Damages for Breach of Contract on the International Level (Term Paper Sample)

DAMAGES FOR BREACH OF CONTRACT ON THE INTERNATIONAL LEVEL: CONVENTIONAL AND ONLINE CONTRACTS.
As globalization increases, there has been a resultant rise in cross border trade not only in the United Kingdom but also in other world jurisdictions. As a result, international legal instruments have been developed to harmonize and unify rules that control cross border business. These attempts to come up with a common law that takes care of international trade have been justified on myriad advantages that would diffuse the risks and uncertainties that come with international trade. Such instruments have substantial bearing on the award of damages in instances of breach of contract especially where the contracting parties are from different countries. As such, their provisions on damages ought to be given a special attention.
This chapter will analyze the remedy of damages for breach of cross border contracts, concluded conventionally and electronically. In particular, the chapter will focus on the provisions relating to damages as detailed in the United Nations Convention on Contracts for the International Sale of Goods (CISG), UNIDROIT Principles, and Principles of European Contract Law (PECL). A short introduction of each of the instruments will be followed by a detailed analysis of the fundamental provisions for damages once a contract has been breached. Consequently, circumstances that limit the reliance on a claim for damages will also be critically analyzed as provided for in the context of these instruments.
The United Nations Convention for the International Sale of Goods (CISG)
The CISG is a global convention that was implemented to regulate commercial contracts for the sale of merchandise between transnational countries. In practice, the provisions of the Convention are applicable when the global rules of international law and practices lead to the adoption of the legislation of a contracting state.The provisions of this Convention are founded on the concept of unitary breach of contract which has its origins from English Common Law.
In the event a state contravenes their contractual obligations, the CISG explicitly provides that the injured party is compensated. Article 82 stipulates that damages could be in the form of monetary compensation, ‘a sum equal to the loss, including loss of profit resulting from the breach.’ This ensures that the claimants’ performance interests and bargaining rights are protected. Thereafter, the aggrieved party enjoys the same monetary position of her counterparts before the breach had occurred. It, therefore, implies that an award for damages under CISG is aimed at compensating the party that suffered loss or protecting the expectation of interest. However, under Articles 75 or 76 the party entitled to damages cannot recover more than he would have gained had the contract been honored. Unlike domestic civil systems, the obligation to get damages under English Law is not tied to the parties fault. The CISG establishes a concept of objective responsibility independent of the fault of the breaching party.In order to prove breach of contract, the parties need not prove fault or negligence but rather the fact that the breach has occurred. The burden of proving causation of the breach and the loss suffered rests solely on the claimant though the CISG does not expressly give detailed rules on the issue. This leaves the question of whether the issue of proof is a step by step matter that should be determined in line with the domestic laws of the country within which the dispute has occurred.
Article 45 also expressly states that if a seller does not carry out his contractual obligations, the buyer is obligated to recover damages. In line with the provisions of this article, the damages are guaranteed regardless of whether the breach can be termed as fundamental within the meaning under Article 25.If a major breach occurs, the injured party may terminate the contract except if the party in breach did not anticipate such circumstances. If the breach is severe and the goods in question cannot be used or even sold at a loss, then termination is justified.However, if the defecting party can rectify the breach within reasonable time, then the claimant cannot claim fundamental breach.Moreover, Article 75 points out that if a contract is avoided, a substitute transaction may be adopted provided this is done within a reasonable time after the avoidance.The party in breach is, however, excluded from liability if he can establish that he failed to carry out his obligations either due to an obstacle beyond his control that he could not have been visible when the contract was being concluded, or the failure of a third party who was involved in the implementation of the contract.
While there are no express provisions on how damages are calculated, the CISG uses both an objective and a subjective test mode. This means that liability is based on what the breaching party foresaw in the first place and what that party ought to have foreseen in the second place. The recovered damages must not be more than the loss foreseen by the country in breach when the contract is ended.
In the Clothing case the arbitrator in making his decision relied on Article 74 of the CISG. In line with this provision, the arbitrator concluded that the purchaser was entitled to recover damages resulting from lost profits, indirect loss of profits, and any other expenses dealing with the result of the breach. The facts of the case were that, the buyer terminated the contract in line with the provisions of Article 72(1). His grounds for termination were that he had received notification that the seller would not be able to make a timely delivery of the purchased goods. The damages were foreseeable hence the seller’s actions amounted to a major breach.
Additionally, according to Article 76 of the CISG, damages can be calculated in a concrete manner. This provision is applicable in instances where a buyer purchases goods in replacement at a greater cost than the contract price. The convention stipulates that the purchaser may recover the amount obtained from the difference between the two prices. Similarly, if the party claiming damages does not follow the contract after obtaining the merchandise, the other party is entitled to the minimum compensation obtained through abstract calculation.This assures the buyer of general minimum damages without any obligation to prove.
UNIDROIT Principles of International Commercial Contracts
The UNIDROIT principles were implemented to help understand and interpret the provisions of the CISG, as well as, guide the courts in resolving matters that are not explicitly provided for in the CISG convention. This goes to show that these principles depart from the CISG to include a broader scope of commercial contracts. Moreover, the UNIDROIT is not intended for adoption as uniform law but rather as an interpretation of international commercial law contracts. The most notable difference between the UNIDROIT and the CISG is that the principles have a provision that allows for the recovery of damages that come as a result of individual injury, or death.
The rules provide for the innocent party being entitled to damages only for harm as a result of a breach of contract provided that a certain degree of certainty can be established. Moreover, he may also recover damages for the loss of chance in according to the probability of its occurrence. Under Article 7.4.2, the damages will be aimed at compensating a party for the harm that was caused by the breach and any gains that were deprived. Further, under article 3.2.15 a claim for damages may be based on restitution where a party may recover any supplies that were made to the other party. If the arbitrator concludes that the injured party cannot determine damages with adequate certainty, the rules provide that the arbitration tribunal has the choice to set an appropriate amount.
In the event where a claimant terminates a contract and makes a replacement contract within reasonable time, he is allowed to get the difference between the price paid in transaction price and the contract price. In the instance that the claimant does not make a replacement transaction, then he is entitled to recover the difference if there is in place current price for performance.This provision is similar to Article 75 of the CISG.
When calculating damages, the principles provide that the assessment be made in the currency that the loss was met or in that which the monetary obligation was expressed. The application of this provision was illustrated in the ICC Rice Case. The panel in making its determination applied Article 7.4.6 of the principles to determine the amount owed to the claimant as the outcome of the respondent’s breach of a contract involving the sale of rice. The tribunal held that, according to the provisions of Article 7.4.6, the claimant was entitled to the amount of the difference between the contract price and the relevant market price. The market price in this instance is equivalent to the current rice prices at the place where the delivery should have been made.
Principles of European Contract Law (PECL)
Similar to the UNIDROIT Principles, the Principles of European Contract Law (PECL) are also rules of international law drafted and promulgated to regulate international commercial contracts. The drafters of PECL felt the need to have in place a Union-wide system of law that would amalgamate particular types of contract in the rapidly growing trade in the international arena. The objective of the damages rules in the PECL, like the CISG and the UNIDROIT Principles, is to ensure that the claimant’s performance interests are protected and to compensate the innocent party for any suffered due to the defendant’s breach of contract....