Article 84 as a Possible Basis for Granting Disgorgement

Although Art. 74 has gathered most of the attention from authors contemplating disgorge-ment under the CISG,²²⁸ another option in the form of Art. 84 has been suggested to allow disgorgement of profits for example to a buyer who has fallen ‘victim’ to a seller’s non-performance by way of selling the goods to a higher bidder.²²⁹

226 Id. See also Djokhongir Saidov & Ralph Cunnington, Current Themes in the Law of Contract Dam-ages: Introductory Remarks, in Contract DamDam-ages: Domestic and International Perspectives, Hart Publish-ing (May 2008), at 25-27.

227 Which, arguably, are observable in the debate about the significance of good faith.

228 See Schmidt-Ahrendts (n 20), at 90. Schmidt-Ahrendts is of the view that the only possible option for applying disgorgement is Art. 74. Cf. Robert A. Hillman (n 229).

229 See generally Robert A. Hillman, Applying the United Nations Convention on Contracts for the International Sale of Goods: The Elusive Goal of Uniformity, Cornell Review of the Convention on Con-tracts for the International Sale of Goods (1995) 21-49. It should be noted that even though Hillman applies Art. 84(2) in his line of reasoning, he argues that ultimately it is the general principles which warrant the application of disgorgement under the CISG.

49 This solution would inevitably require a form of analogous application of Art. 84(2), since the provision deals with situations where the contract has been declared avoided, as the provision deals with restitution of benefits.²³⁰ We should bear in mind that no direct link exists between damages and restitution under the doctrine of the CISG. In fact, restitution of unjust gains is an alternative to the other remedies available to the injured party.²³¹ The CISG stipulates that restitution measures become available for parties only when the con-tract has been avoided.²³²

This approach would require analogical interpretation also, since Art. 84(2) stipulates that the buyer’s duty in the said circumstance, as opposed to the seller’s, is as follows: “The buyer must account to the seller for all benefits which he has derived from the goods or part of them”.

Robert Hillman has argued that the underlying principles and aims of the Convention, such as encouraging to the completion of contracts, the promotion of trust and coopera-tion, supporting planning, and reducing transaction costs, should be interpreted to allow the analogous application of Art. 84 to the effect of allowing disgorgement of the seller’s profits from selling to a third party.²³³

At least, we can say that based on Art. 84(2), the idea or the legal obligation of stripping a party from its actual profit is not entirely foreign to the CISG. Another issue I wish to touch upon here relates to the CISG Advisory Council Opinion No. 14, which is titled:

“Interest Under Article 78 CISG”.²³⁴ Issued in 2013, this Opinion is rather recent, and although it deals with a different provision from the one discussed here, it manages to explicitly connect Art. 84 to disgorgement. The following statement is made to that effect:

“Two different approaches to the award of interest must be

distinguished: Whereas Article 84 has a restitutionary character and

230 Article 81(2) CISG stipulates the general applicability of restitution after avoidance of contract.

231 CISG-AC Opinion No. 9, ‘Consequences of Avoidance of the Contract’, Rapporteur: Professor Michael Bridge, London School of Economics, London, United Kingdom. Adopted by the CISG-AC following its 12th meeting in Tokyo, Japan on 15 November 2008, at 1.5; Ulrich Magnus, The Remedy of Avoidance of Contract Under CISG - General Remarks and Special Cases, 25 Journal of Law and Commerce 2005-2006, at 423.

232 Art. 26, Section V CISG; Magnus (n 231), at 426. See also Christiana Fountoulakis in: Schlechtriem &

Schwenzer, Schlechtriem Peter, Schwenzer Ingeborg (Eds.), Commentary on the UN Convention on the International Sale of Goods (CISG), 3rd ed., Oxford 2010, at 1132, Art. 84 is meant to operate to restore parties to the economic position that they were in prior to the formation of the contract. It can be argued that this is so fundamentally different from disgorgement that the analogy is simply not plausible.

233Hillman (n 229), at 36.

234 CISG Advisory Council Opinion No. 14, ‘Interest under Article 78 CISG’, Rapporteur: Professor Doctor Yesim M. Atamer, Istanbul Bilgi University, Turkey. Adopted unanimously by the CISG Advisory Council following its 18th meeting, in Beijing, China on 21 and 22 October 2013.

50 reflects the idea of disgorgement, Article 78 follows similar principles to damages and aims at compensation.”.²³⁵

Although it may not seem like it at the first glance, that sentence has much to unpack.

First of all, it is duly noted that the relevant context is about paying interest pursuant to Art. 78 and this alone might raise objections about the following points.²³⁶ However, the CISG Advisory Council, which consists of highly regarded experts, would surely never slip out such a statement by accident.²³⁷

What is noteworthy about the above-quoted sentence is that as opposed to suggesting that Art. 84 reflects the principle of unjust enrichment²³⁸ or any other more ambiguous legal principle, it states that the said provision reflects a distinct and quite controversial alter-native remedy for compensatory damages. One instance of referring to ‘disgorgement’ in the Opinion is the following: ”Whenever disgorgement of accrued benefits is in the fore-ground, Article 84 applies.”, which seemingly answers the question of which provision applies to disgorgement.

When we combine this with the comments provided in the CISG Advisory Council Opin-ion No. 10, which, in turn, recognizes the ‘paradigm shift’ in the law of damages towards emphasizing the role of damages in protecting party’s “interest in the performance of the contractual obligations owed”,²³⁹ it might not be unreasonable to wonder whether or not this implies that the views regarding the applicability of disgorgement under the CISG are in a flux.

Taking into consideration that disgorgement was not discussed during the drafting pro-cess of the CISG, it is highly notable for a group of experts to agree that certain provision of the Convention reflects the idea of disgorgement. Could it be that while Art. 74 reflects the principle of full compensation, Art. 84, in turn, could provide a safety valve for the

235 Id., at para 2. (emphasis added).

236 Incidentally, the issue of paying interest under the CISG was also discussed in the context and ultimately resolved through analogous application.

237 Ingeborg Schwenzer was the Chair of the Advisory Council which issued this particular opinion (No.

14). It is also noteworthy that the Opinion uses the term ’disgorgement’ several times, leaving no doubt about the deliberateness of choosing the term.

238 Cf. Phanesh Koneru, ‘The International Interpretation of the UN Convention on Contracts for the Inter-national Sale of Goods: An approach based on General Principles’, 6 Minn. J. Global Trade 105 (1997), at 127; Ingeborg Schwenzer & Pascal Hachem, Article 7 in Schlechtriem & Schwenzer, Commentary on the UN Convention on the International Sale of Goods (CISG), (3^rd ed. Oxford University Press 2010), at 139.

239 CISG Advisory Council Opinion No. 10, Agreed Sums Payable upon Breach of an Obligation in CISG Contracts, Rapporteur: Dr. Pascal Hachem, Bär & Karrer AG, Zurich, Switzerland. Adopted by the CISG-AC following its 16th meeting in Wellington, New Zealand on 3 August 2012, at cmt. 4.3.4. The Opinion also makes a reference to the Attorney-General v Blake [2001] 1 AC 268 (H.L.), a famous common law disgorgement precedent.

51 execution of performance principle? Interestingly, this solution would fall along similar lines with the above-explained dynamics of the R3RUE, which at its core deals with res-titution, but was supplemented with disgorgement as an ‘exception clause’ for unusual cases.

As the idea of granting disgorgement by applying Art. 84 has been floated far before the publication of the Opinion No. 14, the council members had to be aware of the existence of this line of reasoning. This also lessens the credibility of any suggestion that the men-tioning of disgorgement in connection with Art. 84 bears no significance.

At this point, the above-examination on the part of individual remedial provisions of the CISG is sufficient to proceed to address principles guiding the interpretation of the CISG and their significance over this question.

52