c. Concrete Calculation After Avoidance

Art. 75 gives the aggrieved party that has avoided the contract the possibility to calculate its damages according to a specific cover purchase it conducted:

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.

The purpose of this provision is to make it easier for the aggrieved party to prove the amount of damages it seeks. Whereas under Art. 74, the actual loss has to be proved, under Art. 75 proof of a certain cover transaction is sufficient. It can be taken from this purpose, that a party can always choose whether to calculate its loss based on Art. 74 or 75 resp. 76 (disputed).

In order to rely on this method of calculation the aggrieved party has to avoid the contract. In this regard, it is in dispute whether avoidance of the contract is also necessary in case the breaching party finally and definitely refuses to perform its contractual obligations. It is sometimes held that in such a situation the breaching party is barred or estopped from relying on the aggrieved party’s failure to avoid the contract as this would constitute contradictory behavior prohibited by Art. 7(1). The opposing view relies on the wording of the provision and furthermore argues that legal certainty requires a declaration of avoidance. Without such declaration of avoidance, so it is submitted, non-performance loss can only be calculated based on Art. 74, where the aggrieved party has to prove the loss it actually incurred. In practice, however, the results will usually be identical.

The cover transaction has to be conducted in a reasonable manner and within a reasonable time after avoidance (or – if one follows the more lenient view described above – after the final and definite refusal to perform). First of all, the cover transaction has to be attributable to the specific contract in question. This requirement is for example lacking where the aggrieved party regularly purchases goods of the kind in question and tries to classify one of its usual supply batches as cover transaction. Furthermore, the cover transaction has to be as close as reasonably possible to the original contract in terms of all conditions, save for the price of course. Thereby, due regard is to be had to the relevant practices and usages of the concerned trade. As regards the price, a cover transaction is reasonable where its costs are as low as reasonably possible. That means that a seller has to conduct a cover sale for the highest price possible and a buyer has to conduct a cover purchase for the lowest price possible. Yet, a party is not reasonably required to go outside its usual market. What is considered a reasonable time after avoidance depends on the circumstances and has to be assed having in mind that this requirement aims at minimizing speculative behavior, e.g. waiting for changes of the market price disadvantageous to the other party. Notably, Art. 75 allows for further damages to be recovered pursuant to Art. 74.

Last modified: Friday, 23 October 2015, 6:05 PM