THE RECOVERY OF LOST PROFITS UNDER ARTICLE 74 OF THE U.N. CONVENTION ON THE INTERNATIONAL SALE OF GOODS

An analysis of court and arbitral decisions to determine possible causes of nonconformity and to identify solutions that would increase the consistency of awards

Abstract

The ability to obtain damages for losses suffered in the course of trade is a critical and necessary requirement for parties to be willing to engage in commerce. Without legal recourse for losses as a consequence of other parties’ nonperformance, the incentive to participate in trade is greatly diminished. International commerce is hampered to the extent that parties from different countries risk trading under foreign laws that might not offer comparable protection. The availability of relief for a breach of contract accords with economic efficiency in a free enterprise economy.1 The U.N. Convention on the International Sale of Goods (CISG) was created in 1980 to codify and harmonize a legal framework aimed at encouraging and facilitating international trade. An important feature of the CISG is Article 74, which provides a guide for the recovery of foreseeable losses, including lost profits, as a consequence of a party’s breach of contract.2 This right to obtain damages is a primary mechanism of the CISG remedial scheme.3 This paper will examine the recovery of lost profits under Article 74 CISG and discuss the practical issues that tribunals and parties face when evaluating a lost profit claim. Decisions concerning the recovery of lost profits under the CISG have been criticized as lacking uniformity due to problems in interpreting Article 74 CISG, differences in domestic evidentiary standards, use or nonuse of general principles of international law, arbitrator discretion, and difficulties in the actual calculation of lost profits.4 A discussion of these issues will attempt to shed light on the problems and determine if there is a lack of uniformity, and if so, what steps can be taken to increase the consistency of awards.