1. Prof. Giorgio F. COLOMBO

2. Lesson n. 12

3.  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.

4.  Principle of full compensation ◦ All categories of damages are covered  Not only «damages», but also «loss of profit» ◦ Not every national law covers the loss of profits ◦ Burden of proof

5.  Restitutory in nature ◦ Damages ≠ enrichment ◦ No better situation  Causal relationship ◦ Direct consequence of the breach  Foreseeability ◦ In light of the circumstances

6.  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

7.  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

8.  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

9.  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

10.  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.

11.  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

12.  «American» approach ◦ Each party has to pay for their legal expenses  «Loser pays» approach  Are lawyers’ fees «damages» under Art. 74 of the CISG?  Remember Art. 7 of the CISG

13.  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

14.  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

15.  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

16.  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

17.  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

18.  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