HOW DOES THE COOKIE CRUMBLE? LEGAL COSTS UNDER A UNIFORM INTERPRETATION OF THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS

Abstract

A family owned Mexican company, Zapata Hermanos Sucesores, S.A. ("Zapata"), sold approximately US$950,000 worth of cookie tins over a period of four years to the Maurice Lenell Cooky Company ("Lenell"), an American company that produced baked goods. Lenell failed to pay Zapata for the cookie tins so Zapata sought legal advice and instituted legal proceedings against Lenell for breach of contract in the Federal District Court of Illinios.2 The cookie tin sale contracts were governed by the United Nations Convention on Contracts for the International Sale of Goods ("CISG"). Zapata succeeded in its Federal District Court claim and, as part of the Court's order, was awarded US$550,000 as foreseeable loss under Article 74 of the CISG, being the amount of legal fees incurred by Zapata in bringing proceedings against Lenell. On appeal to the Federal Appellate Court, however, the award of legal fees was overturned.3 The parties now find themselves contesting a leave application to appeal to the Supreme Court of the United States of America in a much anticipated debate over who should pay the lawyers.4 The decisions of the Federal District Court and Federal Appellate Court, and now the application to appeal before the Supreme Court, are significant for two reasons. First, the decisions consider whether legal costs are payable by a losing party as damages for loss under Article 74 of the CISG. For reasons that will be outlined below, this issue takes on even greater significance for parties litigating under the CISG in the United States. But the second and greater significance of these decisions is not what the courts decide but how they decide it. When interpreting the CISG, the means must justify the end. The CISG is a uniform contract law adopted by 62 countries that together account for over two-thirds of all world trade. The purpose of the CISG was to harmonise contract laws and provide greater certainty to merchants trading in goods across state borders and thereby encourage international trade. However, the harmonisation of the international sale of goods law in the CISG also demands a uniform application of its principles by tribunals around the world. Recognising this need, Article 7 of the CISG guides merchants, lawyers and tribunals on how to promote a uniform interpretation and application of the CISG. This paper will critically consider the treatment accorded to Article 74 of the CISG by both the Federal District Court and the Federal Appellate Court in light of the principles of interpretation set out in Article 7. This paper concludes that the end decision of the Federal District Court was wrong, although the means adopted by the court did in part respect the mandate of Article 7. The end decision of the Federal Appeal Court, on the other hand, was correct. However, the path taken by the Federal Appeal Court in reaching its decision did not accord with the requirements of Article 7. The failure of the Federal Appeal Court to pay due regard to Article 7 represents a detrimental precedent to the future application of the CISG and ultimately undermines uniformity and the promotion of international trade. In this context, the application to appeal to the Supreme Court of the United States of America is a momentous opportunity for some of the world's most respected jurists to make potentially the most significant jurisprudential contribution in the short history of the CISG. In addition, the application to appeal to the Supreme Court has also given rise to interesting developments for the future interpretation and stewardship of the CISG. This paper will also consider these developments. Part two of this paper briefly introduces the CISG and, specifically, Articles 7 and 74. Part three looks at the facts of the Zapata case and various approaches in domestic legal systems to the payment of legal fees. The decisions of the Federal District Court and the Federal Appeal Court are examined in parts four and five respectively and part six presents the authors view on whether an interpretation of loss under Article 74 in accordance with Article 7 includes legal fees. Finally, part seven considers the significance of the appeal to the Supreme Court.