Prof. Giorgio F. COLOMBO
Lesson n. 12
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Art. 74 CISG
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.
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Principle of full compensation
◦ All categories of damages are covered
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Not only «damages», but also «loss of profit»
◦ Not every national law covers the loss of profits
◦ Burden of proof
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Restitutory in nature
◦ Damages ≠ enrichment
◦ No better situation
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Causal relationship
◦ Direct consequence of the breach
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Foreseeability
◦ In light of the circumstances
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A French Buyer purchases from a German
Seller a machinery to melt aluminium, to be
installed in an aluminium mill in Saudi Arabia
The price for the machinery is 400.000 EUR
After the machinery is delivered and installed
by Seller’s technicians, it break downs
As the machinery is the central part of the
production line, the breakdown results in the
shutting down of the entire plant for one
month
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In the plant 300 workers are employed
Buyer brings legal action against Seller. It
claims 400.000 EUR as the price and
3.000.000 EUR for the plant shutdown
Seller acknowledges the responsability for the
machinery, but it contests the 3M claim, as it
is disproportionate compared to the value of
the machinery
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A Spanish Buyer purchases from a French
Seller 200 bottles of wine
The price for each bottle was 100 EUR
Seller was then unable to deliver the bottles,
as it miscalculated the production and
decided to prioritize other customer
Buyer then asks Seller for 100.000 EUR in
damages
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Upon request for explanation by Seller, Buyer
revealed that the wine was needed for a
special event of one of Buyer’s client, and
Buyer had accepted a penalty of 100,000 EUR
in the contract with that client
Seller refuses to pay
Buyer brings legal action against Seller
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A German Seller sells to a Japanese Buyer 100
cars. The price is 1.000.000 JPY/car
The cars have to be shipped by June 20, 2016
The price is locked in an escrow account, and
payment will occur after the shipment is
completed
The Buyer fails to ship the cars on June 20, so
Seller sends an e-mail to request prompt
payment
The cars are shipped on June 25, 2016.
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On June 24, upon consequences of the
«Brexit», the EUR loses 11% vis-a-vis the JPY
Buyer then complaints that Seller has profited
from the late delivery, and asks for
compensation of this extra profit
Seller refuses to compensate Buyer
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«American» approach
◦ Each party has to pay for their legal expenses
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«Loser pays» approach
Are lawyers’ fees «damages» under Art. 74 of
the CISG?
Remember Art. 7 of the CISG
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Art. 75 CISG
If the contract is avoided and if, in a
reasonable manner and within a reasonable
time after avoidance, the buyer has bought
goods in replacement or the seller has resold
the goods, the party claiming damages may
recover the difference between the contract
price and the price in the substitute
transaction as well as any further damages
recoverable under article 74
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The CISG always tries to protect the efficency
of business transaction and to mitigate
damages
It also wants to prevent «chain reactions»
affecting related transactions
It specifically addresses the possibility for the
parties to procure substitute goods (buyer) or
to resale the goods (seller)
Substitute actions do not prevent the
aggrieved party to ask for further damages
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A Chinese Buyer purchases from a Russian
Seller 15,000 tons of iron ore for the
production of steel
The price of iron ore is 40$/metric ton
The first 5,000 tons are delivered without any
significant problem
After the first delivery, the Seller has
problems in securing the supply of materials
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Buyer then looks for a different supplier and
finds a Canadian firm able to provide the
missing 10,000 tons
However since the Canadian firm has no other
supplies available, they ask for a price of
100$/metric ton
Buyer accepts to pay the price and then bring
legal action against the Seller
Seller complains that the price is
unreasonably high
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A French Buyer purchases from an Italian
Seller 10,000 tyres
The price for each item is 10 EUR
Before the delivery is made, Buyer informs
Seller that the delivery has become
unnecessary
While Buyer and Seller are negotiating a
solution to the problem, Buyer finds the
occasion to resell the tyres to another client
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The price for this resale is set at 7 EUR/item
Seller accepts this second deal and asks Buyer
to reimburse the difference
Buyer refuses to do so, as it maintains that
Seller could have found a better deal
Seller brings legal action against Buyer