1. 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

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

3. 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

4. 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.”

5. Types of Damages
Direct loss
Incidental loss
Consequential loss

6. 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.

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

8. 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.”

9. 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”

10. 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”

11. 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

12. 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.”

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

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

15. Who’s Winning?: Investment Arbitrations - GFA Study
Global Financial Analytics, Investment Arbitration Update (2007),   15

16. Who’s Winning?: A Comparison16

17. What Are They Winning?: CISG CEITAC Cases17

18. 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

19. What Are They Winning?: Investment Arbitrations - GFA Study
Global Financial Analytics, Investment Arbitration Update (2007),   19

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

21. Controversial Areas
Attorneys’ Fees & Costs
Certainty of Loss
Interest

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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.

28. 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.

29. 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

30. 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

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

32. John Y. Gotanda Villanova University School of Law
299 North Spring Mill Rd., Villanova, PA, 19085, USA; Tel.: ;