b. Concrete Calculation

aa. Recoverable Losses

The starting point of the calculation of the amount of damages that is recoverable is the first sentence of Art. 74. It reads:

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.

In line with the underlying principle of full compensation, generally a wide understanding is applied to the notion of loss. Losses in this sense include i.a. reduced value of non-conforming goods, lost resale profits, loss of good will, or consequential damages like those resulting from using non-conforming goods as contemplated by the contract, e.g. processing them.

The breaching party is also liable for incidental losses incurred by the other party as a result of the latter party’s reasonable reliance on the proper performance of the contract. Examples include costs resulting from an unjustified rejection of the goods, i.e. costs of the delivery attempt or storage costs until the matter is resolved in a final and binding way, or costs of import permits or admission procedures incurred by the buyer in case of non-performance by the seller.

Whether a promisee that has difficulties to prove or to quantify its damages can claim the profits the promisor made as comsequence of the latter's breach of contract is in dispute. On the one hand it is argued that there is no basis in the CISG for such disgrogement of profits. Particularly, Art. 74 is expressly limited to losses sufferd by the aggrieved party. On the other hand, the flexibility of the CISG's calculation of damages and the importance of the performance principle are stressed. This principle, so it is submitted, requires that a breach of contract may not pay off for the breaching party. Furthermore, contractual requirements to which a monetary value cannot be attributed, like ethical requirements, would be left without protection - at least below the threshold of a fundamental brach of contract.

Legal authorities are also split on the question of recovery of attorneys’ fees. The argument originally submitted by Judge Posner, that the convention is about contracts, not about procedure, does not really help to solve this problem since the question what is procedure has to be answered autonomously from the perspective of the CISG. From this perspective the prevailing opinion distinguishes between litigation costs incurred during court or arbitral proceedings on the one hand and extra-judicial costs of asserting legal rights on the other hand. The former are not recoverable under the CISG since they are not necessarily caused by a breach of contract. Particularly, the litigation costs incurred by a defendant as a result of a futile lawsuit against it are not caused by any breach of the unsuccessful claimant. To avoid the unwanted consequence that an unsuccessful defendant could recover its litigation costs while an unsuccessful claimant could not, it is generally held that litigation costs cannot be claimed under Art. 74 but merely under the lex fori. Extra judicial costs of asserting legal rights on the other hand can be recovered under Art. 74 to the extent they are caused by the breach of contract of the opposing party. This is also confirmed by Art. 47(2)(2), 63(2)(2) that provide that the costs for setting an additional period of time can be recovered.

 

bb. Foreseeability

The amount of damages that can be recovered is, however, not without limit. The second sentence of Art. 74 reads:

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.

This so called foreseeability requirement allows parties to evaluate their liability risk at the time they decide whether or not to conclude the sales contract. To ensure legal certainty, the standard is an objective one: A possible consequence of the breach of contract is what can be foreseen by a reasonable third person in the shoes of the breaching party in light of the specific circumstances. The usual course of events is always foreseeable. Unusual courses of events can be foreseeable if the circumstances provide so, e.g. because the buyer informs the seller that the contract with the buyer’s customer contains a particularly substantial penalty clause for delayed delivery.

It is important to note that not the breach itself has to be foreseeable but only the loss incurred as consequence of the breach of contract. It is of course not required that the exact amount of loss is foreseeable rather it suffices that the obligor could foresee the nature and the approximate amount of loss.

Examples of foreseeable losses include the reduced value of non-conforming goods, costs for repairing the goods, consequential losses like lost profits (at least when the buyer is an intermediary seller) or loss of good will (when the buyer is operating on a particularly sensitive market).

As can be derived already from the wording of Art. 74-76 foreseeability is only required when calculating damages pursuant to Art. 74 and is not required by way of a principle underlying the calculation of damages in general when resorting to alternative methods of calculation (disputed).

Last modified: Friday, 23 October 2015, 6:02 PM