Comparative and normative analysis of damages under the SGA and the CESL.

• Author: Beheshti, Reza
• Position: Sale of Goods Act of 1979, Common European Sales Law - Symposium on Contracts

INTRODUCTION

This article strives to analyze the rules concerning monetary damages under two different legal regimes for the sale of goods: the Sale of Goods Act of 1979 (1) ("SGA") and the Proposal for a Common European Sales Law in 2011 ("CESL"). (2) It is not the purpose of this article to provide an exhaustive exposition of the doctrines of either regime. Instead, the focus will be on the central aspects of monetary damages, such as the aim of damages and general rules governing the measure of damages. It should be noted that inevitably there will be some references to the commentaries on the United Nations Convention on Contracts for the International Sale of Goods of 1980 (3) ("CISG"), as there is only a limited (though growing) body of literature concerning the CESL. Moreover, the CESL has textual uniformity with the CISG; this fact can particularly be seen on the rules governing damages. (4) As Loss and Schelhaas have stated: "[t]he right to claim damages is regulated in a similar way in both instruments, which means that CESL does not provide commercial contracts with any better opportunities than does CISG in this regard." (5) This might be seen a rational reason for applying the CISG to cases where the parties have chosen the CESL as the governing legal regime.

Damages are examined in the context of international sales of "manufactured goods." Manufactured goods can be broadly classified in two groups: first, similar manufactured goods produced in large volumes; second, manufactured goods conforming to the special orders of buyers (reflected in contract terms), i.e. unique or bespoke goods. The former group constitutes the larger part of manufactured goods, and this will be taken into account in this article. (6) Manufactured goods produced in large volumes are strictly neither "fungible goods" nor "unique goods." These goods are something between these two categories of goods. In other words, they have characteristics of both fungible and unique goods, but in nature they are different. Their difference arises from the fact that they have been manufactured on the basis of the special orders and that their equivalent could also be found in the market. They are similar to unique goods, as they have been produced on the basis of special orders reflected in the contract terms. They are similar to fungible goods, as their equivalents can be found in the market. They can therefore be called "innominate goods." A helpful example of these sorts of goods are cars.

Additionally, this article will attempt to explore those aspects of the law of damages that shed light on the degree to which the criteria of an evaluative framework are satisfied. This novel evaluative framework consists of tests of certainty, performance interest, efficiency, and the norms of relational theory of contract. These criteria will be explained later. (7) The existing differences between the rules governing damages under these two legal regimes are compared on the basis of this evaluative framework in order to identify which system has adopted the better approach for compensating buyers of "innominate goods." In the following section, the law of damages under the SGA and the CESL will be outlined, with the central aspects being identified and explained in the context of those two legal regimes. (8) In the second substantive part of this article, the major differences between the laws of damages under these two legal regimes will be compared and evaluated. (9)

1. DAMAGES UNDER THE SGA

   1. RIGHT TO DAMAGES

      Damages are the standard remedy in English law and "[t]he action for damages is always available, as of right, when a contract has been broken." (10) Damages must be awarded for any breach of contract that causes loss to the buyer. (11) Loss includes (1) "any injury to ... [a party's] present economic rights ...; [(2)] any diminution [to a party's] previous financial position ...; [or (3) a party's] failure to obtain the use of a physical object or an economic or other non-physical advantage...." (12) Loss can be generally classified in two groups: pecuniary loss and nonpecuniary loss. Pecuniary loss contains two main forms. The first form, normal pecuniary loss, occurs because of breach, such as loss of bargain. (13) The second form deals with consequential loss: "expenditure or loss of profit over and above the loss of or diminution in the value of the immediate subject matter of the contract." (14) Non-pecuniary loss includes, but is not limited to, "pain and suffering, physical inconvenience, loss of enjoyment, and mental distress." (15) As this article addresses international commercial sales of goods, the focus will be on remedies corresponding with the pecuniary losses because commercial actors normally make contracts in order to make profits and maximize their wealth. In other words, they will seek to achieve a remedy that will put them in the same financial position they would be in if the expected benefit had flown from the contract, which was breached by other party. Therefore, commercial actors are mainly concerned with available remedies that can compensate their pecuniary losses and they might ignore the ways for compensating their non-pecuniary losses.

   2. AIM OF AWARDING DAMAGES

      Burrows has asserted that: "[a]t a high level of generality, one can say that there are six main purposes that might be pursued by judicial remedies for breach of contract: compensation, specific enforcement, prevention, declaring rights, restitution and punishment. Of these six, English law pursues the first four but not the last two." (16) The aim of an award of damages for breach of contract is to compensate the injured party for his loss that occurred as a result of the breach. (17) In Alfred McAlpine Construction v. Panatownn (18) the court explained that the general rule is that "damages for breach of contract are compensatory...," (19) The basis of an award of damages for breach of contract under the English contract law has been expressed in the dictum of Parke, B. in Robinson v. Harman: "[t]he rule of the common law is, that where a party sustains loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed." (20) Also, Fuller and Perdue have noted that the "object [of damages] is to put the plaintiff in as good a position as he would have occupied had the defendant performed his promise." (21)

      Damages give the claimant the money equivalent to his entitlement under the contract. (22) However, Vernon has offered a more precise and clearer exposition of the aim of damages: "to place the aggrieved party in the financial position that party would have occupied had the contract been performed...," (23) This exposition is more accurate, as it has clarified that the money awarded seeks to put the injured party in "the [financial] position" he would be in if the contract was performed. The aim is therefore to protect the claimant's "expectation interest." (24) The reason for protecting the expectation interest might be the fact that "the function of exchange is to realise [sic] a surplus, the central concept of Toss' following a breach of contract is [the claimant's] failure to obtain the future expected surplus." (25) In other words, damages seek to "achieve the post-performance situation, which is to be contrasted with the attempt in the law of tort [] to restore the pre-accident situation." (26) However, the injured party may also have a "'reliance interest,' which should be protected by the award of damages...." (27) Reliance interest relates to the expense or loss which has occurred to the claimant on the basis of the expected performance of the promise made by the defendant "which is wasted by the breach." (28) Therefore, the claimant is entirely free to elect between a claim for his lost benefits (expectation interest) and one for wasted expenditure (reliance interest). As stated in Anglia Television v. Reed, (29) "[the plaintiff] can either claim for loss of profits; or for his wasted expenditure. But he must elect between them. He cannot claim both." (30)

   3. GENERAL MEASURE OF DAMAGES

      The general measure of damages is reflected in SGA [section] 51(2): "The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller's breach of contract." (31) This rule applies where there is no available market for the contract goods. Although, this rule provides the way of quantifying damages, it also deals with one rule that limits damages. This limitation rule is called "forseeability test" or '"remoteness of damages" and will be considered below.

      Where there is an available market for the goods in question, the measure of damages is the difference between: (a) the market price of the relevant goods at the time fixed for delivery and at the place fixed for delivery, and (b) the contract price. (32) This method of calculation is called the "abstract method." (33) This doctrine requires the buyer to take reasonable steps in finding a seller in the available market. This duty imposed by law is called the "duty to mitigate" that aims to protect the "expectation interest" of the buyer. The duty to mitigate requires the buyer to go to the market and buy immediately the goods similar to the contract goods and, accordingly, put himself in a financial situation as if the contract was performed. The aim of protecting the expectation interest has been reflected in SGA [section] 51(3). This section provides: "[w]here there is an available market for the goods in question[,] the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods ...," (34) This section highlights the market price rule, in which with the difference between the contract price and market price, the buyer is enabled to buy...