Q 74-1
Describe the damages concept of the CISG. In particular:
(a) what is the basic principle as to when a party will be entitled to damages?
(b) how is the no-fault rule attenuated?
(a) The CISG is based on the full compensation principle without any fault on the part of the breaching party. Any loss sustained is recoverable.
(b) By way of the foreseeability rule (Art 74, sentence 2 CISG) as well as Article 79 CISG and Article 80 CISG.
Q 74-2
Compare the CISG to PICC 2016:
(a) with regard to the possibility of combining damages with other remedies.
(b) with regard to the exemption rule. Do the PICC 2016 embody the same features of the damages concept as the CISG?
(a) Article 7.4.1 PICC 2016 explicitly mentions the possibility of combining damages with other remedies. In the CISG, this possibility can be found in Articles 45, 61 CISG.
(b) Again, Article 7.4.1 PICC 2016 explicitly mentions the possibility that non-performance may be excused; whereas under the CISG, Article 79 CISG has to be taken into consideration. There is no explicit reference in Article 74 CISG.
Q 74-3
Explain the distinction between the various types of losses as under the UCC.
‘Direct loss’ is the difference in value of the goods, which may be calculated either having regard to a concrete substitute transaction or to the market price. Furthermore, ‘incidental damages’ and ‘consequential damages’ can be distinguished.
Q 74-4
Are there any losses that can only be allocated to one of those categories with difficulty?
Pain and suffering.
Q 74-5
Why, in your opinion, does the CISG refrain from specifying particular types of losses?
Because domestic connotations differ considerably and the CISG aims to build up a neutral concept.
Q 74-6
(a) Read C 74-1. Is it possible to accumulate various types of losses, for example, consequential and incidental damages?
(b) On which principle can the answer to (a) be based?
(c) Based on these principles, do you agree with the reasoning of the first instance as reported in C 74-1?
(a) Yes, different losses may be compensated at the same time.
(b) The full compensation principle.
(c) Yes. The expenses for which damages were denied would have to be borne by Delchi even if the contract had been fully performed.
Q 74-7
(a) What is the decisive criterion for determining whether or not losses are to be compensated?
(b) Can the aggrieved party claim damages for expenditure that would have occurred in any case?
(c) Can the aggrieved party claim damages for ongoing charges, such as renting localities, machinery and electricity bills?
(d) What would be the situation if the buyer had launched a broad advertising campaign for various goods, including, but not limited to, the goods that the seller failed to deliver properly?
(a) Losses may be claimed as incidental damages when the expenditures became futile.
(b) In general, no.
(c) If the aggrieved party receives damages for lost profit, no recovery may be had.
(d) The loss would have to be attributed according to the percentage of defective goods.
Q 74-8
On what do the courts focus when deciding whether or not debt collection costs should be recoverable? See C 74-2 and C 74-3.
In general, costs for debt collection are regarded to be recoverable if they are reasonable.
Q 74-9
Is there any possibility of imposing attorneys’ fees on the other party under Article 74 CISG? See C 74-4.
C 74-4 left the question open as to whether pre-trial attorneys’ fees may be recoverable under Article 74 CISG. However, it seems preferable to also deal with pre-trial attorneys’ fees under the applicable procedural laws.
Q 74-10
Under what circumstances would the Oberster Gerichtshof in C 74-3 have allowed the recovery of costs of involving a debt collection agency?
The costs of involving a debt collection agency may only be recovered if they were exceptionally useful and therefore foreseeable for appropriate legal proceedings.
Q 74-11
What does C 74-4 state on the question of whether the aggrieved party will be compensated for the costs of legal proceedings? In particular:
(a) which law governs the costs of legal proceedings?
(b) for what crucial reason did the court refuse to allow damages for legal expenses?
(c) why is it doubtful, according to C 74-4, that the USA would have signed the CISG if ‘loss’ was intended to include attorneys’ fees?
(a) The lex fori; the applicable procedural law.
(b) There were two main reasons; the first relating to the procedural/substantive divide; the second being that only a winning claimant but not a winning defendant could recover legal costs under Article 74 CISG.
(c) Because it would contradict the ‘American rule’, according to which each party bears its own legal costs.
Q 74-12
Do you see any practical difficulties resulting from extra-judicial legal costs being governed by the CISG?
The same reasoning as developed in C 74-4 regarding judicial legal costs equally applies to extra-judicial legal costs. Again, only the winning claimant but not the winning defendant may recover the costs as damages.
Q 74-13
Are losses caused by currency fluctuations to be compensated? See C 74-5.
Losses caused by currency devaluation are recoverable if the creditor converts the currencies immediately after receipt.
Q 74-14
(a) Define ‘loss of profit’.
(b) Under what circumstances does the differentiation between loss of profit and other damages become relevant?
(c) Why is lost profit usually more uncertain than other damages?
(a) Any deprivation of gain that the aggrieved party would have been able to realise if the contract had been duly performed.
(b) If the aggrieved party claims loss of profit, costs that it would have had to bear if the contract had been duly performed, may not be compensated for. Furthermore, under Article 44 CISG, loss of profit cannot be claimed even if the buyer has a reasonable excuse for failing to give the required notice.
(c) Because it usually accrues in the future and thus has a speculative element.
Q 74-15
(a) Does Article 74 CISG state the standard of proof that the party claiming loss of profit must satisfy?
(b) Compare your answer to (a) with Article 7.4.3 PICC 2016. Are there, in practice, any differences to how the courts determine the level of proof under the CISG?
(a) Article 74 CISG itself does not state a standard of proof. However, it is currently held that the standard of proof can be derived as a general principle under the CISG. The standard thus developed should be one of reasonable certainty.
(b) The standard is the same.
Q 74-16
(a) How did the Court of Appeals calculate Delchi’s loss of profit in C 74-6, and on which rules did it base its calculation?
(b) The Rotorex case in C 74-6 deals, inter alia, with a so-called ‘lost volume sale’. Can you explain what this means?
(a) Claimant’s lost profits were determined by calculating the hypothetical revenues less the hypothetical variable costs that would have been incurred.
(b) The seller would have been able to sell more as it had other customers and sufficient inventory and capacity.
Q 74-17
Article 74 allows for liabilities towards third parties to be compensated. What are the requirements for this compensation, and how are such damages to be limited?
The seller must be liable for breach of contract and the buyer’s liability towards third parties must have been foreseeable.
Q 74-18
(a) Is loss of reputation necessarily reflected in money?
(b) Does the CISG allow for (non-material) loss of goodwill? See C 74-7.
(c) Compare the solution under the CISG with the PICC 2016. Are there any differences?
(a) The financial amount of loss of reputation may be hard to prove.
(b) In C 74-7, compensation for loss of goodwill was denied because it was not possible to calculate the exact losses resulting therefrom. However, this approach seems very Germanic. The CISG does not limit compensation to exactly measurable financial losses.
(c) According to Article 7.4.2(2) and Article 7.4.3(3) PICC 2016, non-pecuniary losses, which include loss of reputation, may be compensated for. Where the exact amount cannot be calculated, the determination is at the discretion of the court.
Q 74-19
(a) Which level of proof did the court in C 74-7 apply for establishing loss of reputation?
(b) Why would it place an insurmountable burden on the aggrieved party if it were required to calculate the damages for loss of reputation exactly?
(a) It required sufficiently substantiated submissions by way of the buyer’s business papers.
(b) Loss of reputation could never be calculated exactly and thus there could never be compensation.
Q 74-20
In some legal systems, damages are awarded for the mere loss of a chance. For example, where a horse, as a result of delays in transport, arrives too late to run in a race, its owner may be able to recover a certain amount of the prize money if it can be established that the horse was the favourite to win.
(a) Does the CISG cover the loss of a chance?
(b) Why does Article 7.4.3(2) PICC 2016 explicitly mention loss of a chance?
(c) If loss of a chance were not included in Article 74 CISG, how could this conflict with other principles underlying the CISG?
(a) It does not explicitly mention the loss of a chance, but there is no reason why it should be excluded.
(b) The PICC were heavily influenced by French legal thinking. Under French law, loss of a chance has long been held recoverable.
(c) It would undermine the principle of full compensation.
Q 74-21
What is the underlying idea of the foreseeability test? See the English decision of Hadley v Baxendale.
Where liability does not depend on fault, the foreseeability operates to limit liability. There are slight differences between the different approaches. Whereas Hadley v Baxendale and the Restatement (Second), Contracts, talk about a ‘probable’ result of the breach and the Chinese Contract Law speaks of the ‘likely loss’, under Article 74 CISG a ‘possible’ consequence is sufficient.
Q 74-22
If one party—after the conclusion of the contract, but before committing the breach of contract—learns of circumstances which indicate a risk of extraordinary loss for the other party, is this relevant to the extent of the first party’s liability? See C 74-8.
No, it is not. It is decisive whether the consequences were foreseeable at the time of the conclusion of the contract.
Q 74-23
(a) What kind of loss was at issue in C 74-8?
(b) How certain must the foreseeability of a loss be, according to C 74-8?
(a) Consequential loss.
(b) An objective standard—that of a reasonable person—is applied.
Q 74-24
Which party bears the burden of proving whether or not the loss was foreseeable?
The claimant bears the burden of proof that it sustained loss. The respondent has to prove that this loss was not foreseeable.
Q 74-25
(a) Is there a way to derogate from Articles 74 to 77 CISG? See C 74-8.
(b) What do we call such clauses, and what is their effect?
(c) What factors are relevant in determining the degree to which such a clause displaces the CISG provisions?
(d) Which law governs the question of whether such a contract clause is valid?
(e) If the limiting clause is found to be invalid, what law will displace it?
(a) Yes, according to Article 6 CISG, the parties may derogate from or vary the effect of any of the CISG’s provisions.
(b) Exclusion or limitation of liability clauses. Depending on the clause, liability is excluded or limited.
(c) This is a question of interpretation.
(d) In general, this is a question of validity, which is governed by domestic law according to Article 4 sent. 2(a) CISG. However, general principles under the CISG can be developed on a comparative basis.
(e) The CISG.
Q 74-26
Which law governs the standard of proof regarding the loss sustained by the aggrieved party?
Traditionally, it is assumed that the lex fori governs the standard of proof as a matter of procedure. However, under a modern approach not only the burden of proof but also the standard of proof is governed by the CISG. The standard under the CISG is that of reasonable certainty.
Q 74-27
a) Which areas regarding agreed sums clauses and limitation of liability clauses are governed by the CISG?
b) Which areas are not governed by the CISG? Why not?
c) Does the CISG provide any yardsticks regarding the questions that are left to the otherwise applicable domestic law? Whereupon can these be based?
a) Most of all, formation, including the principle of freedom of form (Article 11 CISG), and interpretation (Article 8 and 9 CISG).
b) Questions of validity. According to Article 4 sentence 2(a) issues of validity of contract clauses are left to the otherwise applicable domestic law.
c) Domestic rules must be interpreted according to an international standard. This standard can be derived from general principles underlying the CISG (see Article 7(2) CISG), such as the standard of reasonableness.
Article 75 CISG
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