. Secretariat Commentary, op. cit., art. 70 [draft counterpart to CISG art. 74], ¶ 6.
34See Austria,OGH, 14 Jan., 2002, CISG-online.ch 643; see also Canada, Nova Tool and Mold Inc. v. London Industries Inc., Ontario Court, 16 Dec. 1998, CISG-online.ch 572; Germany, AG Müchen, 23 June 1995, CISG-online.ch 368. Failed attempts to repair goods may also be compensated. See United States, Delchi Carrier S.p.A. v. Rotorex Corp., U.S.Court of Appeals (2nd Circuit), 6 Dec. 1996, CISG- online.ch 140.
35See Germany, OLG Köln, 8 Jan., 1997, CISG-online.ch 217.
36Secretariat Commentary, op. cit., art. 70 [draft counterpart to CISG art. 74], ¶ 7.
37For a discussion of the differences between the CISG damages provisions and the American Uniform Commercial Code, which has been adopted in some form by most states, see Flechtner, Remedies under the New International Sales Convention: The Perspective from Article 2 of the U.C.C., 8 J.L. & Com. pp. 53, 97-107 (1988).
38UNIDROIT Principles of International Commercial Contracts art. 7.4.2 (2004). For a comparison of the damages provisions of UNIDROIT Principles and the Convention, see Eiselen, op. cit.; see also Garro, The Gap-Filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay Between the Principles and the CISG, 69 Tulane L. Rev. pp. 1149, 1152 (1995).
39Principles of European Contract Law (PECL) art. 9:502 (prepared by the Commission on European Contract Law, Ole Lando and Hugh Beale eds., 2000). For a comparison of the damages provisions of the PECL, see Blasé/Höttler, op. cit.
40An aggrieved party may suffer losses resulting from the devaluation of currency when a debtor fails to make a payment when due and, in the interim between the maturity of the obligation and the receipt of payment, the exchange rate between the currency of the agreement and the aggrieved party’s local currency declines. Then, upon conversion into its local currency, the aggrieved party does not receive the value that it expected under the contract. See UNCITRAL Digest of Case Law on the United Nations Convention on the International Sale of Goods, available at http://daccessdds.un.org/doc/UNDOC/GEN/V04/555/63/PDF/V0455563.pdf; see also F.A. Mann, The Legal Aspect of Money, Oxford, 4th ed., 1982, p. 286.
41See Switzerland, HG Zurich, 5 Feb. 1997, CISG-online.ch 327; New Zealand, Issac Naylor & Sons Ltd. v. New Zealand Cooperative Wool Marketing, 1981, 1 N.Z.L.R. p. 361; see also Vroegop, Exchange Losses on an International Sale of Goods, 1982 N.Z.L.J. pp. 3-4.
42See Eiselen, op. cit.; Saidov, Cases on CISG Decided in the Russian Federation, 7 Vindobona J. Int’l Com. L. & Arb. pp. 1, 44-45 (2003); see also Enderlein/Maskow, op. cit., p. 298.
43See, Germany,LG Heidelberg, 27 Jan. 1981 [ULIS precedent]; Russia, Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (ICAC), 21 Apr. 1994, summarized in pertinent part in Saidov, op. cit., p. 44 n.197; see also Saidov, op. cit., pp. 44-5 (examining cases and concluding that ICAC has generally rejected recovery of exchange rate losses under theory that loss is creditor’s domestic issue and risk should not be shifted to debtor). In general, the principle of nominalism applies only to single currency transactions and is not inconsistent with the recovery of exchange rate losses in multi-currency international contracts. See Brand, Exchange Loss Damage and the Uniform Foreign-Money Claims Act: The Emperor Hasn’t All His Clothes, 23 Law & Pol’y Int’l Bus. pp. 1, 44 (1992).
44See Mann, op. cit., pp. 108, 286; Brand, op. cit., p. 44.
45See also Brand, op. cit., pp. 43-44.
46See Switzerland,DT Ltd. v. B. AG, HG St. Gallen, 3 Dec. 2002, CISG-online.ch 727; Switzerland, HG Zürich, 5 Feb. 1997, CISG-online.ch 327; Netherlands, Gruppo IMAR v. Protech Horst, District Court Roermond, 6 May 1993, CISG-online.ch 454; see also Germany,OLG Düsseldorf, 14 Jan. 1994, CISG- online.ch 119.
47See Germany,OLG Düsseldorf, 14 Jan. 1994, CISG-online.ch 119; see also Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 17.
48See Switzerland,DT Ltd. v. B. AG, HG St. Gallen, 3 Dec. 2002, CISG-online.ch 727; see also Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 17.
49See Italy, Tessile v. Ixela,District Court Pavia, 29 Dec. 1999, CISG-online.ch 678; Germany,OLG Düsseldorf, 14 Jan. 1994, CISG-online.ch 119; see also Enderlein/Maskow, op. cit., p. 302. In Tessile v. Ixela, an Italian seller brought a claim for the remainder of the unpaid purchase price of high fashion textiles, where the contract called for payment in Italian lira. The seller claimed damages due to monetary devaluation of the Italian lira. However, the court stated that “[n]othing is due by right of greater damages from monetary devaluation because, in the period of time involved here, the legal interest rates have always been greater than the rate of inflation.” Id. Thus, according to the court, ordinary currency devaluation is intended to be compensated through the awarding of interest.
50See New Zealand, Issac Naylor & Sons Ltd. v. New Zealand Cooperative Wool Marketing, 1981, 1 N.Z.L.R. p. 361; United Kingdom, Milliangos v. George Frank (Textiles) Ltd., 1976 A.C. pp. 443, 465; Mann, op. cit., pp. 286-87.
51See UNIDROIT Principles art. 6.1.9(4); PECL art. 7:108(3).
52See PECL art. 7:108 cmt.; Restatement (Third) of Foreign Relations Law § 823(2) (1986) (U.S.). PECL art. 9:510 cmt.
53Relying on national laws to compensate an aggrieved party for loss due to a change in the exchange rate would result in similarly situated parties receiving different results because such laws differ from country to country. See generally Gotanda, Supplemental Damages in Private International Law, Kluwer, 1998, § 4 (surveying national laws on damages in foreign currencies and noting that there are three general dates on which the convention should be performed: date of breach, date of judgment, and date of payment). But cf. United States, Delchi Carrier S.p.A. v. Rotorex Corp., U.S.Court of Appeals (2nd Circuit), 6 Dec. 1996, CISG-online.ch 140 (applying New York Breach-Date rule to convert Italian lira to U.S. dollars); United States, Schmitz-Werke v. Rockland, U.S.Court of Appeals (4th Circuit), 21 Jun. 2002, CISG-online.ch 625.
54See CISG art. 74; see also Secretariat Commentary, op. cit., art. 70 [draft counterpart to CISG art. 74], ¶ 3.
55See CISG art. 74.
56See Secretariat Commentary, op. cit., art. 70 [draft counterpart to CISG art. 74], ¶ 3.
58See id., ¶ 3; Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶22.
59See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶2.
60See Gotanda, Lost Profits, op. cit., p. 99.
61See, United States, Southwest Battery Corp. v. Owen, Texas Supreme Court, 1928, 115 S.W.2d pp. 1097, 1099; United States, Super Valu Stores, Inc. v. Peterson, Supreme Court of Alabama, 1987, 506 So. 2d pp. 317, 330.
62See ¶¶ 2.1-2.13.
63See Dunn, op. cit., § 6.1. The most common form of expenses saved are variable costs, which include all “charges composing an essential element in the cost of manufacture or . . . service. Essential elements in such cost[s] . . . are confined to expenditures that would necessarily have been made in the performance of the contract.” Id., § 6.5 (quoting United States, Oakland California Towel Co. v. Sivils, California Court of Appeals, 1942, 52 Cal. App. 2d pp. 517, 520).
64UNIDROIT Principles art. 7.4.2; PECL art. 9:502.
65PECL art. 9:502 cmt. C.
66See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 22; see also UNIDROIT Principles art. 7.4.2(1) cmt. 2.
67The classic example involves breach of a contract denying a contestant the chance to win a beauty pageant. See United Kingdom, Chaplin v. Hicks, 1911, 2 K.B. p. 786.
68One commentator asserts that loss of chance can be treated in two ways – as an issue of “recoverability of losses” or as a “standard of proving losses” issue. See Saidov, Damages: The Need for Uniformity, paper presented at 25 Years United Nations Convention of Contracts for the International Sale of Goods (CISG) § 3.4, p. 9 (Vienna Mar. 15-16, 2005). Cf. Murray, Murray on Contracts, LexisNexus, 4th ed., 2001, § 121[C].
69See Saidov, Damages: The Need for Uniformity, op. cit., § 3.4, p. 10; Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 22.
70Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 22, n.98.
71See Saidov, Damages: The Need for Uniformity, op. cit., § 3.4, p. 9; Melvin Aron Eisenberg, Probability and Chance in Contract Law, 45 UCLA L. Rev. pp. 1005, 1049 (1998).
72In such a situation the breaching party could still be liable for other damages incurred by the aggrieved party as a result of the breach. At least one court interpreting CISG Article 74 has denied the recoverability of the loss of chance. See Switzerland, HG Zürich, 10 Feb., 1999, CISG-online.ch 488. In this case, the court addressed whether a buyer could set off the seller’s claims of damages with, among other claims, a claim that the seller’s failure to deliver art books to an exhibition on time prevented the buyer from receiving more offers. The buyer contended that, “as one of three European publishing houses specializing on the production of such catalogues, buyer would have received at least a third of the commissions.” The court held that such a chance of profit was not recoverable, stating that “buyer’s loss of profit must be considered normal for the buyer’s kind of business and the seller at the time of conclusion of contract, must have been in the position to foresee such a consequence.” Id.However, the court acknowledged that, had the seller been aware of this potential type of loss, such loss would have been recoverable.
73Murray, op. cit., § 121 (”These departures from the reasonable certainty requirement are explicable only on the basis that courts are simply unwilling to permit a breaching party to avoid liability solely on the basis of the plaintiff's difficulty of proving loss where it was clear at the time of formation that such loss would be impossible to prove with reasonable certainty.”).
74UNIDROIT Principles art. 7.4.3(2).
75See United Kingdom, Chaplin v. Hicks, 1911, 2 K.B. p. 786; United States, Kansas City, M & O. Ry. Co. v. Bell, Tx. Ct. of Civil Appeals, 1917, 197 S.W. p. 322; United States, Wachtel v. National Alfalfa Journal Co., Iowa Supreme Court, 1920, 176 N.W. p. 801; see also Restatement (Second) on Contracts § 348(3) (U.S.); Murray, op. cit., § 121; Simont, op. cit., p. BEL-64 (Belgium); Nicholas, op. cit., p. 228.
76See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 22; see, e.g., Switzerland,HG Zurich, 31 May 1996, Arbitral award 2HK 273/95.
77PECL art. 9:501(2)(b) cmt. F. The Comment provides the following illustration: E is appointed sales manager of F’s business under a three-year service contract. She is to be paid a salary and a commission on sales. After 12 months E is wrongfully dismissed, and despite reasonable efforts to find an alternative post she is still out of work when her action for wrongful dismissal is heard six months later. E is entitled to damages not only for her accrued loss of six months salary but also for the remaining 18 months of her contract, due allowance being made for her prospects of finding another job meanwhile. She is also entitled to damages for loss of the commission she probably would have earned. Id., Illustration 8.
78See U.C.C. § 2-708(2) (U.S.) (lost volume seller exception). For more information on how the lost volume seller exception operated under the U.C.C., see Anderson, Damages Under the Uniform Commercial Code, West, 2nd ed., 2003, § 2-708:14.
79United States, Neri v. Retail Marine Corp., New York Court of Appeals, 1972, 285 N.E.2d p. 311(quoting Hawkland, Sales and Bulk Sales, ALI, 1958 ed., pp. 153-54).
80See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 75, ¶ 11. Allowing an aggrieved party to recover lost profits in addition to damages already including lost profits would place that party in a better economic position than if the contract had been performed. See Germany, LG München 6 Apr. 2000, CISG-online.ch 665.
81See Korpela, Article 74 of the United Nations Convention on Contracts for the International Sale of Goods, § 3.3.2, Pace Rev. of the CISG 2004-05 (forthcoming); cf. U.C.C. § 2-710 (U.S.). Under Article 77, “[a] party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach.” CISG art. 77. See generally Honnold, op. cit., pp. 456-64; see also Saidov, Methods of Limiting Damages Under the Vienna Convention for the International Sale of Goods, (Dec. 2001), available at http://cisgw3.law.pace.edu/cisg/biblio/saidov .html.
82See e.g., Arbitration, ICC Arbitration Case No. 7585, 1 Jan., 1992 CISG-online.ch 105; see also Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 18.
83See Germany, LG Landshut, 5 Apr., 1995, CISG-online.ch 193; Austria, Vienna Arbitral Tribunal, 15 Jun. 1994 CISG-online.ch 691; Sweden, Arbitration Institute of the Stockholm Chamber of Commerce Case No. 107/1997, available at http://cisgw3.law.pace.edu/cases/980107s5.html.
84See e.g., United States, Delchi Carrier S.p.A. v. Rotorex Corp., U.S.Court of Appeals (2nd Circuit), 6 Dec. 1996, CISG-online.ch 140.
85See, e.g., Sweden, Arbitration Institute of the Stockholm Chamber of Commerce Case No. 107/1997, available at http://cisgw3.law.pace.edu/cases/980107s5.html; Germany, BGH, 25 Jun.1997, CISG-online.ch 277; see also Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 19; Korpela, op. cit. § 3.3.2; cf. U.C.C. § 2-715(1) (U.S.).
86See United States, Zapata Hermanos Sucesores v. Hearthside Baking Co., U.S.Court of Appeals (7th Circuit), 2002, 13 F.3d pp. 385, 388; Flechtner/Lookofsky, Viva Zapata! American Procedure and CISG Substance in a U.S. Circuit Court of Appeal, Vindobona J. Int’l Com. L. & Arb. p. 93 (2003). Under this view, as a matter of procedural law, the recovery of litigation expenses is to be determined by reference to domestic law or applicable rules for resolving the dispute. See Zapata, op. cit., 313 F.3d p. 388; see also Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 20 (“The compensation of costs of litigation . . . is governed exclusively by the relevant lex fori.”); but cf. Schlechtriem/Schwenzer/Schlechtriem, op. cit., Introduction, p. 7 (“If national courts simply qualify the recoverability of litigation costs and lawyers’ fees as a procedural matter to be decided under their own lex fori, thereby circumventing Article 74 and the analysis of whether such costs are a risk to be borne by any party having to litigate in the U.S., there will soon be more enclaves of domestic law, which for the deciding judge may seem self-evident and which conform to his or her convictions, formed by historic rules and precedents, but which will not be followed in other jurisdictions and, thereby, will cause an erosion of the uniformity achieved.”).
87See generally Felemegas, The Award of Counsel's Fees under Article 74 CISG, in Zapata Hermanos Sucesores v. Hearthside Baking Co. (2001), available at http://www.cisg.law.pace.edu/cisg/biblio/felemegas1.html; Zeller, Interpretation of Article 74 - Zapata Hermanos v. Hearthside Baking - Where Next?, 2004 Nordic J. Com. Law 1, available at http://www.njcl.utu.fi.
88See ¶ 2.5. One commentator has proposed an outcome determinative test to be applied by courts in judging whether an issue is substantive or procedural. See generally Orlandi, Procedural Law Issues and Law Conventions, 5 Uniform L. Rev. p. (2000). Use of an outcome determinative test in the United States has generated much confusion, particularly with respect to the applicability of the Federal Rules of Civil Procedure in situations where it conflicts with state law. As a result, the United States Supreme Court eventually ruled that the outcome determinative test did not determine the validity of the Federal Rules of Civil Procedure in cases where the rules conflicted with state law. See United States, Hanna v. Plumer, op. cit.; see also Chemerinsky, Federal Jurisdiction, Aspen, 4th ed., 2003, p. 321 (noting that “problem with the outcome determinative test is that virtually any rule can determine the outcome of a case”).
89See Carruthers, The Substance and Procedure Distinction in Conflict of Laws: A Continuing Debate in Relation to Damages, 53 Int’l & Comp. L.Q. p. 691 (2004).
90CISG art. 7(2). One commentator notes: There is strong opinion in favor of the view that the label given by domestic law is not conclusive as to whether a particular matter ... falls within the Convention (HONNOLD, Uniform Law, 97). The substance rather than the label or characterization of competing rule of domestic law determines whether it is displaced by the Convention. In determining such questions, the tribunal, it is submitted, should be guided by the provisions of Article 7, and give to the Convention the widest possible application consistent with its aim as a unifier of legal rules governing the relationship between parties to an international sale. BIANCA/BONELL/Khoo, op. cit., art. 4, ¶ 3.3.5.
91Honnold, op. cit., p. 109; see also Schlechtriem/Schwenzer/Schlechtriem, op. cit., art. 7, ¶¶ 27-29.
92Articles 45 and 61 provide equivalent remedies to both buyer and seller, respectively, following a failure of the other party to perform its obligations. See CISG arts. 45, 61; see also Liu, Comparsion of CISG Article 45/61 remedial provisions and counterpart PECL articles 8:101 and 8:102, 2004 Nordic J. Com. L. pp. 1, 2 available at http://www.cisg.law.pace.edu/cisg/text/anno-art-61.html (discussing parallel remedies available to buyer and sellers).
93See Flechtner, Recovering Attorneys' Fees as Damages under the U.N. Sales Convention: A Case Study on the New International Commercial Practice and the Role of Case Law in CISG Jurisprudence, with Comments on Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., 22 Nw. J. Int’l L. & Bus. pp. 121, 151 (2002); Keily, How Does the Cookie Crumble? Legal Costs Under a Uniform Interpretation of the United Nations Convention on Contracts for the International Sale of Goods, 2003 Nordic J. Com. L. 1, § 5.6, available at http://www.njcl.utu.fi; Vanto, Attorneys’ Fees as Damages in International Commercial Litigation, 15 Pace Int’l L. Rev. pp. 203, 221 (2003).
94See Vanto, op. cit., p. 221; see also Flechtner, op. cit., p. 151; Keily, op. cit., § 6.2(b). One commentator has argued that the gap identified by the anomaly would be filled by domestic law in accordance with Article 7(2). See Zeller, op. cit., p. 10. This, however, would not resolve the problem as successful respondent may still not be able to recovery their litigation costs. Another commentator argues that a claimant breaches a duty of loyalty when it files a breach of contract action, but the tribunal determines that the respondent was not in breach. He argues that, in such case, attorneys’ fees and costs may be awarded under the Convention. See Felemegas, op. cit., p. 126. This proposal, however, stems from an overly strained interpretation of the Convention. Neither the language nor the structure of the Convention supports the imposition of liability for attorneys’ fees and costs on the claimant in such circumstance. See Flechtner, op. cit., p. 152. Interpreting Article 74 to provide for the recovery of litigation expenses incurred by a successful claimant also may conflict with otherwise applicable procedural laws and rules that regulate the amount of attorneys’ fees that may be recovered. For example, in a number of countries, awards of attorneys’ fees are calculated pursuant to a fixed fee schedule that may result in an award amounting to less than the actual fee incurred. If Article 74 were interpreted to allow for the recovery of litigation expenses, then these laws and rules presumably would be preempted by the Convention because they would be inconsistent with the principle of full compensation. Such preemption would, however, would result in disuniformity between the claimant and respondent. Due to the anomaly discussed above, a successful respondent would be forced to recover expenses associated with litigation under domestic laws,but because of preemption such laws would not apply to successful claimants. Such an unequal treatment is patently unfair and contrary to the Convention. Of course, one may argue that the ability to recover attorneys’ fees and costs is a substantive matter that is governed by the Convention, but the determination of the amount is a procedural matter that is subject to applicable local law and rules. This distinction is highly artificial and would be contrary to the principle of full compensation and the need for uniformity, particularly because recovery of litigation expenses would vary depending on the applicable procedural law or rules.
95Other policy reasons for awarding attorneys’ fees and costs include deterrence and punishment. See Reinganum/Louis L. Wilde, Settlement, Litigation, and the Allocation of Litigation Costs, 17 RAND J. Econ. p. 557 (1986) (discussing the deterrence function awarding attorneys’ fees serves); Wetter/Priem, Costs and Their Allocation in International Commercial Arbitrations, 2 Am. Rev. Int'l Arb. p. 249, 329 (1991) (arguing that courts awarded costs and fees in order to punish an unsuccessful plaintiff for bringing a false claim or to fine a losing defendant for unjustly refusing the plaintiff's right). The later is clearly not a policy to be furthered by Article 74. Moreover, interpreting the CISG to provide for one-way fee shifting would not serve the goals behind such a regime. One-way fee shifting statutes are typically enacted to encourage law suits in certain areas because it is in the public interest to do so or to equalize the litigation strength between the parties, particularly in suits between governments and private parties of modest means. See generally Krent, Explaining One-Way Fee Shifting, 79 Va. L. Rev. p. 2039 (1993). Claimants in CISG suits do not need one-way fee shifting as incentive to bring suit. Nor do such suits as a routine matter involve claimants of modest means suing governments. Thus, the purposes for construing the CISG as providing for a one-way fee shifting scheme are not compelling.
96See Keily, op. cit., § 6.2(b); see also Bianca/Bonell/Bonell, op. cit., ¶ 2.2.1 (stating that, in interpreting the Convention, “courts are expected to take a much more liberal attitude and to look, wherever appropriate, to the underlying purposes and policies of individual provisions as well as the Convention as a whole”).
97See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 21.
98See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 21 (citing cases).
99See Germany,OLG Munchen, 28 Jan. 1998, CISG-online.ch 339; Germany, LG Bielefeld, 2 Aug., 1996.
100See Germany, BGH, 25 Nov. 1998, CISG-online.ch 353.
101See Anderson, op. cit., § 11.3; Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 21.
102See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 12; Blasé/Höttler, op. cit.; Djakhongir Saidov, Methods of Limiting Damages Under the Vienna Convention on Contracts for the International Sale of Goods, 14 Pace Int’l L. Rev. pp. 307, 328 (2001). But see Germany, LG München, 30 Aug. 2001, CISG-online.ch 668 (holding that damages due to loss of goodwill are not available under Convention). Commentators argue, however, that the reasoning in that case was unsound. See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 12, n.55; see also Waddams, op. cit., p. 535 (noting “no cogent reason why damages should not be given for loss of reputation in a contract case”); McGregor, op. cit., § 38 (same).
103See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 12; but see Saidov, op. cit., pp. 329-32 (arguing for category of non-material damages for injury to business reputation).
104See France, Sté Calzados Magnanni v. SARL Shoes General International, CA Grenoble, 21 Oct. 1999, CISG-online.ch 574; Switzerland, HG Zurich, 10 Feb. 1999, CISG-online.ch 488; Germany, LG Darmstadt, 9 May 2000, CISG-online.ch 560.
105Blasé/Höttler, op. cit.
106See UNIDROIT Principles art. 7.4.2 cmt. 5; PECL art. 9:501(2) and n.4; see also Blasé/Höttler, op. cit. Numerous jurisdictions applying the American Uniform Commercial Code also permit recovery of damages due to loss of goodwill. See Anderson, op. cit., § 11:31.
107Commentators explain: Many businesspeople think of goodwill in terms of a company’s relationship with its customers; that is, a company with good service generates goodwill among its customers. Although this is an accurate interpretation of goodwill, there are several others. For example, under the so-called excess earnings method for estimating business value, a company is worth the sum of the FMV [fair market value] of its tangible assets and its goodwill. In this scenario, goodwill is calculated as the capitalized value of the company’s “above average” earnings or rate of return. In other words, the goodwill is a reflection of the fact that the subject company is earning a return greater than the norm for investments of a similar risk. Thus, goodwill in this instance is the company’s ability to earn above-normal profits. . . . The final interpretation of goodwill relates to a company’s balance sheet. GAAP [Generally Accepted Accounting Principles] does not allow a company to estimate the value of its goodwill and then place this figure on the balance sheet. The historical cost principle makes such an entry impossible under GAAP. However, in the case of a business acquisition, goodwill can be placed on the postacquisition balance sheet, reflecting the excess purchase price paid over the FMV of the identifiable tangible assets. In practice, this excess may be allocated to other intangible assets besides goodwill (e.g., customer base, trade name). GABEHART/BRINKLEY, THE BUSINESS VALUATION BOOK, A.M.A., 2002, pp. 116-17.
108See Anderson, op. cit., § 11:31; Saidov, op. cit., p. 330.
109See HG Zurich 10 Feb. 1999, op. cit.
110See Germany, LG Darmstadt, 9 May 2000, CISG-online.ch 560.
111See ¶¶ 2.1-2.9 (discussing level of proof/certainty requirement); see also Anderson, op. cit., § 11.3 (rejecting any “stringent standard of certainty” for damages due to loss of goodwill) (quoting McCormick, Handbook on the Law of Damages, West, 1935, p. 677; Saidov, op. cit., p. 330. ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ Of course, the aggrieved party will still have to prove, among other things, that such damages were foreseeable. In fact, some have asserted that there exists a stricter foreseeability test for loss of goodwill. See Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 46.
112Waddams, op. cit., p. 628; LG Darmstadt, 9 May 2000, op. cit.; see also Anderson, op. cit., § 11.3 (stating that “lost future profits that are not attributable to an erosion of the customer base do not constitute a loss of goodwill”).
113See LG Darmstadt, 9 May 2000, op. cit. (citing danger of double recovery).
116Cf. United States, Lewis River Golf v. O.M. Scott & Sons, Wash. Supreme Court, 1993, 845 P.2d p. 987 (awarding U.S. $664,340 in damages for breach of contract and U.S. $1,026,800 in damages for loss on subsequent sale of business, which included loss resulting from damage to its reputation or goodwill).
117See generally Farnsworth, op. cit., pp. 216, 225.
118CISG art. 75.
119Cf. Germany, OLG Hamburg, 28 Feb. 1997, CISG-online.ch 261.
120See Schlechtriem, Damages Avoidance of the Contract and Performance Interest under the CISG, Festschrift Apostolous Georgiades, Athens (forthcoming 2006); see also Farnsworth, op. cit., pp. 224- 27. In this situation, the aggrieved party is also entitled to any incidental and consequential damages.
121Schlechtriem, op. cit., p. 4. In calculating the amount of damages owed to the aggrieved party, the loss to the aggrieved party resulting from the breach must be offset by any gains to the aggrieved party resulting from the non-performance of the contract. Professor Schlechtriem notes: If the buyer liquidates the contract by claiming performance interest without avoiding the contract, he has to keep the non-conforming goods, the value of which has to be taken into account in the computation of the buyer’s total damages. If he resells the goods – even at a high discount because of their non- conformity – the proceeds have to be accounted for in the calculation of damages. Likewise, if he claims performance interest because the seller was in delay in delivering the goods, but then tenders, although late, and the buyer has to take delivery, because he cannot avoid (since the delay might not amount to a fundamental breach or an additional period of time was not set), the value of the goods bought as cover, if and insofar as they can be utilized, or the proceeds from reselling them, have to be taken into account. Id., p. 6.
122Schlechtriem/Schwenzer/Stoll/Gruber, op. cit., art. 74, ¶ 32.
123See Farnsworth, op. cit., § 12.9; Treitel, op. cit., §§ 149-50; see also PECL art. 9:502 n.4 (citing numerous cases and authorities).
124UNIDROIT Principles art. 7.4.2.
125Id., cmt. 3.
126PECL: art. 9:502 cmt c.
127Secretariat Commentary, op. cit., art. 70 [draft counterpart to CISG art. 74], ¶ 5.
128For a comparative study of punitive damages, see Gotanda, Punitive Damages: A Comparative Analysis, 42 Colum. J. Transnat’l L. p. 391 (2004). The prohibition on punitive damages does not, in principal, apply to claims for liquidated damages.
129CISG art. 74.
131See Enderlein/Maskow/Knapp, op. cit., p. 544. It should be noted that an award of punitive damages may violate an applicable mandatory rule of law. In such case, the award or the portion of the awarding punitive damages may be invalid or unenforceable. See generally Gotanda, Awarding Punitive Damages in International Commercial Arbitration in the Wake of Mastrobuono v. Shearson Lehman Hutton, Inc., 38 Harv. Int’l L.J. p. 59 (1997).