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Timestamp: 2013-05-23 23:38:12
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Matched Legal Cases: ['Art 7', 'Art 7', 'Art 74', 'Art 74', 'Art 7', 'Art 7', 'Art 7', 'art 1', 'Art 38', 'art 17', 'art 1', 'art 1']

Djakhongir Saidov Go to Database Directory || Go to Bibliography Reproduced with permission of the author and 22 Journal of Contract Law (March 2006) 1-76 Standards of Proving Loss and Determining the Amount of Damages
2.6 Determining amount of damages on the basis of the court's or tribunal's discretion not based on any legal principles
[V] Do the CISG and PECL Govern the Matters Relating to Proving Losses and Contain Relevant General Principles?
The issues of standards of proving loss and determining the amount of damages in the context of the
international instruments do not seem to have been given sufficient consideration in legal literature. The
importance of these issues cannot be underestimated as they have a direct impact on the exercise of the injured
party's right to damages. In this regard, this article seeks to examine some of the problems relating to standards
of proving loss and determining the amount of damages in the context of the UNIDROIT Principles of
International Commercial Contracts,[2] the Convention on Contracts for the International Sale of Goods
(CISG) [3] and the Principles of European Contract Law [page 2] (PECL).[4] Analysis of this problem will
reveal a variety of approaches that have been taken to proving losses and determining the amount of damages
in international commercial practice. [page 3]
The three instruments make it clear that to have the right to claim damages an innocent party must prove that
he or she has suffered loss. Proving loss is therefore a necessary prerequisite for the right to claim damages.
Many legal systems impose a requirement which establishes a degree of precision or certainty with which loss
must be proved.[5] This requirement is often regarded as a method of limiting damages since compensation
will generally be awarded only to the extent that losses have been proved with the required degree of certainty.
In other words, although the injured party is entitled to full compensation for the loss suffered, he or she
nevertheless will not be allowed to claim damages for the losses which he or she has failed to substantiate with
the required degree of precision.[6] Of the three international instruments only the UNIDROIT Principles
contain a provision relating to the degree of certainty with which loss must be proved. According to Art 7.4.3,
'[c]ompensation is due only for harm, including future harm, that is established with a reasonable degree of
certainty'. In addition, the UNIDROIT Principles contain two other mechanisms dealing with uncertainty [page
4] in proving losses. Article 7.4.3(2) provides that '[c]ompensation may be due for the loss of a chance in
proportion to the probability of its occurrence'. And if 'the amount of damages cannot be established with a
sufficient degree of certainty, the assessment is at the discretion of the court'.[7] The first part of this article
will examine these provisions of the UNIDROIT Principles. Since the CISG and PECL do not contain similar
provisions, the remaining part of this article will deal with the question of how the issues of proving losses and
determining the amount of damages should be dealt with under these two instruments. [page 5]
[I] THE STANDARD OF 'REASONABLE CERTAINTY 1. Justification of the Existence of the Standard
The UNIDROIT Principles require that losses be proved with a 'reasonable degree of certainty' [8] (and it will
be argued that the same standard can also be derived from the CISG and the PECL). How can this standard
be justified? It is suggested that the existence of this standard can be justified from the standpoint of the notion
of reasonableness. When we refer to the issue of standard of proving loss what we mean is how much needs
to be shown and what degree of precision should flow from the evidence presented to prove the alleged loss.
Many legal systems recognise that absolute certainty in evidence relating to the loss cannot be required
because the nature of some types of loss will often prevent the injured party from presenting evidence which
would prove the alleged losses with absolute certainty.[9] Therefore, the standard is based on the idea that
the claimant must prove his loss only with such a degree of precision which can be reasonably expected of him
taking into account the nature of the alleged loss and other relevant circumstances of the case. If reasonableness is a general principle [page 6] underlying the Principles, it could even be argued that the standard of
'reasonable certainty' is necessitated by the general principle of 'reasonableness'. 2. What Must Be Proved -- Fact or Amount of Loss?
When we say that loss must be proved with a reasonable degree of certainty, do we refer to the fact and/or
amount of loss? The standard itself does not provide an answer to this question. This issue therefore requires
[page 7] some analysis.
The first problem that needs to be addressed is whether a distinction between the fact and amount of a loss
needs to be drawn at all. Some authors, for example, have stated that this distinction is 'meaningless for nearly
all practical purposes'.[10] The reason for this statement has been explained in the following terms:[11]
It appears that 'the fact of loss' and 'the amount of loss' are in effect different terms for the same thing, since
proof of the amount of loss with a reasonable degree of certainty conclusively establishes the fact of loss, and,
conversely, the only way to prove the fact of loss would seem to be by proving with reasonable degree of
certainty at least a minimum amount of loss. It thus [page 8] would seem that an attempted distinction between
these two is of no real significance.
The argument is a strong one. Indeed, in many cases, proving the fact of loss will necessarily involve proving
its amount, and proving the amount will naturally establish the fact of loss. However, it seems that this will not
always be the case. It is possible for the claimant to establish the fact of loss and yet to fail to prove the amount
of the loss. For example, in case of loss of reputation it may be virtually impossible to establish the amount with
a reasonable degree of certainty and yet a court/tribunal may be satisfied that some damage has been done
to one's commercial reputation. Similarly, in case of interruption of a newly established business it may be
impossible to establish the amount of the claimant's lost profits with reasonable certainty.[12] At the same time,
however, a court/tribunal may be persuaded that taking into account the economic conditions surrounding a
new business and the claimant's past commercial experience the claimant will have suffered lost profits.
Furthermore, such a situation may occur not only in the context of loss of reputation and lost profits, but also
[page 9] in the context of the costs and expenditures that are incurred as a result of the breach. As is apparent
from one CISG case, although a party failed to prove the amount of the expenses that he had incurred due to
the breach, the court believed that this party suffered some loss.[13] Similarly, in a case where the
UNIDROIT Principles have been relied upon, the panel stated that '[i]n many of the Claims the Claimants'
documentary or other evidence established that an alleged loss had, in fact, occurred. But the evidence was
insufficient in those Claims to demonstrate with a reasonable degree of certainty the amount of the loss'.[14]
Therefore, it is suggested that it is necessary to make a distinction between the fact and amount of loss. [page
Since it is necessary to make such a distinction, is it the fact and/or amount of the loss that needs to be proved
with reasonable certainty? It may be helpful to note that this question has been extensively dealt with in the
decisions of the US courts. The conclusion of the examinations of this practice (although with some variations)
appears to be that the US courts have not rigidly required that the reasonable certainty standard apply both
to the fact and amount of loss. In some cases, the standard has been regarded as applicable to both aspects
of loss whereas in some other cases it has sufficed to prove only the fact of loss with reasonable certainty.[15] [page 11] Should the courts/tribunals applying the international instruments take a similar approach? It is suggested that
they should not. It seems that the US courts have taken this view in order to prevent occurrence of a situation
where the claimant has failed to prove the amount of damages with reasonable certainty but where the courts
have been satisfied that he or she has suffered some loss. In this case, strict insistence on applicability of the
'reasonable certainty' requirement to both fact and amount of loss would leave the claimant with no
compensation. By contrast, besides the 'reasonable certainty' requirement the UNIDROIT Principles contain
additional mechanisms to prevent an 'all-or-nothing' result in the award of damages (and it will be argued that
the CISG and PECL contain analogous standards). If, for example, a claimant cannot prove loss of profit, he
or she can claim damages for loss of a chance; and even if he or she cannot prove loss of a chance, the
court/tribunal may still award some compensation by means of exercising its discretion. Therefore, there is
sufficient protection in place to prevent the claimant from being left with no compensation where the
judges/arbitrators [page 12] are satisfied that he or she has suffered some loss. Since there are mechanisms
to deal with this problem, it seems wholly unnecessary to use the 'reasonable certainty' standard in a flexible
manner, that is, in some cases to apply it to both fact and amount of loss, while in others, only to the fact of
loss. Moreover, such a flexible approach to 'reasonable certainty' is likely to lead to inconsistency in
application of the standard. This in turn will create an environment of uncertainty surrounding this standard
which is highly undesirable having regard for the interests of the international business community in certainty
and predictability and for the purpose of the UNIDROIT Principles (as well as of CISG and PECL) to achieve
uniformity in their application.[16] Thus, it is submitted that the standard of reasonable certainty should be
strictly applied to both the fact and amount of loss. If the amount of the loss cannot be proved with this degree
of certainty, the claimant will have to rely on other mechanisms available to receive some compensation. [page
Like any other standard based on the notion of reasonableness, this rule is not capable of being precisely
defined. Professor Corbin has highlighted the problem of defining this standard in the following terms:[17]
"What is a 'reasonable estimate' and what is 'reasonable certainty'? No answer that is even 'reasonably' definite
can be made to such questions, in the abstract and unrelated to a specific set of facts ... [I]n any living case,
the 'reasonableness' of anything must be determined by one or more specific living men whose judgment must
necessarily depend upon their mental power, their own specific education and life experience, and their
emotional characteristics and background.
"Thus, the meaning of this standard can only be determined in relation to a particular set of facts. The meaning
of the notion of reasonableness is inseparable from a concrete situation. In abstract, it is impossible to give any
precise [page 14] definition of the standard save for what has already been said. It is also important to bear
in mind, as Professor Corbin reminds us, that the meaning and application of the standard in respect of
particular facts will depend on personal characteristics of the one applying the rule. In the international context,
one could expect varying approaches to interpretation of the notion of reasonableness because
judges/arbitrators will be representatives not only of different legal systems, but, even more importantly, of
different national, cultural, and religious backgrounds. However, it is suggested that since in this work we are
dealing with a very narrow aspect of the notion of reasonableness in the context of proving commercial losses,
it is possible to discuss general factors, considerations, and types of evidence which may influence a decision
as to what is 'reasonably certain'."
The UNIDROIT Principles refer to the applicability of the 'reasonable certainty' standard to a 'harm'.[18]
Since no particular type of harm or loss is specified, it follows that any type of loss that is recoverable under
the UNIDROIT Principles [page 15] must be proved with 'reasonable certainty'. If 'reasonable certainty' is
also a standard under the CISG and PECL, the same should be the case under these two instruments. There
seems to be no reason why this standard should not equally apply to all types of loss.[19] 3.3 Proving different types of loss with 'reasonable certainty'
How much and what type of evidence must be presented to prove a loss with reasonable certainty? There can
be no precise formula which would provide the answer to this question. The most that can be said is that the
amount and types of evidence that should be required from the claimant are those which could be reasonably
expected, taking into account the nature [page 16] of the alleged loss and all relevant circumstances of the
case. This section will examine the peculiarities of and factors to be taken into account in proving different
kinds of loss and give some examples of the types of evidence that can be presented to prove losses.
The UNIDROIT Principles (as well as CISG and PECL) [20] recognise the division on the 'loss suffered'
(damnum emergens) and 'lost profit' (lucrum cessans) [21] and, on a number of occasions, it has been
pointed out that it is generally more difficult to prove 'loss of profit' than to prove other types of loss falling into
the category of 'loss suffered'. The reason for this is that proving lost profit often involves speculation because
it is based on the inquiry into the hypothetical future or past. For example, in case of a breach of a long-term
sales contract, the buyer may argue that he or she would have earned the profit by reselling the goods. In the
absence of contracts with third parties, it may be difficult to state with precision that the buyer would have
earned the alleged profits especially if the prices for the goods are volatile. Similarly, the manufacturer of a new
business claiming lost profits that he [page 17] or she would have earned from reselling the final product had
the seller delivered the materials, may face problems with proving these losses. In all such cases, the question
of whether loss has been suffered will depend on a number of factors, such as, for example, prices, certain
economic conditions, behaviour of third parties, etc. Thus, because determining lost profits often involves
inquiry into hypothetical events and because we do not possess perfect knowledge,[22] proving lost profits
with 'reasonable certainty' will generally be more difficult than proving losses the party has actually incurred. By contrast, the so-called 'loss suffered' [page 18] which involves the diminution of the party's financial
situation resulting from a breach, generally involves fewer problems of proof.[23] These losses may take
different forms, but normally consist of costs and expenses that have been incurred as a result of the breach.
Because the party often has actually incurred those expenses it will be easy for him or her to meet the
'reasonable certainty' standard since he or she will often have records proving the fact of incurring the alleged
costs. However, it may well be the case that it is easier to prove lost profits than 'loss suffered'. For instance,
the buyer may face few difficulties in proving lost profit arisen from the seller's failure to deliver, if he presents
the concluded contract for the resale of the goods to a sub-buyer. By contrast, it may be far from easy for the
claimant to prove that he or she will have to incur certain expenses in the future. [page 19]
As noted, proving 'losses suffered' does not generally raise any special problems of proof because it will often
be the case that such losses have already occurred and, in many cases, the claimant will have records and
documents to prove such costs. There are few cases decided under the international instruments which specify
the types of documents that have been used to prove 'losses suffered'. It seems, however, that in the course
of commercial activity there can be different types of evidence which can confirm the costs incurred. The types
of evidence that will need to be presented depend on the nature of the loss suffered. For example, in case of
the buyer's liability to sub-buyers arising from the seller's failure to deliver, agreements to pay compensation
to sub-buyers in case of failure to deliver the goods may prove damages with reasonable certainty. In many
cases, invoices have been accepted by courts/tribunals as sufficient evidence of the expenses incurred as a
result of the breach.[24] Similarly, receipts of payments which the claimant had to make as a result of the
breach may serve as evidence of the payments made. Documents issued by competent [page 20]
organisations can often provide evidence of the costs incurred. For instance, the bank's report can verify that
the buyer has incurred costs in opening a letter of credit, or the auditing company's report can certify some
other expenditure made.[25] In some cases, experts' reports have been accepted as a proper basis of
evidence of 'losses suffered'.[26] The examples of the types of documents given in the previous paragraph concern the costs incurred by the
claimant. However, some types of 'loss suffered' do not [page 21] necessarily involve incurring costs. For
example, to prove loss of reputation the claimant will have to provide the evidence of the existence of the
alleged reputation and damage thereto. Proving these facts could involve a variety of types of evidence such
as, for example, witness statements, experts' reports, survey amongst relevant business circles, records of the
claimant's business activity prior and after the breach, etc.
Taking into account a great variety of forms in which losses can occur, it seems virtually impossible to provide
a list of all possible types of evidence that can prove the alleged loss. What is important for the purposes of
proving 'loss suffered' is to understand the nature of the loss and all relevant circumstances of the case. Once
these are understood, the claimant will have to present the types of evidence which will substantiate his or her
claims with a 'reasonable degree' of certainty. Thus, what is proper evidence for the purposes of meeting the
'reasonable certainty' standard is very much a matter of the circumstances of the case.
3.3.3 Proving loss of profit 3.3.3.1 General
This section will examine the factors that may need to be taken [page 22] into account in proving loss of profit
and give examples of the types of evidence that may be presented in substantiating this type of loss. Some
scholarly writings on the US law on damages have pointed out that difficulty of meeting the standard of
'reasonable certainty' in proving lost profits varies depending on the capacity and situation in which the injured
parties have acted.[27] A similar approach will be adopted in this work because it may be helpful for the
purposes of highlighting different levels of difficulty of meeting the standard of 'reasonable certainty' and
different factors that may need to be taken into consideration in each of the types of a situation. 3.3.3.2 Meeting the 'reasonable certainty' standard in case of an injured seller
3.3.3.2.1 Non-lost-volume seller. It has been said that the problem of proving loss of profit rarely [page 23]
arises in case of a seller who sells without loss of volume (that is, where his or her ability to supply does not
exceed demand for the goods).[28] The reason is that, in such a situation, the seller's losses depend on either
a resale price or market price.[29] Once one of these prices is proved, loss of profit can be easily established
with 'reasonable certainty' because it will constitute a difference between the resale or market prices. Is this statement valid in case of the UNIDROIT Principles? First of all, what needs to be stated is that the
UNIDROIT Principles (as well as CISG and PECL) provide for two methods of calculating damages. They
provide that if the contract has been avoided (or terminated) and the injured party has made a substitute
transaction, he or she may claim damages in the amount of the difference between the contract price and a
price in a substitute transaction.[30] They further provide that if such a replacement transaction [page 24] has
not been made and if there is a current price for the goods (performance) contracted for, the injured party may
claim damages in the amount of the difference between the contract price and the price current at the time of
the avoidance of the contract (or, in case of the CISG, at the time of taking over of the goods, if the claimant
has avoided the contract after taking over of the goods).[31]
Indeed, these methods of calculating loss of profit can be said to reduce the difficulty of proving lost profit with
'reasonable certainty'. If the contract has been avoided and the seller has resold the goods (in a reasonable
manner and within a reasonable time), he or she can claim compensation for lost profit in the amount of the
difference between the contract and resale prices. What he or she will have to prove is the contract price and
the resale price. Normally, it should not be very [page 25] difficult to prove the contract price as, in many
cases, a contract will expressly provide for the price. If it does not, the UNIDROIT Principles (as well as
CISG and PECL) contain mechanisms for determining the price.[32] Similarly, if the resale contract has been
in fact concluded, there will be little difficulty in proving a resale price. If, however, no resale contract has been concluded, the seller can claim loss of profit in the amount of the
difference between the contract price and a current price. This method of calculation also reduces difficulty
of proving the seller's lost profits with 'reasonable certainty' because the only things that a seller will generally
have to prove are the contract price and a current price. The only potential difficulty that may arise is proving
a current price. Once this difficulty is overcome there is little that can prevent the seller from claiming damages
for lost profit.
Thus, the two methods of [page 26] calculation of damages reduce the difficulty of proving the seller's loss
of profit with 'reasonable certainty'. However, it is further submitted that even for a non-lost-volume seller, the
two methods do not completely eliminate the problem of proof. The two formulas may not be capable of
compensating the seller for the full amount of lost profit. Suppose that the seller intended to invest the purchase
price into a potentially highly profitable venture. The investment had to be made within a very short period of
time after the due date for payment of the purchase price by the buyer. If the seller receives compensation
under either of the two methods of calculation after passing of the period within which he or she was to make
an investment, he or she may argue that damages received do not fully compensate him or her for lost profit.
The damages received under either of the formulas compensate him or her only for loss of profit in the form
of a 'profit margin', whereas they do not compensate him or her for lost profit which he or she would have
made had he or she made an investment. If the seller has complied with his or her duty to mitigate his or her
loss and if other requirements [page 27] have been met (foreseeability, causation), there is no reason why he
or she should not be able to claim these losses. In this example proving loss of profit not covered by the two
formulas may be very difficult. The more speculative the venture the lower is the degree of likelihood that the
seller will be able to prove this part of lost profit.
3.3.3.2.2 Lost volume seller. It may be more difficult to meet the requirement of 'reasonable certainty' for a
seller who has found him- or herself in a lost volume situation. It will be remembered that lost volume refers
to a situation where the seller's capacity to supply exceeds the demand for the goods and as a result of the
buyer's refusal to accept the goods the seller has sold fewer goods than would have been sold had the buyer
performed the contract. Even if he or she resells the goods to a third party, he or she may argue that this
transaction would have been made even if the buyer had performed the contract. In such a situation a seller
will have to prove that his or her capacity exceeds the demand for the goods and that even if the buyer had
performed the contract, he or she would have sold more goods than he or she in fact did [page 28] as a result
of the buyer's breach. The types of evidence that will have to be presented will depend on the nature of the
relevant factors and considerations. 3.3.3.3 Meeting the 'reasonable certainty' standard in case of an injured buyer
3.3.3.3.1 Middleperson. It has been said that there are few difficulties with proving loss in case of a
middleperson-buyer who buys a fixed quantity of goods for prompt delivery.[33] This is so, it is said, because
the two methods of calculation described earlier reduce difficulty of proving loss.[34] At this point, it needs
to be stressed that in case of a buyer these two methods do not compensate the buyer for loss of profit (as
opposed to the function of these two methods in case of a seller). They compensate a buyer for loss in the form
of not receiving what he or she was entitled to receive under the contract (damage to expectation). Thus,
damages equal to the difference between a contract price and a price in a substitute transaction compensate
the buyer for the higher amount of money that the buyer had to pay to purchase substitute goods. This
compensation does not represent the buyer's lost profit because profit that the buyer [page 29] as a
middleperson (the same would apply to a buyer acting as a manufacturer) could make is that made by means
of a subsequent resale. However, if the buyer has made a substitute transaction by purchasing the goods that
he or she needed for a subsequent resale, then it seems that, in most cases, no compensation for lost profit can
be demanded because the buyer already has the goods which he or she will resell and has been compensated
for the difference between the contract price and the price in a substitute transaction. So far as the types of
evidence of proving a substitute transaction are concerned, they will often include the contract for purchase
of substitute goods or other evidence demonstrating performance of a substitute transaction.[35] [page 30]
In rare cases, however, the buyer may still suffer loss of profit despite having obtained substitute goods. For
example, although the buyer has the goods to resell, this resale may have to take place later than initially
planned because of the seller's failure to deliver and the buyer's having had to make a substitute transaction.
Consequently, the buyer may have to reduce the resale price to his or her sub-buyer because the goods were
seasonal in nature and, therefore, timing of delivery was important. In this case, subject to other rules on
damages the buyer may be able to claim compensation for lost profit if he or she proves that he or she has
resold the goods at a lower price than initially planned. The types of evidence that may have to be presented
could include, for example, an original contract (or evidence of the contract) demonstrating the original price
and evidence of the arrangement whereby a sub-buyer has agreed to accept or has accepted the goods under
In case of the second method of calculation, that is, the difference between a contract price and a current
price, a buyer is also not compensated for lost profits. This method seems to imply that the [page 31] buyer
could go into the market and buy substitute goods, and be therefore compensated for the difference that will
have to be paid in this case. The main difference from the first method is that the buyer has not made a
substitute transaction. This compensation would often be the end of the matter because the buyer can go into
the market, buy substitute goods, perform the contract with a sub-buyer and receive the profit. In such a case,
no compensation for lost profit can be claimed. The potential difficulties that the buyer may face are those
relating to proving the current price for the goods.[36] Once this difficulty is overcome and the buyer is
compensated for the difference between the contract price and the current price, he or she will often not be
entitled to claim loss of profit. Having been compensated for the difference, he or she can buy the goods in the
market and gain the planned profit by reselling them to the sub-buyer. As noted in the previous paragraph,
some of the rare cases where the buyer may have a claim for loss of profit in addition to the claim based on
the second method of calculation, can include those where buying substitute goods may have resulted in delay
[page 32] in performing a contract with a sub-buyer and some lost profits. Other situations where a middleperson can suffer loss of profit need to be considered. In some cases a seller
may delay delivery of the goods. Despite the delay, the buyer may decide to accept the goods and resell them
as planned. However, because the goods were needed for resale at a specific time, the buyer may have
problems with reselling them on the same terms initially agreed with sub-buyers and may have to reduce the
price to persuade the sub-buyers to accept late delivery. It may be the case, therefore, that the buyer will
receive a lower amount of profit than would have been received had the seller delivered on time. To recover
damages for lost profit, he or she will have to prove that he or she would have made this profit had the contract
been properly performed. What will have to be shown to prove this loss? In one case which concerned [page
33] the sale of shoes and which was based on the facts similar to our hypothetical example, the court has
stated that the buyer ought to have provided 'a detailed account of which consignment of shoes she had firmly
sold at what price, to which customers and, with which stipulated times of delivery; further, at what point in
time she received the shoes from the [seller] and forwarded them to her customers. Finally, [buyer] would have
had to submit that her customers were entitled under their contracts to refuse acceptance of the goods based
on late delivery'.[37]
Finally, the cases in which the problem of proving lost profit with 'reasonable certainty' is likely to be the most
acute for a buyer-middleperson are those which involve long-term contracts for purchase of an indefinite
quantity of goods.[38] It may be difficult for a buyer to prove lost profits in this [page 34] case because
proving such losses will often involve speculation. Whether or not the buyer will suffer losses will depend on
a number of factors (for example, price levels, demand for the goods, quantity of the goods to be sold, ability
to sell the goods, state of competition in the sector of trade concerned, etc.) some of which may be unknown
at the time of making a decision on damages. How should one prove such losses with a 'reasonable degree
of certainty'? One way which could help determine the loss with 'reasonable certainty' could be examining experience of past
business activity of the claimant.[39] If the conditions in which the claimant has made profits in the past are
similar to the present conditions and to the ones which can be reasonably contemplated to surround the
claimant in the future, then, perhaps, a reasonable estimation of the loss could be made on the basis of the
claimant's past dealings. This approach has already been taken [page 35] in international arbitral practice. In
a case where a UK importer has brought a claim against a Hungarian export company for failure to deliver the
goods, the tribunal has stated that the 'estimation of a loss of profit is mainly based on expectation of the future.
In this context the Tribunal has to start taking into account the history of developments in the past'.[40] The
claimant may argue, however, that his or her business has grown in comparison with the volume of the previous
dealings and therefore he or she is entitled to higher profits than those received in the past. It seems that, in
such situations, the claimant will have to present strong evidence which will support these arguments. 'Mere
commercial optimism' [41] is unlikely to be sufficient. Thus, in another case (governed by Lebanese law) which
involved sale of cars by a Western European car manufacturer and a Lebanese distributor, the latter has
claimed damages for breach of the contract. The tribunal has stated that 'the Lebanese distributor had claimed
as damages ... 3 years of lost profit based on the profit in 1961, and alternatively, based on the average of
the last 3 years. Although it was not contested that [page 36] the sales of the claimant had gone up, the
automotive sales market was too uncertain to apply the first alternative'.[42] Having regard for comparable business could be another factor that could be taken into account either along
with past history or where there is no past history. [page 37] If there are businesses which carry out analogous
commercial activity and operate under similar circumstances, evidence as to profitability of such businesses
may shed some light on what would have been the future of the claimant had the contract been properly
performed.[43] A state of competition in the trade sector concerned could also be important. If the claimant
would have faced fierce competition in selling the goods if the contract had been performed this fact would
demonstrate potential difficulties that the claimant would encounter in selling the goods. On the other hand,
examination of the history of the claimant's business could evidence that the claimant has successfully withstood
the competition.[44] [page 38] 3.3.3.3.2 Manufacturer. The problem of proving lost profits may be particularly acute in case of a buyer who
is a manufacturer.[45] The seller's failure to deliver (or failure to deliver on time) the materials necessary for
the buyer's manufacturing process may interrupt the buyer's business and cause losses of future profits. The
buyer may argue that because the manufacturing process has been interrupted, he or she has lost profits he
or she would have earned from selling the finished products. In this case, proving lost profits is likely to involve
some degree of speculation. Generally, what the manufacturer will have to demonstrate is his or her ability to
sell the finished product at a profit. As was the case with a middleperson-buyer, such factors as experience
of past business, having regard for comparable business and state of competition may need to be taken into
account in proving loss.
[II] LOSS OF A CHANCE The UNIDROIT Principles expressly provide [page 39] for recoverability of loss of a chance.[46] Loss of
a chance besides being a recoverable type of loss and a method of calculating losses can also be said to be
another standard of proving loss in the sense that it is a method of dealing with uncertainty in proving losses.
Recoverability of this type of loss can be said to be (amongst other things) [47] an expression of the policy of
disfavour of an 'all-or-nothing' result in the award of damages. It eases, to a certain extent, the burden of proof
on the claimant.[48] If the claimant has failed to prove his or her lost profits with 'reasonable certainty', a claim
for compensation for loss of a chance gives the claimant an opportunity to get at least some compensation by
means of damages for loss of a chance to benefit. It is clear that the amount of damages for loss of a chance
will be lower than that of damages for lost profit. Damages for loss of a chance are to be determined in
accordance with 'probability of ... occurrence' of the loss.[49] By its nature loss of a chance is speculative
since what needs to be determined is the value of a chance. The question then is how this type of loss should
be proved. It is submitted that [page 40] determining the value of a chance is a matter of the circumstances
of each particular case. The factors and types of evidence that have been suggested above in relation to several
types of cases of lost profits are likely to be relevant for proving loss of a chance, and there is no need for
repetition. The only difference is that, in case of loss of chance, the courts/tribunals will consider those factors
to determine the value of an opportunity to receive a profit and not the value of a profit itself. [page 41]
There may be doubts as to whether the 'reasonable certainty' test applies to proving loss of a chance. It could
be argued that since one of the purposes underlying the concept of loss of a chance is to prevent an 'all-or-nothing' result in the award of damages that could flow from application of the 'reasonable certainty' standard,
proving loss of a chance should be treated separately from 'reasonable certainty'. It is suggested that this line
of reasoning cannot be accepted. Compensation for loss of a chance is likely to be sought in cases where the
claimant cannot establish his or her loss of profit with 'reasonable certainty'. In this case, loss of a chance is
an instrument of mitigating potentially harsh results of application of 'reasonable certainty' to loss of profit.
However, loss of a chance is a type of loss which itself needs to be proved. A standard for proving losses
which has been adopted by the UNIDROIT Principles is that of 'reasonable certainty'. It follows therefore that
loss of a chance itself needs to be proved with 'reasonable certainty'.
[III] JUDICIAL DISCRETION The UNIDROIT Principles also confer the power on a court/tribunal to assess damages at its own discretion
[page 42] in case losses could not be established with the required degree of certainty. What are the
circumstances in which the court/tribunal should exercise discretion? It is suggested that this discretion should
only be exercised when the court/tribunal is convinced that the claimant has suffered some loss but which
cannot, in the circumstances, be proved with the required degree of certainty. This approach has been taken
by some tribunals which have referred to the UNIDROIT Principles. In one case, for example, the tribunal
seems to have been convinced that some loss had been suffered despite the fact that damages in question fell
'into the category of damages which may normally not be established ... in an arithmetically satisfactory
manner'.[50] In another case,[51] the tribunal expressly recognised the fact that the claimant had suffered
some loss despite the claimant's failure to establish loss with 'reasonable certainty'. The tribunal exercised its
discretion to determine the amount of damages. It has also been stated that 'in exercising such discretion, the
Panel took into account the level and type of evidence that should reasonably be required of a Claimant given
the overall [page 43] circumstances at the time of the loss'.[52]
Finally, it is argued that the discretion conferred should be used with great caution. It should not be used to
undermine such considerations as fairness to the defaulting party and certainty in international business. Only
in those exceptional circumstances where courts and arbitral tribunals are genuinely convinced that, although
losses have not been established with the required degree of certainty, the claimant has suffered some loss,
should courts/tribunals [page 44] exercise their discretion to determine the amount of damages.
[IV] PROOF OF LOSS UNDER THE CISG 1. General
The CISG is silent as to the standard of proving loss.[53] To decide whether the matter should be dealt with
by the CISG, recourse must be had to Art 7(2). According to this provision, '[q]uestions concerning matters
governed by this Convention which are not expressly settled in it are to be settled in conformity with the
general principles on which it is based or, in the absence of such principles, in conformity with the law
applicable by virtue of the rules of private international law'.[54] This provision makes it clear that an issue can
be settled by the CISG even if it is not expressly referred to in the Convention provided that there is a relevant
general principle(s). If there is no relevant general principle(s), the matter should be dealt with by law
applicable by virtue of private international law. [page 45]
Thus, the starting point is to determine whether standard of proving loss is a matter governed by the
Convention. The CISG governs 'only the formation of the contract of sale and the rights and obligations of the
seller and the buyer arising from such a contract'.[55] Although this provision provides some guidance, it is
still not entirely clear as to what issues are governed by the CISG. Analysis of the decisions of courts and
arbitral tribunals below as well as scholarly discussion of the CISG will demonstrate the diversity of the types
of treatment of this issue under the Convention. The following can be identified: (1) Standard of proving loss is a procedural issue and as such is beyond the scope of the CISG;
(2) If standard of proving loss is a procedural issue, it may still be governed by the CISG because not all
procedural issues are outside the scope of the Convention;
(3) Even if procedural issues are outside the CISG, standard of proving loss may still be governed by the
Convention because [page 46] it may be regarded as a matter of substantive law governed by the CISG;
(4) Standard of proving loss is a matter governed by CISG which contains certain requirements to this
(6) Determination of the amount of damages on the basis of the court's/tribunal's discretion not based on
any legal principle.
Article 4 is generally interpreted as indicating that the Convention governs only the issues of formation and
substantive law.[56] The matters of procedural law have often been treated as being outside the CISG.[57]
In this regard, it is suggested that whether the standard of proving loss is a matter of substantive or procedural
law may be of some importance in terms of deciding whether it is a matter governed by the Convention. For
example, several authors have suggested that the issue of certainty with which loss needs to be proved is a
matter of procedural law and is beyond the scope of the CISG. It needs to be dealt with on the basis of the
applicable law [page 47].[58] This approach has also been taken in several cases on the CISG. For instance,
in one case decided in Switzerland the court has stated that the 'law of evidence is determined by the lex fori,
as the law of evidence belongs to the procedural law. Therefore, each Court applies its own law of evidence'.
[59] [page 48] In some other cases, courts have exercised their discretion in determining the amount of damages deriving from
national procedural rules. It is submitted that these cases can also be regarded as examples of cases where
the standard of proof has been regarded as a matter of procedural law and therefore outside the Convention.
As Professor Treitel points out, judicial discretion may exist not only within the framework of rules governing
the extent of recoverable damages, but also as a substitute for such rules.[60] The said cases seem to be
precisely of this nature, that is, where judicial discretion is in the sense a legal standard for determining the
amount of damages. Thus, in several cases judges/arbitrators have relied on � 287 of the German Code of
Civil Procedure which grants the power to evaluate damages.[61] A similar approach has been taken in
another case where the tribunal has stated that 'the arbitrator fixes the ... amount of damages at his discretion
... The legal basis for such a discretionary determination of the amount of damages is sec 273 of the Austrian
Code of Civil Procedure, which is also applicable within the scope of the CISG'.[62] [page 49]
It may also be possible to take a more flexible approach in relation to treatment of the procedural issues in
CISG cases. Namely, it is possible not to regard every procedural issue as being outside the scope of the
Convention. As one author has suggested, 'the CISG occasionally governs procedural rules indirectly'.[63]
This suggestion finds significant support in cases decided under the CISG which concerned the allocation of
burden of proof -- an issue which is often regarded as being of procedural nature. There are cases where
burden of proof has been regarded as governed by the CISG.[64] Therefore, if the suggestion that not all
procedural issues are outside the CISG is correct, there may still be a possibility that it will be regarded as a
matter governed by the Convention. The next task is to find a general principle which would be capable of
establishing a relevant standard. If there is no general principle, law applicable by virtue of private international
law will have to be relied upon. [page 50]
Even if procedural issues are rigidly regarded as being outside the CISG, standard of proof may still be within
the scope of the Convention if it is regarded as an issue of substantive law. Although the standard of proof
may, at first sight, appear to be of procedural nature, the procedural/substantive law distinction is not entirely
clear-cut. As has been stated by one author, 'there exists no systematic abstract criterion that would enable
a given case to be classified unequivocally and rationally as being either of a "procedural" or a "substantive"
nature'.[65] So far as the issues relating to the law of evidence are concerned, it has been suggested, contrary
to the statement of a Swiss court above,[66] that the rules of evidence are classified, in most legal systems,
as substantive, not as procedural.[67] [page 52]
This article is not the place to discuss the problems of classifying the issues in terms of their procedural or
substantive nature. What is important to bear in mind, for the present purposes, is that it cannot be definitely
stated that the issue of standard of proving loss is necessarily a matter of procedural law. On the contrary,
there are some examples where an issue of a standard of proving loss seems to be treated as a matter of
substantive law. For instance, the standard of certainty with which loss needs to be proved is contained in a
separate provision in the US Restatement (Second) of Contracts containing rules on contracts which seem to
be traditionally regarded as rules of substantive law.[68] Another example is the UNIDROIT Principles which
are an instrument of substantive law nature. As noted above, the UNIDROIT Principles contain a specific
provision relating to certainty of loss.[69] In light of these considerations, it seems difficult to argue that to
regard standard of proving loss as a matter of procedural law is the only possible way of treating it.[70] [page
52] Thus, even if the CISG does not govern the issues of procedural law, one way of bringing the issue of standard
of proof into the framework of the Convention is to argue that it is a matter of substantive law and therefore
cannot be excluded from the scope of the CISG only on the basis that it is a procedural law issue outside the
CISG. The next task, in such a case, is to determine whether the standard of proving and determining the
amount of damages is a matter governed by the Convention and whether general principles capable of setting
a certain standard of proof can be found. These problems will be dealt with later in this work.
Finally, even if the issue of standard of proof is regarded as a matter of substantive law, it can still be dealt with
on the basis of applicable law, if there are no relevant general principles or if it is simply a matter not governed
by the CISG. The latter approach seems to have been taken in a decision of a US court on the CISG. The
court stated that '[i]n conformity with the common law,[referring to Restatement (Second) of contracts, US
scholarly writings and case law] to recover a claim for lost profit under UNCCISG, a party must provide the
finder [page 53] of fact with sufficient evidence to estimate the amount of damages with reasonable certainty'.[71] If this author is correct in that within the US legal system certainty of loss is a matter of substantive law,
then one way of interpreting this case is to regard it as an example where the court has treated the issue of
standard of proof as a substantive law matter not governed by the Convention. 2.4 CISG governs the issue of proving loss and contains relevant requirements
A number of cases on CISG seem to have introduced a fundamentally different approach. In these cases,
judges/arbitrators appear to have regarded the Convention as containing a specific standard of proof. Although
none of the said decisions has examined the problem of whether the issue is governed by the CISG, it seems
[page 54] obvious that the Convention has been interpreted as governing the issue, since all decisions have
referred to standards which were allegedly derived from the Convention. Thus, in one decision the court has
stated that '[u]nder Art 74 CISG, the [buyer] would have to exactly calculate her damage'.[72] In another
decision, the CISG has been interpreted as requiring that damages be calculated 'precisely'.[73]One court has
stated that '[a] damages claim according to Art 74 CISG ... necessitates a specific ascertainment of damage'.
[74] Similarly, one tribunal has held that under the CISG the claimant 'must substantiate and strictly prove the
existence and exact amount of its damage'.[75] [page 55]
Two comments will need to be made in relation to these decisions. First, this approach to interpretation of the
CISG may be welcomed by those who believe that 'there is no fundamental objection to the creative
development of the Convention's written rules [as] it is justified by the need to promote uniformity of
interpretation'.[76] However, although the approach taken in these decisions (if followed by other
courts/arbitrators) may contribute to achieving uniformity in application of the Convention in relation to the
issue of proving loss, these decisions can be criticised for having failed to demonstrate how the judges and
arbitrators have arrived at the conclusion that the CISG contains the said standards. Nowhere does the CISG
mention such standards. It is suggested that this approach may be dangerous because, if it is followed, it may
encourage the courts/arbitrators to read into the Convention rules which it simply does not contain. Second, even if, in the very unlikely [page 56] event, it is demonstrated that it is possible to interpret the CISG
as impliedly containing standards such as necessity of 'precise', 'exact', or 'specific' ascertainment of damages,
the meaning of these standards is somewhat unclear. Are they similar to the 'reasonable certainty' standard
under the UNIDROIT Principles? Or do they require proof with mathematical precision or with absolute
certainty? Although these questions cannot be answered definitely, it seems that the suggested standards can
be interpreted as requiring a higher standard of proof than that required by the 'reasonable certainty' rule. If,
however, it is mathematical precision or absolute certainty which is required, then this standard can also be
criticised because, as has been acknowledged in different legal systems,[77] losses often cannot be proved
precisely. Such a high standard of proving losses may have an effect of deterring business people from applying
the CISG to their contracts and/or entering into international sales transactions. [page 57]
Some cases have introduced an interesting approach to dealing with issues of determining the amount of
damages under the CISG. In these cases, the courts have held that the amount of damages were to be
determined ex aequo et bono.[78] The concept of ex aequo et bono is generally understood as '[a]ccording
to what is equitable and good'.[79] In the context of international law, it has been said that '[a] decision-maker
... who is authorised to decide ex aequo et bono is not bound by legal rules and instead follows equitable principles'.[80] Further, one author has referred to several definitions of ex aequo et bono that have been given
in legal literature:[81] [page 58]
The power to decide ex aequo et bono ... is generally considered as an authorisation to act contra legem,
to depart from the law, to change the law, to accept a claim not recognised by the law or to reject a claim
based on the law'. To decide ex aequo et bono is to seek a 'resolution ... that is equitable, minimises harm
to either party, and enables potential adversaries to maintain a valuable commercial relationship; the role of
such an arbitrator is said ... to be that of an amiable compositeur'. 'The amiable compositeur is in fact a
judge, but one who enjoys greater flexibility in adopting a solution ... , even though from a strictly legal point
of view [the solution] may not be ... correct'.
Deciding matters ex aequo et bono does not seem to be a rare phenomenon in international commercial
arbitration (and sometimes even in courts as the cases referred to above demonstrate). Can this approach to
determining damages be justified under the CISG? If the matter of proving and determining damages is
governed by the Convention, the first necessary step is to ascertain whether there are relevant general
principles. If relevant general principle(s) can be found, damages cannot [page 59] be determined ex aequo
et bono because they will have to be fixed in accordance with the standard flowing from such relevant general
principle(s). However, it needs to be borne in mind that the Convention allows the parties to derogate from
or vary the effect of its provisions. Therefore, despite the existence of relevant general principle(s), the parties
may agree that damages be determined ex aequo et bono. The same can be the case if the Convention does
not contain relevant general principle(s). In both cases, it seems correct for tribunals to determine damages
in such a manner. It is perhaps noteworthy that the rules of some arbitration institutions allow arbitrators to
decide matters ex aequo et bono if the parties have so agreed.[82] If there is no agreement between the
parties to this effect, admissibility of determining damages ex aequo et bono will depend on the rules by which
arbitrators are bound and freedom given to them. The same would be the case where standard of proving and
determining damages is a matter not governed by the CISG. [page 60]
In light of the cases where damages were determined ex aequo et bono, one would also expect the arbitrators
to resort to other non-national sources of law such as, for example, general principles of law and law common
to civilised nations,[83] to deal with the issue of determining the amount of damages under the CISG. Indeed,
there are cases where the arbitrators have referred to the said non-national sources of law in determining the
standard of proving loss. Thus, in a case governed by the CISG the tribunal has stated that '[u]nder general
principles of law, applicable also under Austrian law, it is the procedural burden of the party claiming damages
to specify and to prove ... the existence of such a damage ... and ... the actual amount of damage suffered'.[84] Although it is not entirely clear whether the tribunal has exclusively relied on general principles of law, it
is nevertheless evident that this source of law has been referred to in formulating the applicable standard of
proving loss. [page 61]
Some other examples of reliance on non-national sources of law can be given from international arbitral
practice. In one case (not governed by the CISG), for instance, the tribunal has formulated the principle
relating to the determination of damages in the following way: 'The determination of the amount of damages
... falls within the sphere of the arbitrator's discretion, to be exercised with diligence and prudence in view of
the circumstances prevailing in each individual case. This is a principle, generally accepted at the level of
comparative law ...'."[85]
What conclusions should be drawn from such cases? Is it permissible to rely on such sources of law as general
principles of law or law recognised by civilised nations in order to deal with the issue of proof of loss under
the CISG? It is submitted that, in cases governed by the CISG, the only procedure that needs to be followed
is that provided in Art 7(2) CISG [page 62]. If the matter is governed by the CISG but not expressly settled
in it, courts/tribunals should rely only on those general principles on which the CISG is based. If there are no
relevant general principles recourse should be had to the law applicable by virtue of private international law.
Non-national sources of law generally should not interfere with the procedure and requirements established
by the Convention.[86] The only way in which they could be relied upon is where they are applicable by virtue
of private international law. It has been suggested that parties' freedom to choose the applicable law is 'a
widely recognised rule of private international law'.[87] If this is correct, then the parties may agree that issues
which cannot be resolved by the CISG should be dealt with on the basis of such sources as general principles
of law or law common to civilised nations. In such a case, since the parties' agreement is a rule of private
international law within the meaning of Art 7(2), the issue of proving loss may be determined on the basis of
such sources. [page 63]
2.6 Determining the amount of damages on the basis of the
court's/tribunal's discretion not based on any legal principle
The courts/tribunals may also exercise their discretion which is not derived from any legal basis. For example,
in one case governed by Hungarian law, the tribunal has stated that in 'international arbitration cases the tribunal
is not bound by specific rules for the taking of evidence provided that both parties were allowed to present
their case'.[88] A similar approach seems to have been taken in some other cases (governed by different
systems of law) where the arbitrators' determination of the amount of damages has been explained in terms
of the amount being or not being 'sufficiently proven',[89] 'plausible and trustworthy',[90] 'proven to [the
tribunal's] satisfaction',[91] or 'appropriate' [92] without reference to any particular legal standard. [page 64]
So far as the cases on the CISG are concerned, many cases can also be found where similar statements have
been made by judges and arbitrators. For example, determination of the amount of damages has been
discussed in terms of being or not being 'reasonable',[93] 'sufficiently proved' [94] or supported by 'sufficient
evidence',[95] or substantiated 'in detail'.[96] Once again, these statements have been made without reference
to any legal standard. This fact makes it very difficult to analyse these cases. However, it seems that there
remains a possibility that, at least in some of these cases, the arbitrators/judges have not relied upon any legal
standard to exercise their discretion in determining the amount of damages. [page 65]
The question whether this is a correct way to approach the issue of the standard of proving loss and
determination of the amount of damages, is not an easy one. The answer will depend on whether the issue of
standard of proving loss is governed by the CISG and whether the CISG contains relevant general principles.
If the CISG governs the issue and contains relevant general principles, determination of the amount of damages
on the basis of judges'/arbitrators' discretion not based on any legal principle is not permissible. Under Art 7(2)
they will have to rely upon the relevant general principles. Discretion will have to be exercised only in terms
of application of such general principles. This type of discretion is different from the one not based on any legal
principle as it will not be a substitute for a particular standard of proving losses.
If, however, the issue is not governed by the Convention, it seems that much will depend on whether it is a
court or an arbitral tribunal which is seized of a dispute. The courts are likely to apply the standards contained
in the national law on evidence. The standard of proving and determining damages may however also be a part
of the applicable [page 66] law on damages. In this case, the courts may have to apply this standard. It seems
therefore unlikely that courts will exercise discretion not based on any legal principle. Only in very rare cases
where the courts are not bound by any standard, will they be able to exercise discretion not based on any rule.
Arbitrators may have more freedom in determining the rules than they will apply. This freedom may relate to
both determination of the procedural law or substantive law. The arbitrators may or may not be bound by
certain procedural rules. They may also have greater freedom than courts in determining applicable substantive
law.[97] Therefore, the question whether arbitrators can exercise discretion in determining damages not based
on any legal rule will depend on whether arbitrators are bound by certain procedural or substantive law rules
which contain a standard of proving and determining damages. If they are bound by some standard, then
exercise of discretion not based on any legal rule seems inadmissible. If, however, the arbitrators are not bound
by any particular standard, it may be possible for them to exercise discretion not based on any legal rule to
determine the amount [page 67] of damages. [V] DO THE CISG AND PECL GOVERN MATTERS RELATING TO PROVING LOSSES AND CONTAIN RELEVANT GENERAL PRINCIPLES? 1. Is This a Matter Governed by the CISG and PECL?
Both the CISG and PECL provide that issues which are governed by them or are within their scope are to be
settled in accordance with general principles (ideas) underlying these two instruments. The question is whether
the two instruments govern the issue of proving losses and determining the amount of damages and, if so,
whether they contain a relevant general principle.
It is suggested that the matter should be regarded as governed or being within the scope of the two instruments.
First, an important purpose of both instruments [page 68] is to promote uniformity in their application.
Accepting that there is a unified standard or standards of proving losses and determining the amount of
damages under the two instruments is more likely to lead to a greater degree of uniformity in their application
than if this matter were dealt with on the basis of the applicable legal systems each potentially containing
different standards. Second, matters of proving loss and determining damages are an integral part of the injured
party's exercise of the right to damages. This right is beyond any doubt a matter within the scope of the two
instruments. In addition to that, the instruments pursue and enforce a number of policies by providing for the
remedy of damages. The fact that the exercise of the right to damages can be treated in a variety of different
ways is likely to have a negative impact on the exercise of this right as well as on the implementation of the
policies and considerations underlying the law of damages under the instruments. For instance, both instruments
provide for the principle of full compensation and pursue a goal of putting the injured party in the position in
which he or she would have been had the contract [page 69] been properly performed. Since standards of
proving and determining the amount of damages differ, the injured party is more likely to be put into the
'expectation interest' position in a system where the standards are lower than in a system where they are higher.
Difference in applicable standards means that there will be a variety of levels of difficulty of actual
implementation of the principle of and exercise of the right to protection of the expectation interest. This fact
will lead to the situation where even matters governed by the instruments are dealt with in a non-uniform
manner. Finally, adoption of unified standards is likely to create greater certainty in application of the
instruments than application of different standards under the applicable legal systems.
It seems that the only concept which may potentially be relevant for dealing with the issue of standard of
proving losses is that of reasonableness. This work is not the place for a detailed examination of the problem
of whether reasonableness is a general principle or idea underlying the CISG and PECL. However, because
the idea of reasonableness can be traced through [page 70] so many provisions of the instruments [98] there
seems to be little doubt that it is a general principle (idea) underlying the two instruments. Since the nature of
some losses will often prevent the claimant from proving them with absolute certainty, the application of this
general principle will lead to the conclusion that losses need to be proved only with a degree of precision which
can be reasonably expected from the claimant taking into account the nature of the alleged loss and other
relevant circumstances of the case. Under this interpretation the standard becomes very similar to that fixed
in the UNIDROIT Principles, that is, that losses need to be proved with a 'reasonable degree of certainty'. [page 71]
As noted above, recoverability of loss of a chance can be regarded as a means of dealing with uncertainty in
proving loss. Should the claimant be able to claim loss of a chance under the CISG and PECL? Although the
instruments do not provide an answer to this question, it is argued that loss of a chance is a recoverable loss
under the CISG and PECL for two reasons. First, a chance should be recognised as an 'asset' by the law of
these instruments because in business taking a chance is important. Commercial activity often involves risk and
speculation. Taking risks and being involved in speculative ventures are often the principal ways of gaining
profit which, in turn, is the ultimate purpose of a commercial activity. The law of these two instruments should
not therefore ignore importance of taking chances in business.
Secondly, it is suggested that both the CISG and PECL should be regarded as pursuing a policy of liberal
treatment of the claim for damages and prevention of an 'all-or-nothing' result in the award of damages. This
policy can, perhaps, be justified on the basis of the notion of fairness, that is, that it is unfair to leave the injured
party totally [page 72] uncompensated where, despite the fact that he or she cannot prove loss, it is clear that
some loss has been suffered. At the same time, loss of a chance concept also reflects a concern for fairness
in relation to the party in breach. While it may seem unfair for the claimant to be left with no compensation
where it is clear that he or she has suffered some loss, damages for loss of profit cannot be awarded because
it would be equally unfair to the defaulting party to be held liable for the full amount of the alleged loss which
has not been established with the required degree of certainty.[99] Thus, the concept of loss of a chance can
be said to be a convenient means of implementing the ideal of fairness in relation to both parties. In this sense,
it strikes a fair balance between the interests of two parties. 4. Judicial Discretion
The rule which allows damages to be assessed at the court's/tribunal's discretion [page 73] even if losses
cannot be established with the required degree of certainty clearly reflects a concern for the claimant. It is a
further continuation of implementing the policy of disfavour of an 'all-or-nothing' approach to the award of
damages. Even if the CISG and PECL are based on this policy, can it be carried that far? Since both
instruments are silent on this issue, the answer to the question should be based on relevant policies and values.
It is suggested that the relevant considerations are fairness and potential consequences of such a rule for the
First, so far as fairness of the rule is concerned, it may seem that, on the one hand, it may be useful to leave
room for a possibility of the award of damages where losses could not be proved with the required degree of
certainty. The existence of such a rule would comprise the situations where the claimant simply cannot establish
his or her losses but where judges/arbitrators are convinced that the claimant has suffered some loss.[100] On
the other hand, it could be argued that if the claimant has failed to establish his or her losses both by means of
claiming loss of profit and loss of a [page 74] chance, the claimant is unlikely to have suffered any loss at all.
Indeed, the claimant's failure to overcome the two 'hurdles' -- proving loss of profit and loss of a chance --
is likely to raise serious suspicions as to whether the claimant has suffered any loss at all. It is suggested,
however, that despite the strength of this argument we should still not rule out a possibility that it may be the
case that the claimant has suffered some loss and yet failed to establish damages by claiming loss of profit
and/or loss of a chance to profit. The second factor that needs to be taken into consideration concerns potential consequences of this rule. This
factor appears to raise serious concerns. These concerns relate to such an important consideration in a
commercial context as certainty. Obviously, if this rule is introduced into the instruments, it will [page 75]
become extremely difficult for the potential defaulting parties to calculate the amount of liability to which they
may be exposed in case of a breach. This in turn may induce business people to exclude the two instruments
from their transactions and/or deter them from entering into international commercial contracts generally.
However, an argument in favour of introducing the 'judicial discretion' standard can also be put forward in this
context. If it is the policy of the instruments to deter the parties from breaching the contracts, introducing this
standard may contribute to implementing this policy. Potential defaulting parties who know that even if the
claimant is likely to encounter difficulties in establishing the losses they may still be exposed to some liability
in damages, may be influenced by this factor in making their decision as to whether or not to breach the
The answer to the above stated question should depend on the way we will balance these conflicting
considerations. This balancing exercise will be ultimately based on our policy and value judgments. Personal
preference of this author is to give precedence to the consideration of fairness which seems to [page 76]
suggest that the 'judicial discretion' standard is needed. However, it is also submitted that if this view is
followed, this standard should be used with great caution so as not to undermine such considerations as
fairness to the defaulting party and certainty in international business. Only in those exceptional circumstances
when courts and tribunals are genuinely convinced that, although a claimant has failed to establish his or her
losses with the required degree of certainty, he or she has suffered some loss, should they exercise their
discretion to determine the amount of damages. [page 77]
1. School of Law, University of Birmingham, United Kingdom. The author would like to thank Professor
Alastair Mullis, Mr Frank Meisel and Dr Kyriaki Noussia for their comments on an earlier draft.
2. The UNIDROIT Principles are a non-binding instrument designed to be applied throughout the world
to international commercial contracts. For cases where the Principles were intended to apply see their
Preamble. The first edition of the Principles was published in 1994. The new edition of the Principles was
published in 2004 (for details see <http://www.unidroit.org/english/principles/contracts/main.htm>).
3. CISG is an inter-state treaty designed to apply to international sales transactions. The number of states
which have ratified the Convention is now 65 (see
<http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html>).
4. PECL are a non-binding instrument designed to apply in the countries of the European Community.
They were intended to apply to contracts, in general, whether domestic or international, commercial or non-commercial. For cases where the PECL were intended to apply see art 1:101 PECL.
5. G Treitel, Remedies for Breach of Contract: A Comparative Account, Clarendon Press, Oxford,
1988, p 192.
6. See, for example, E A Farnsworth, 'Legal Remedies for Breach of Contract' (1970) 70 Columbia L
Rev 1145 at 1213 stating that '[the requirement of certainty] further diminishes the protection that the law
affords the promisee's expectation'.
9. For example, proof of loss of profit may involve guesswork either in relation to future events or
hypothetical future events. Occurrence of such events will depend on different contingencies such as economic
conditions, prices, preferences of consumers, etc. Such an exercise will most likely be based on a certain
degree of speculation. Claim for compensation for loss of business reputation can be used as another example.
Due to the non-material nature of this loss, it may be virtually impossible to substantiate the amount of this loss
10. A F Halaby, 'No Summary Judgement for You! One State's (Unjustified) Treatment of Contract
Claims for Lost Profits' (1998) 7 U Miami Business L Rev 57 at 61-2.
11. Note, 'Damages -- Loss of Profits Caused by Breach of Contract -- Proof of Certainty' (1932-33)
17 Minnesota L Rev 194 at 196.
12. See D L Goetz, K L Moore, D E Perry, D S Raab, and J S Ross, 'Article Two Warranties in
Commercial Transactions: An Update' (1987) 72 Cornell L Rev 1159 at 1247-9.
13. District Court Saane, 20 February 1997 (Switzerland)
<http://cisgw3.law.pace.edu/cases/970220s1.html>.
14. United Nations Compensation Commission, Panel of the Commissioners, Panel F1, Recommendation
S/AC.26, 23 September 1997 (Parties: Governments and International Organisations with Claims Arising out
of Iraqi Invasion of Kuwait) <http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1>.
15. See C T McCormick, Handbook on the Law of Damages, West, St Paul, Minn, 1935, first stating
at p 99 that reasonable certainty applies to 'the proof of the fact and of the amount of the damages' and later
stating at p 101 that '[i]f the fact of damage is not proved with certainty, the extent or the amount may be left
to reasonable inference'; for similar statements, see A L Corbin, Corbin on Contracts: A Comprehensive
Treatise on the Working Rules of Contract Law, West Publishing Co, St Paul, Minn, Vol 5, 2002, pp 106,
113, 115; Farnsworth however states that 'a few courts have taken the extreme view, that he need only prove
the "fact" as distinguished from the extent of the loss with reasonable certainty ...' (E A Farnsworth,
Contracts, Little, Brown, Boston, 1982, p 882).
19. The same is generally the case in the US law: 'The requirement with respect the certainty of proof is
the same when the plaintiff is asking damages to reimburse his pecuniary losses as when he is asking damages
to make up for gains prevented' (Corbin, above, n 14, p 113).
22. See S M Waddams, The Law of Damages, Canada Law Book Ltd, Toronto, 1983, pp 611-2
emphasising imperfect knowledge and hypothetical nature of lost profits as the two main kinds of uncertainties.
23. It is possible to take the view that loss of profit also constitutes diminution in the financial situation
which existed at the time of making a contract if future values become present values for the purposes of trade
(for the statement reflecting the view that future values become present values see L L Fuller and W R Perdue,
Jr, 'The Reliance Interest in Contract Damages' (1936) 46 Yale LJ 52 at 58).
24. District Court Paderborn, 25 June 1996 (Germany) <http://cisgw3.law.pace.edu/cases/960625g1.html>;
ICC case No 7585 of 1992 <http://www.unilex.info/case.cfm?pid=1&do=case&id=134&step=FullText>; ICC
case No 7531 of 1994 <http://www.unilex.info/case.cfm?pid=1&do=case&id=139&step=FullText>); ICAC
No 166/1995 decision dated 12 March 1996 <http://cisgw3.law.pace.edu/cases/960312r1.html>.
27. Farnsworth, above, n 14, pp 882-4; 'Lost Profits as Contract Damages: Problems of Proof and
Limitations on Recovery' (1956) 65 Yale LJ 992 at 1000-15.
35. District Court Braunschweig, 30 July 2001 (Germany), where the buyer has proved a substitute
transaction by presenting a number of documents which included a contract concluded with the buyer's
subsidiary for purchase of substitute goods, 'packing list' which certified that the goods had been packed and
ready for shipment to the destination, invoices, transportation documents, and certificates of receipt of the
goods at the place of destination <http://cisgw3.law.pace.edu/cases/010730g1.html>.
36. Appellate Court Celle, n 71; ICC case No 8740 of October 1996
<http://cisgw3.law.pace.edu/cases/968740i1.html>.
37. District Court Munster, 24 May 1977 (Germany). The case was decided on the basis of the ULIS
<http://www.cisg.law.pace.edu/cisg/wais/db/cases2/770524g1.html>.
39. The US legal scholars have, on a number of occasions, stressed the importance of this factor for
determining loss of profit (see, for example, McCormick, above, n 14, p 107; Corbin, above, n 14, p 126;
Note, 'The Requirement of Certainty in the Proof of Lost Profits' (1950) 64 Harvard L Rev 317 at 319).
40. ICC case No 5418 (see Collection of ICC Arbitral Awards 1986-1990 (compiled by S Jarvin, Y
Derains, and J J Arnaldez), ICC Publishing, New York, 1994, p 131).
42. ICC case No 1250 of May 1964 (available in Collection of ICC Arbitral Awards 1974-1985
(compiled by S Jarvin and Y Derains), ICC Publishing, Paris, 1990, p 32).
43. In one case governed by the CISG, the court has specifically asked a counsel of one of the parties
as to whether any assessment of comparable businesses has been carried out. However, this assessment was
thought to be relevant for the purposes of evaluation of loss of goodwill (Ginza Pte Ltd v Vista Corporation
Pty Ltd, Supreme Court of Western Australia, 17 January 2003
<http://cisgw3.law.pace.edu/cases/030117a2.html>).
47. Another reason for recoverability of loss of a chance may be that a chance is regarded as an 'asset'
because in business taking a chance is indeed important. Commercial activity often involves risk and
profit which, in turn, is the ultimate purpose of a commercial activity. The law may therefore not be able to
ignore the importance of taking chances in business and this may be one reason why the law may award
compensation to those who have been wrongly deprived of merely obtaining an opportunity to gain profit.
50. ICC case No 5835 of June 1996
<http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13621&x=1>.
51. United Nations Compensation Commission, Panel of the Commissioners, Panel F1, Recommendation
52. United Nations Compensation Commission, Panel of the Commissioners
53. Commercial Court Zurich, 10 February 1999 (Switzerland) ('The CISG does not determine which
degree of certainty is necessary for a judge to form his or her profit hypothesis')
<http://cisgw3.law.pace.edu/cases/990210s1.html>. See also District Court Saane, 20 February 1997
(Switzerland) where the court stated that the 'CISG does not provide any principle regarding damages whose
exact figure is not verifiable' <http://cisgw3.law.pace.edu/cases/970220s1.html>.
56. Herber in P Schlechtriem (ed), Commentary on the UN Convention on the International Sale of
Goods (CISG), 2nd ed, Clarendon Press, Oxford, 1998, p 46.
57. Herber in P Schlechtriem, n 55, p 46; Federal Supreme Court of Germany, 24 March 1999
<http://cisgw3.law.pace.edu/cases/990324g1.html>; Supreme Court of Switzerland, 15 September 2000
<http://cisgw3.law.pace.edu/cases/000915s1.html>.
58. J Lookofsky, Consequential Damages in Comparative Context: From Breach of Promise to
Monetary Remedy in the American, Scandinavian and International Law of Contracts and Sales, Jurist-og Okonomforbundets Forlag, Copenhagen, 1989, p 283, n 158; H Bernstein and J Lookofsky,
Understanding the CISG in Europe, Kluwer Law International, Hague-London, 2nd ed, 2003, p 144; E
C Schneider, 'Consequential Damages in the International Sale of Goods: Analysis of Two Decisions'
<http://www.cisg.law.pace.edu/cisg/wais/db/articles/schnedr2.html>.
59. District Court Sissach, 5 November 1998 (Switzerland)
<http://cisgw3.law.pace.edu/cases/981105s1.html>; Commercial Court Zurich, 10 February 1999 (Switzerland)
<http://cisgw3.law.pace.edu/cisg/cases/990210s1.html>; Commercial Court St Gallen, 3 December 2002
(Switzerland) <http://cisgw3.law.pace.edu/cases/021203s1.html>.
61. District Court Hamburg, 26 September 1990 (Germany)
<http://cisgw3.law.pace.edu/cases/900926g1.html>; Hamburg Chamber of Commerce, Partial award of 21
March 1996 <http://cisgw3.law.pace.edu/cases/960321g1.html>; ICC case 8611/HV/JK of 23 January 1997
<http://cisgw3.law.pace.edu/cases/978611i1.html>.
62. Vienna Arbitration proceeding SCH-4318, 15 June 1994
64. See, for example, Rheinland Versicherungen v Atlarex, District Court Vigevano, 12 July 2000
(Italy) <http://cisgw3.law.pace.edu/cases/000712i3.html>.
65. C G Orlandi, 'Procedural Law Issues and Law Conventions', 5 Uniform L Rev 23 (2000),
<http://www.cisg.law.pace.edu/cisg/biblio/orlandi.html> quoting V Denti in n 29.
70. See ICC case No 5946 of 1990 (Collection of ICC Arbitral Awards: 1991-1995 (compiled by
J J Arnaldez, Y Derains, and D Hascher), ICC Publishing -- Kluwer Law International, Paris -- Hague --
London, 1997, p 46), where the contract was governed by the laws of New York. The tribunal applied the
standard of 'reasonable certainty' as part of the law of New York. This seems to indicate that the standard was
applied as part of the applicable substantive law since the law governing the contract is normally intended to
deal with substantive matters arising from the contract.
71. Delchi Carrier, S.p.A. Plaintiff, v Rotorex Corporation, Defendant, 88-CV-1078, United States
District Court for the Northern District of New York, 9 September 1994
<http://cisgw3.law.pace.edu/cases/940909u1.html>.
72. Appellate Court Celle 2 September 1998 (Germany)
74. District Court Munchen, 20 February 2002 (Germany)
<http://cisgw3.law.pace.edu/cases/020220g1.html>.
77. See, for example, Treitel, n 4, p 192 stating that '[m]ost systems of law impose some requirement as
to "certainty" of damage, but the requirement is not in any of them regarded as an absolute one'.
78. District Court Hasselt, 18 October 1995 (Belgium)
<http://www.unilex.info/case.cfm?pid=1&do=case&id=266&step=Abstract>); District Court Hasselt, 2 May
1995 (Belgium), <http://cisgw3.law.pace.edu/cases/950502b1.html>; District Court Kortrijk, 4 June 2004 (Belgium) <http://cisgw3.law.pace.edu/cases/040604b1.html>.
81. P J McConnaughay, 'Rethinking the Role of Law and Contracts in East-West Commercial
Relationships' (2001) 41 Virginia J Int'l L 427 at 470 with further references.
83. 'The general principles of law recognised by civilised nations' is listed as one of the sources in Art 38
in the Statute of the International Court of Justice. For discussion of these sources of law see, for example,
Note, 'General Principles of Law in International Commercial Arbitration' (1987-88) 101 Harvard L Rev
1816; B Cheng, 'General Principles of Law as Applied by International Courts and Tribunals' <http://tldb.uni-koeln.de/php/pub_show_document.php?pubdocid=101100>.
88. ICC case No 5418 of 1987 (see Collection of ICC Arbitral Awards 1986-1990, above, n 39, p
90. ICC case No 5294 of 22 February 1988 (see Collection of ICC Arbitral Awards 1986-1990, n
39, p 188).
93. District Court of Kuopio, 5 November 1996 (Finland),
<http://cisgw3.law.pace.edu/cases/961105f5.html>; post-1989 CIETAC Arbitration proceedings (Contract
#QFD890011), <http://cisgw3.law.pace.edu/cases/900000c1.html>.
94. CIETAC Arbitration proceedings 1995,
<http://www.unilex.info/case.cfm?pid=1&do=case&id=210&step=Abstract>; Tribunal de commerce, Namur,
15 January 2002 (Belgium), <http://cisgw3.law.pace.edu/cases/020115b1.html>.
95. District Court Gottingen, 20 September 2002 (Germany),
<http://cisgw3.law.pace.edu/cases/020920g1.html>.
96. Appellate Court Hamburg, 5 October 1998 (Germany),
<http://cisgw3.law.pace.edu/cases/981005g1.html>.
97. See, for example, art 17(1) of the ICC Rules on Arbitration ('The parties shall be free to agree upon
the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute. In the absence of any such
agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate').
98. CISG: 'Reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly
alluded to elsewhere in the Uniform Sales Law' (Editorial comments by A H Kritzer,
<http://www.cisg.law.pace.edu/cisg/text/reason.html#schl>). PECL: as comments on art 1:302 explain, various
provisions of the PECL are based on the notion of reasonableness. See also art 1:302 for the definition of
100. See District Court Saane, n 52, where although the exact amount of damages could not be
established, the court was persuaded that the seller had suffered some loss.