John Y. Gotanda Villanova University School of Law Calculating Damages Under the United Nations Convention on the International Sale of Goods John Y. Gotanda Villanova University School of Law

List of States that have adopted the CISG as of June 2009

CISG Damages Presentation Overview of the damages and interest provisions CISG damages provisions in practice: Who is winning and what are they winning? Controversial issues Attorneys’ Fees & Costs Certainty of Loss Interest

CISG Damages Provisions: Articles 74 - 77 Article 74 - Basic Damages Provision for Breach of Contract Measurement: “damages for breach of contract … consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach.”

Types of Damages Direct loss Incidental loss Consequential loss

Offsetting Gains Damages also must not place the aggrieved party in a better position than it would have enjoyed if the contract had been properly performed. 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 by any gains to the aggrieved party resulting from the non-performance of the contract.

General Measure of Damages under Article 74 Damages = Direct + Incidental + Consequential Gains to Aggrieved Loss Loss Loss Party from Breach

Foreseeability Article 74: “Damages for breach of contract . . . 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 light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach.”

Articles 75 and 76 Article 75 Applicability: Avoidance + Substitute Transaction Damages = contract price - the price in the substitute transaction + “any further damages recoverable under article 74”

Articles 75 and 76 cont. Article 76 Applicability: Avoidance; No Substitute Transaction Abstract Calculation Damages = price fixed by the contract - the current price at the time of avoidance + “any further damages recoverable under article 74”

Article 77 An aggrieved party must take appropriate measures to mitigate its loss. Failure to do so may preclude that party from recovering damages for loss that it could have avoided. Scope: “Reasonable” Mitigation Efforts Reasonable Expenses Recoverable

Article 78 - Interest “If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.”

Who’s Winning?: CISG CEITAC Cases CISG Damages Provisions in Practice Who’s Winning?: CISG CEITAC Cases 13

Who’s Winning?: Investment Arbitrations - Franck Study S. Franck, Empirically Evaluating Claims About Investment Treaty Arbitration, 80 N.C. L. Rev. 1 (2007).   14

Who’s Winning?: Investment Arbitrations - GFA Study Global Financial Analytics, Investment Arbitration Update (2007),  http://www.gfa-llc.com/images/Investment_Arbitration_Update_12-31-07.pdf  15

Who’s Winning?: A Comparison 16

What Are They Winning?: CISG CEITAC Cases 17

What Are They Winning?: Investment Arbitrations - Franck Study S. Franck, Empirically Evaluating Claims About Investment Treaty Arbitration, 80 N.C. L. Rev. 1 (2007).   18

What Are They Winning?: Investment Arbitrations - GFA Study Global Financial Analytics, Investment Arbitration Update (2007),  http://www.gfa-llc.com/images/Investment_Arbitration_Update_12-31-07.pdf  19

What Are They Winning?: A Comparison (Percentage of Recovery to Claims) 20

Controversial Areas Attorneys’ Fees & Costs Certainty of Loss Interest

Attorneys’ Fees & Costs The Controversy Zapata Hermanos Sucesores v. Hearthside Baking Company: U.S. Court of Appeals (Judge Posner) rules litigation costs are procedural matters outside the scope of the CISG’s substantive damages provisions Courts outside the U.S. have allowed recovery under article 74

Attorneys’ Fees and Costs Controversy View 1: Recovery of litigation costs are governed by domestic (procedural) law, not the CISG View 2: Litigation costs are recoverable under CISG Article 74

Certainty of Loss Controversy View 1: Certainty of loss is associated with level of proof and is governed by domestic (procedural) law View 2: Certainty of loss is a matter governed by the CISG

Interest Controversy View 1: The calculation of interest, particularly the interest rate, is governed by domestic law View 2: The calculation of interest is a matter governed by the CISG

The Interpretative Approach Discard the Substance/Procedure Distinction Counterproductive Artificial Allows for application of familiar law Interpretative Approach Examine text of article Determine if issue was left to domestic law Apply analogical application Apply domestic law

Attorneys’ Fees & Costs Applying an Interpretative Approach Article 74 text is silent on issue No evidence of exclusion Analogy based on Article 74: An aggrieved party is entitled to recover litigation expenses because of the CISG’s principle of full compensation. Analogy based on Articles 45 and 61: An aggrieved party cannot recover litigation expenses under Article 74 because allowing recovery would be contrary to the CISG’s principle of equality between buyers and sellers. Under Article 74, an aggrieved party cannot recover legal expenses associated with litigation.

Certainty of Loss Applying Interpretative Approach Article 74 text is silent on issue No evidence of exclusion CISG provides damages consist of “a sum equal to the loss suffered, including lost profit…” CISG addresses foreseeability CISG provides requisite standard The aggrieved party has the burden to prove, with reasonable certainty, that it suffered damages.

Interest Rate Applying an Interpretative Approach Article 78 text is silent on issue Evidence inconclusive on exclusion Analogous Provisions Article 74 Article 76 Reasonableness Standard Interest should accrue at a rate that compensates a party for the loss of the use of money but does not provide a windfall

Proposed Approach Interest should accrue at a savings rate commonly used in the country of the currency in which payment is to be made Places claimant in position it would have been in had it invested the money Function of Article 78 would be similar to Article 76 Provides reasonable compensation for loss of the use of money while avoiding a windfall Provides a uniform, easily applied approach, creating certainty

Applying CISG’s Economic Remedies Provisions Discard Substance/Procedure Distinction Apply an Interpretative Approach

John Y. Gotanda Villanova University School of Law 299 North Spring Mill Rd., Villanova, PA, 19085, USA; Tel.:+1.610.525.3716; Email: gotanda@law.villanova.edu