Private Law Reform in South East Europe

8/16/2019 Private Law Reform in South East Europe

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Milena ĐORĐEVIĆ, LL.M. (U. Pittsburgh)Lecturer, University o Belgrade Faculty o Law

‘MEXICAN REVOLUION’ IN CISGJURISPRUDENCE AND CASE-LAW:

AORNEYS’ FEES AS (NON)RECOVERABLELOSS FOR BREACH OF CONRAC*1

Abstract

his article examines whether attorneys’ ees incurred in litigation constitute a losswithin the meaning o Article 74 o the CISG. he methodology used to answer thisquestion includes: interpretation o the Convention with due regard to its internationalcharacter and the need to promote uniormity in its application; comparative surveywith regard to legal classiication o recovery o attorneys’ ees as a procedural orsubstantive issue; analysis o relevant international instruments, including ALI/ UNIDROI Principles o ransnational Civil Procedure and numerous rules o arbitral

institutions, and examination o existing case law where the CISG was applied. heauthor concludes that attorneys’ ees incurred in litigation are not a ‘loss suered as aconsequence o breach o contract,’ but rather a speciic kind o procedural expendituresubject to dierent rules o reimbursement.

Key words: CISG, damages, loss, attorneys’ ees, litigation, substance-procedure distinction, autonomous and uniorm interpretation o the Convention.

Dr. Christa Jessel-Holst has aected many young scholars rom Serbia and theregion in their work on comparative and international private law. Not only that

she has enabled them access to important resources or their academic research buther expertise and warm personality were a strong impetus and inspiration or theestablishment or extension o cooperation between scholars rom the countries oormer Yugoslavia. his cooperation resulted in a highly constructive exchange oideas on some o the most important issues o harmonization o domestic privatelaw with contemporary legal developments on the global and European level. It isthereore my privilege and great pleasure to contribute to this Liber Amicorum, tohonor Christa Jessel-Holst’s past achievements and to show my sincere appreciationor our long and ruitul riendship and collaboration in this manner.

* I wish to thank Pro. Harry Flechtner rom the University o Pittsburgh School o Law or thelong-term exchange o thoughts and ideas on this topic which I ound to be extremely valuable infinalizing this paper. I would also like to thank a colleague o mine, Marko Jovanovic, who tookthe time to review, comment and edit this paper. Any errors o act or law are, o course, mine.


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200 Milena Đorđević

his contribution will address one o the most debated issues arising out o theapplication o the 1980 UN Convention on Contracts or International Sale o Goods(hereinater reerred to as the CISG or the Convention),1 which despite the 30th anniversary o this act still represents an insurmountable obstacle to uniied

interpretation and application o the Article 74 o the CISG – the issue orecovery o attorneys’ ees. It has been the source o many controversies andconlicting opinions amongst legal scholars, courts and arbitral tribunals. heanniversary o the CISG, which coincides with the anniversary o ChristaJessel-Holst’s work at the Max Planck Institute in Hamburg, seemed as anappropriate occasion to elaborate on this issue herein. Furthermore, giventhat this paper stems rom research that I have conducted in Hamburg ormy doctoral dissertation under her guidance, it seemed more than proper toshare the results o my work in this publication.

I. INRODUCION

Emiliano Zapata is celebrated throughout Mexico as a true hero o revolutionagainst the dictatorship o Poririo Diaz at the beginning o the 20th century. Heought or social reorm, including agrarian reorm and restoration o land to thecitizens o Mexico under the slogan ‘ierra y Libertad’ (land and liberty). Althoughthe newly established government had not shared his goals and had even arrangedor his murder, the name o Emiliano Zapata lives on and his commitment to social justice is remembered by all Mexicans.2

One century later, the name o Emiliano Zapata has reappeared to mark thebeginning o perhaps another revolution, but this time in the ield o the lawo contracts – more precisely, in the area o the law o damages or breach ointernational sales contracts. Namely, in a 2001 case Zapata Hermanos Sucesores,S.A. v. Hearthside Baking Co (hereinater reerred to as the Zapata case) , beore the US Federal District Court or Northern District o Illinois, Eastern Division,the plainti-seller sued the deendant-buyer or breach o contract (ailure topay the price) and sought recovery o losses suered as a consequence o suchbreach.3 Given that the parties had their respective places o businesses in dierentContracting States to the CISG, i.e. Mexico and the United States, the court applied

the Convention and ruled in avor o the plainti. At the irst glance, this outcomedoes not seem surprising. However, it is important to note that not only did theCourt decide that the seller had the right to claim damages but it also ound that thedamages request is grounded in part in which the seller claimed compensation orhis litigation expenses including attorneys’ ees representing a consequence o buyer’sbreach in the seller’s view.

1 Te CISG has now been ratified by 76 countries, thus representing the global code or internationalsales contracts. See (last visited on July 16, 2010).

2 See ; ; (last visited on June 11, 2010).

3 Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., etc., 2001 U.S. Dist. LEXIS 15191 and2001 WL 1000927 (N.D. III), available at: .


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‘Mexican Revolution’ in CISG Jurisprudence and Case-Law 201

In majority o jurisdictions, the rules on recovery o costs o civil proceedings,including legal costs o the parties (such as attorneys’ ees), are contained in thecodes on civil procedure.4 Also, in a vast majority o jurisdictions there is a rulewhich requires the ‘losing’ party to reimburse the ‘winning’ party or its legal costs

incurred in the proceedings5 (‘loser pays,’ ‘costs ollow the event’, ‘ee shiting’ or‘English rule’6). Consequently, not only is the issue o legal costs rarely (i ever)included in the damages claim and awarded on that basis, but the legal nature osuch loss is oten speciied in national legal doctrines as loss distinct rom the lossthat arises out o a breach o contract.7 Hence, the decision o the US court to grant

4 See J. Gotanda, ‘Damages in Private International Law,’ 326 Recueil des cours 73 (Hague Academyo International Law, Martinus Nijhoff Publishers 2007) at pp. 269–289 (containing a survey onational laws on the awarding o costs and ees in Europe, North America, Latin America, Oceania,Asia and the Middle East); R. Jackson (Royal Courts o Justice, London), Review o Civil LitigationCosts: Preliminary Report, Vol. 1 and Vol. 2, May 2009 (containing a survey o national laws on theawarding o costs and ees in England, Wales, Scotland, Germany, France, the Netherlands, Australia,New Zealand, the USA, Canada and the Eastern Caribbean), available at: ; S. Cromie, International CommercialLitigation (London, Butterworths 1990) at pp. 229–254. For practitioners and academic reports oncosts o litigation in 33 jurisdictions, prepared or the purposes o the International Conerenceon Litigation Costs and Funding organized by the Centre or Socio-Legal Studies and the Instituteo European and Comparative Law o the University o Oxord in July 2009, see: .

5 Ibid.

6 As an underlying rationale o the ‘loser pays’ rule the ollowing policies have been quoted: 1.

punishing the losing party, 2. indemniying the winning party and 3. deterring rivolous and badaith litigation (J. Gotanda, ‘Awarding Costs and Attorneys’ Fees in International CommercialArbitrations,’ 21 Michigan Journal o International Law 1 (1999) at p. 5). It has also been said thatthis rule assist the parties to finance their litigation, is a actor in the settlement process and helpsminimize the potential or damages awards to be eroded by the costs o litigation (Australian LawReorm Commission Report No. 75, Costs shifing – who pays or litigation, August 1995, p. 49). Te‘loser pays’ rule is controversial in certain types o litigation but is generally considered appropriatein commercial litigation and is typically stipulated in commercial contracts (comment P–25Ato the 2006 ALI/UNIDROI Principles o ransnational Civil Procedure, Uniorm Law Review2004–4, 758 at p. 802, available at: ). For a critical overview o different rationales o a ‘ee shifing’ rule,see: . Rowe, ‘Te Legal Teory o Attorney Fee Shifing: A Critical Overview’, 1982 Duke Law

Journal 651 (1982) pp. 651–680.7 In Serbian legal doctrine, or example, the obligation to reimburse attorneys’ ees to a successul

litigant is said to arise out o the law itsel (obligatio ex lege) and should not be conused with therequest or damages (B. Poznić, Komentar Zakona o parničnom postupku prema tekstu Zakona iz1976. godine sa docnijim izmenama i dopunama [Commentary o the 1976 Law on Civil Procedurewith amendments] (Službeni glasnik, Beograd 2009), at p. 320; B. Poznić and V. Rakić-Vodinelić,Građansko procesno pravo [Law o Civil Procedure] (Beograd, Savremena administracija 2010) at p.435; A. Jakšić, Građansko procesno pravo [Law o Civil Procedure] (Beograd, Službeni glasnik 2009)at pp. 512–513). In Croatia, duty to compensate the winning litigant or its costs incurred duringthe proceedings is an autonomous obligation regulated by procedural rules and independent romthe substantive relationship which is the subject matter o the proceedings (S. riva and M. Dika,

Građansko parnično procesno pravo [Law o Civil Procedure] (Zagreb, Narodne novine 2004) p.462). In Japanese legal doctrine, it has been stated: ‘Te cost o litigation [including attorneys’ ees]is not directly related to the actual right claimed and should instead be considered as the cost ordispute resolutions related to such right .’ (. Ninomiya, ‘Funding, Costs and Proportionality in Civil


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the seller’s claim in this respect in the Zapata case represented a revolution o a sortin the ield o contract law and, more speciically, in the ield o interpretation oArticle 74 o the CISG. Furthermore, unlike the majority o countries which ollowthe ‘loser pays’ principle, the US courts generally do not require the losing party to

reimburse the winning party or its legal expenses (‘American rule’8). Consequently,it is sae to say that the Zapata decision marked the beginning o a ‘revolution’ inthe ield o litigation beore US courts.

Despite the act that this decision was later reversed on appeal by the U.S. FederalCourt o Appeals or the 7th Circuit9 and that the said ‘revolution’ was at least in the

Justice Systems in Japan,’ at p. 17, available at: ). In Danish legal doctrine, the rationale or the ‘loser pays’principle is explained as ollows: ‘Te decisive condition or having to pay costs is the act that thecase is lost. In other words, this is an area where there is liability without culpability .’ (A. Ørgaard,

Report, available at: ). In the Netherlands, ‘[o]riginally [the] principle o liability or procedural costswas ounded on the notion that the losing party had committed tort. Shortly afer this rule o lawwas implemented, however, the general opinion on this notion changed. Equity and justice, ratherthan tort, should be at the root o the rule that the losing party has to bear the procedural costs. ’(see Comparative Project on Litigation Costs and Funding Systems: the Netherlands, at p. 1,available at: ). In the US, under the usual approach o U.S. courts, damages provisions o the UniormCommercial Code are not construed so as to authorize recovery o a successul litigant’s attorney’sees absent a specific reerence to such recovery in the express language o the statute (H. Flechtner,‘Recovering Attorneys’ Fees as Damages under the UN Sales Convention: A Case Study on theNew International Commercial Practice and the Role o Case Law in CISG Jurisprudence, withComments on Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co.’ 22 Northwestern Journalo International Law & Business 121 (2002) at p. 138).

8 Award o attorneys’ ees is the rule prevailing in most legal systems, although, or example, notin China, Japan and the United States (however, even in these countries there are exceptions justiying or reimbursement o attorneys’ ees). See J. Gotanda, loc. cit. n. 6, at pp. 12–13. Terationale behind this regulation in the US is said to be that: ‘[O]ne should not be penalized ormerely deending or prosecuting a lawsuit and […] the poor might be unjustly discouraged rominstituting actions to vindicate their rights i the penalty or losing included the ees o their opponents’counsel.’ See judgment o the US Supreme Court in Arcambel v. Wiesman, (3 U.S. 306 (1796)).

9 Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., 313 F.3d 385 (7th Cir. 2002), availableat: . What ollowed afer this decision is thatthe U.S. Court o Appeals denied a rehearing en banc on 9 January 2003 (2003 U.S. App. LEXIS375). A petition or writ o certiorari was filed to the Supreme Court o the United States in2003 and an amicus curiae brie was submitted by the International Association o Contract andCommercial Managers and the Institute o International Commercial Law o the Pace UniversitySchool o Law, given that they ound this proceedings to be o the outmost significance not onlyor proper resolution o the conflict over the meaning o Art. 74, but also more generally orclariying the interpretative rules that courts must ollow in applying the CISG. In the end theU.S. Supreme Court requested the U.S. Solicitor General to express a view o the United States inthis case (Supreme Court Reporter 123, 2599.). Te Solicitor General expressed his view that thePetition ought to be rejected and it was eventually denied by the Supreme Court on 1 December2003 by the U.S. Supreme Court (124 S.Ct. 803). See Case History, available at: . Te view expressed in the Zapata case on appeal was laterollowed in two other cases: see judgment o U.S. Federal District Court, Northern District oIllinois, Eastern Division in Ajax ool Works, Inc. v. Can-Eng Manuacturing Ltd. (2003 U.S. Dist.LEXIS 1306) o 29 January 2003, available at:


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US thus brought to an end, the Zapata case continues to attract considerable interestand give rise to debates amongst legal scholars worldwide. he signiicance o thistopic is not only academic but practical as well, given that the amount o legal costs inan international commercial setting can be rather high,10 sometimes even exceedingthe amount in dispute.11 Consequently, the early assessment o (non)recoverabilityo such costs may discourage the aggrieved party rom taking legal recourse againstthe breaching party unless a satisactory costs allocation is agreed on by the partiesin advance. As stated by Eric Schwartz: ‘When an international commercial disputearises, the cost o resolving it may be as important to the parties as the merits o theclaims themselves.’12 he possibility o recovering attorneys’ ees as damages isparticularly important in countries where legal costs are not recoverable under thepertinent procedural rules , but it is also important in ‘loser pays’ countries since sucha possibility would require change o their long established practice o awarding legal

costs under the procedural codes and rules (and not as part o the damages claim). 13

>; judgment o U.S. District Court, Western District o Pennsylvania in Norolk Southern RailwayCompany v. Power Source Supply, Inc. (2008 U.S. Dist. LEXIS 56942) o 25 July 2008, available at:.

10 In the Zapata case itsel the amount o attorneys’ ees claimed by the successul litigant amountedto more than hal o the main claim or purchase price (US $550,000). Similarly, in one ICC case,the prevailing respondent was awarded UK £500,000 or legal costs (final award No. 4975 (ICC1988), reprinted in 14 Y.B. Com. Arb. 122, pp. 136–137 (1989)). In ICSID cases legal costs mayamount to several millions o US dollars. E.g. in Plama Consortium Limited v. Bulgaria (ICSIDCase No. ARB/03/24, award o 27 August 2008) the prevailing party was awarded US $7 million

or legal costs (hal o the amount it claimed), available at: ; in Southern Pacic Properties Ltd. v. Egypt (ICSID Case No. ARB/84/3,award o 20 May 1992, reprinted in 19 Y.B. Com. Arb. 51, at pp. 82–83 (1994)), the prevailing partywas awarded $5 million or costs and attorneys’ ees.

11 J. Gotanda, loc. cit. n. 6, at pp. 2–3; B. Hanotiau, ‘Te parties’ costs o arbitration’ in Yves Derains,Richard Kreindler, eds., Evaluation o Damages in International Arbitration (Paris, Dossiers o theICC Institute o World Business Law (ICC Publication No. 668) 2006) at p. 213. For an overviewo the amount o attorneys’ ees incurred in litigation beore national courts see World Bank‘Doing Business Report’ or 2009, available at: . According to this Report, the costs o legal representation in litigation inSerbia, amounted to 9,43% o the value o the claim, in average. In the US they amounted to 8%, in

Germany to 8,78%, in France to 10,7%, and in UK to 19,6%; but in some countries they exceededthe value o the claim (in Democratic Republic o Congo, Indonesia, Malawi, Sierra Leone andimor-Leste).

12 E. Schwartz, ‘Te ICC Arbitral Process, Part IV: Te Costs o ICC Arbitration’, 4 ICC InternationalCourt o Arbitration Bulletin 8 (1993) pp. 8–23.

13 Tis would impact not only the legal basis under which the recovery o these expenses is beinggranted but also the conditions or their reimbursement (subject to the oreseeability limitationo Art. 74 CISG and mitigation principle o Art. 77 CISG) and the method o their calculation,since the CISG would then preempt the otherwise applicable domestic law. In some jurisdictions,including Serbia, the amount o recoverable legal ees is calculated on the basis o tariffs andschedules o attorneys’ ees published by the Bar Association (or other institution) and dependent

o, inter alia, the type o dispute, amount involved, nationality o the client, type and number oservices rendered etc. For different limitations on awards o attorneys’ ees in European countriessee J. Gotanda, Supplemental Damages in Private International Law, (Te Hague, Kluwer LawInternational 1998) at pp. 152–153, 157–158.


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his paper will attempt to summarize the diverse opinions regarding this issueand suggest perhaps a dierent view on this matter. he irst part o the paperprovides a short overview o Article 74 o the CISG and the meaning o the word‘loss’ used in that Article. he second part o the paper contains a presentation and

criticism o the views against recovery o attorneys’ ees under the CISG, whilst thethird part will summarize the opinions o those scholars who justiy recovery oattorneys’ ees as damages or breach o contract. In ourth part o the paper theauthor concludes with her own understanding o this subject.

II. RIGH O CLAIM DAMAGES UNDER HE CISGAND CALCULAION OF DAMAGES

Articles 45 and 61 o the CISG constitute legal bases or the award o damages

to the aggrieved party under the Convention. Article 74 o the CISG, on the otherhand, constitutes a general rule or the calculation o damages.14 It states:

‘Damages or breach o contract by one party consist o a sum equal to the loss, includingloss o proit, suered by the other party as a consequence o the breach. Such damagesmay not exceed the loss which the party in breach oresaw or ought to have oreseen at thetime o the conclusion o the contract, in the light o the acts and matters o which he thenknew or ought to have known, as a possible consequence o the breach o contract.’

Hence, in order or damages to be recoverable under Article 74 o the CISG,the ollowing three elements have to exist: (1) breach o contract, (2) loss sueredas a consequence o the breach and (3) oreseeability o such loss at the time oconclusion o the contract by the party in breach. he amount o damages socalculated may be reduced under the principle o mitigation o loss laid down inArticle 77 o the CISG, or the debtor may be exempted rom paying damages inentirety under Articles 79 and 80 o the CISG.

he CISG does not speciy what types o losses are recoverable, except orclariying that besides the ‘actual loss’ (lat. damnum emergens) ‘loss o proit’ (lat.lucrum cessans) is also recoverable.15 his is reasonable, given the great varietyo breaches o contract that may give rise to a claim or damages, and given the

wide diversity o losses that may be suered as a consequence o such breaches.16

14 Arts. 75 and 76 CISG provide or special methods or calculation o damages in cases where the

contract was avoided. However, even in the case o avoidance, an aggrieved party is ree to opt orcalculation o damages under Art. 74 CISG.

15 Te specific reerence to loss o profit was deemed necessary because in some legal systems the concepto ‘loss’ as such does not include loss o profit. See Secretariat Commentary on Article 70 o the 1978Draf, para 3, available at: .

16 o name a ew: travel expenses o the aggrieved party in relation to conclusion and/or perormanceo the contract; ees or issuing and modiying the letter o credit; costs or acquiring a bank loanor the advance payment o the price; inspection costs and costs o repair o the non-conorming

goods; costs incurred while mitigating the loss; costs or lending the machines needed or the buyer’sproduction acilities (due to seller’s delay in delivery o such machines); reight and transshipmentreight; ees or loading and unloading; storage costs; import costs; VA; administrative penaltiesand other expenses incurred as a result o a breach o contract.


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Consequently, it would be impossible to list all types o losses. Not surprisingly, thelack o enumeration o the concrete types o recoverable losses in the CISG is inline with major contract laws worldwide. Consequently, given that the Article 74 isbased on the principle o ull compensation,17 it may be concluded that all kinds o

losses, suered by the party and caused by the breach, are recoverable in principle under the CISG.18 his conclusion is subject to an exception based on Article 5 othe CISG which speciies that the Convention does not apply to the liability o theseller or death or personal injury caused by the goods to any person. Consequently,losses suered as a consequence o death or personal injury caused by the goods toany person are not recoverable under the CISG.19

Moving back to the issue o attorneys’ ees as a recoverable loss, it is clear thatthe CISG does not expressly exclude this type o loss rom the category o losses thatmay be considered recoverable under Article 74. Although there is no suggestion inthe drating history o the Convention or in the cases where the CISG was applied

that ‘loss’ was intended to include attorneys’ ees, there is no suggestion to the

17 V. Knapp ‘Article 74’ in C. M. Bianca and M. J. Bonell, eds., Commentary on the International SalesLaw - the 1980 Vienna Sales Convention (Milan, Giuffrè 1987) at p. 543; J. Honnold, Uniorm Law or International Sales (Te Hague, Kluwer Law International 1999) at p. 445; I. Schwenzer ‘Article74’ in I. Schwenzer, ed., Schlechtriem & Schwenzer, Commentary on the UN Convention on theInternational Sale o Goods (CISG) (New York, Oxord University Press 2010) at p. 1000; CISG-ACOpinion No. 6, Calculation o Damages under CISG Article 74, para. 1, available at: . Also see award No. SCH–4366 o 15 June 1994, availableat: ; judgments o Austrian Supreme Courto 6 February 1996, available at: and 14 January2002 available at: ; judgment o the USFederal Court o Appeals or the 2nd circuit in the case Delchi Carrier, S.p.A. v. Rotorex Corp. o6 December 1995, available at: , etc.

18 See P. Huber ‘Damages’, in P. Huber, A. Mullis, Te CISG – A new textbook or students and practitioners (Munchen, Sellier 2007) at pp. 268–269.

19 As or the recovery o non-pecuniary losses, the CISG does not expressly call or their recovery,unlike Art. 7.4.2(2) o the UNIDROI Principles o International Commercial Contracts and Art.9:501(2)(a) o the Principles o European Contract Law. However, the act that certain types o lossesstemming rom the liability reerred to in Art. 5 CISG are not recoverable under the CISG does notnecessarily mean that all kinds o non-pecuniary losses are not recoverable under the CISG, suchas the loss o good will, i.e. loss to business reputation. Against recovery o non-pecuniary loss seeP. Schlechtriem, ‘Non-Material Damages – Recovery under the CISG,’ 19 Pace International LawReview (Spring 2007/1) at p. 90 et seq; J. Gotanda, ‘Awarding Damages under the United NationsConvention on the International Sale o Goods: A Matter o Interpretation,’ 37 Georgetown Journal oInternational Law 95 (Fall 2005) at pp. 129–130; CISG-AC Opinion No. 6, op. cit. n. 17, comment 7.1;award o the ribunal o International Commercial Arbitration at the Russian Federation Chamber oCommerce and Industry o 3 March 1995, available at: . For recovery o non-pecuniary loss in exceptional circumstances, such as i the contract hasan express non-material purpose and the loss is a typical consequence o the breach o contract orin the instances o loss to business reputation see: H. Stoll, G. Gruber ‘Article 74’ in P. Schlechtriemand I. Schwenzer, eds., Commentary on the UN Convention on the International Sale o Goods (CISG),(New York, Oxord University Press 2005) at p. 753; I. Schwenzer and P. Hachem, ‘Te Scope o the

CISG Provisions on Damages’ in D. Saidov and R. Cunningham, eds., Contract Damages: Domesticand International perspectives (Oxord, Hart Publishing 2008) at pp. 91–96; D. Saidov, Methods oLimiting Damages under the Vienna Convention on Contracts or the International Sale o Goods , § 5(December 2001), available at .


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contrary either. As a matter o act, certain pre-litigation/pre-arbitration legal costshave oten been reimbursed by the courts (tribunals) to the aggrieved party,20 orhave been deemed recoverable in principle.21 However, the recovery o attorneys’ees incurred in the litigation/arbitration was said to be o a dierent character

thus calling or a dierent treatment.22 As previously mentioned, this paper aims toexplore whether such standpoint is justiied.

III. RECOVERY OF AORNEYS’ FEES IS NO COVEREDBY HE CISG IS I REALLY HA OBVIOUS?

here are several authors who argue that the issue o recovery o attorneys’ eesis not regulated by the CISG and that, consequently, this issue needs to be solvedin conormity with the law applicable by virtue o the rules o private international

law. he justiication o such a position, though, is diverse. here are authors whoind this issue being a matter o procedural law and consequently not governed bythe CISG (1.), those who are basing their argument on the drater’s intent (i.e. lacko an intent to have this issue covered by the CISG) (2.), those who ind recovery oattorneys’ ees under the CISG against the principle o equality o the parties to thesales contract (3.) and those who ind the CISG principles not well-suited to dealwith the calculation o attorneys’ ees as recoverable loss (4.). Also, many authors justiy their position by combining two or more o these reasons. As or the case-law, it seems that the majority o the awards and judgments where the CISG wasapplied is in line with this standpoint given that the recovery o attorneys’ ees was

almost always required and awarded on the basis o procedural law o a orum (5.).1. Recovery o attorneys’ ees is a matter o procedural law –

‘Don’t mix apples and oranges’Given that the issue o recovery o costs o the proceedings, including attorneys’

ees, is almost always regulated by the provisions o the codes on civil procedure(or arbitration rules), some authors and judges (arbitrators) consider this issue as a

20 See Judgement o LG Potsdam o 7 April 2009, available at: ; judgment o Kantonsgericht Zug o 27 November 2008, available at: ; award o Foreign rade Court o Arbitration attached to the SerbianChamber o Commerce No. –09/07 o 21 January 2008, available at: ; judgment o LG Coburg o 12 December 2006, available at: ; judgment o OLG Köln o 3 April 2006, available at: ; judgment o AG Viechtach o 11 April 2002, available at: ; judgment o OLG Düsseldor o 22 July 2004, available at:; judgment o Handelsgericht des Kantons Aargauo 19 December 1997, available at: ; judgment oOLG Düsseldor o 11 July 1996, available at: ; judgment o LG Kreeld o 28 April 1993, available at: < http://cisgw3.law.pace.edu/cases/930428g1.html>. See also H. Stoll, G. Gruber, op. cit. n. 19, at p. 757; P. Huber, op. cit. n. 18 at p. 279. But see I.Schwenzer, P. Hachem, op. cit. n. 19 at pp. 104–105; D. Saidov, Te Law o Damages in InternationalSales, Te CISG and other International Instruments (Oxord, Hart Publishing 2008) at p. 52.

21 Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., op. cit n. 9.

22 See part III inra.


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matter o procedural law and, as such, as an issue not governed by the Convention.23 As Justice Posner expressly stated:

‘he Convention is about contracts, not about procedure. he principles or determiningwhen a losing party must reimburse the winner or the latter’s expense o litigationare usually not a part o a substantive body o law, such as contract law, but a part o

procedural law. For example, the “American rule,” that the winner must bear his ownlitigation expenses, and the “English rule” (ollowed in most other countries as well), thathe is entitled to reimbursement, are rules o general applicability. hey are not ield-speciic. here are, however, numerous exceptions to the principle that provisions regardingattorneys’ ees are part o general procedure law. For example, ederal antidiscrimination,antitrust, copyright, pension, and securities laws all contain ield-speciic provisionsmodiying the American rule (as do many other ield-speciic statutes). An internationalconvention on contract law could do the same. But not only is the question o attorneys’

ees not “expressly settled” in the Convention, it is not even mentioned. And there are no‘principles’ that can be drawn out o the provisions o the Convention or determiningwhether “loss” includes attorneys’ ees; so by the terms o the Convention itsel the mattermust be let to domestic law (i.e., the law picked out by “the rules o private internationallaw,” which means the rules governing choice o law in international legal disputes).’ 24

Although Justice Posner is right in saying that the CISG is about contractsand not procedure, his rationale o this decision is subject to criticism. Namely, ithe decision on recovery o attorneys’ ees is to be made on distinction betweensubstance and procedure viewed through the lenses o the domestic law, thenthe interpretation o the Convention in light o its international character, and

consequently its uniorm application, as mandated by Article 7 o the CISG, wouldbe severely jeopardized. his is because the distinction between substance andprocedure varies in dierent jurisdictions.25 For example, some legal systems indthe issue o interest being an issue o procedural law, whereas others ind it to bean issue o substantive law.26 he same dierences have been noted with respectto limitation period.27 Consequently, i one is to interpret the issues arising out o

23 J. Lookosky, ‘Case Note: Zapata Hermanos v. Hearthside Baking,’ 6 Vindobona Journal oInternational Commercial Law and Arbitration 27 (2002) at pp. 27–29; H. Flechtner, op. cit. n.7 at pp. 153–155; H. Flechtner and J. Lookosky, ‘Viva Zapata! American Procedure and CISGSubstance in a U.S. Circuit Court o Appeal,’ 7 Vindobona Journal o International Commercial Lawand Arbitration 93 (2003) at pp. 94–95; J. Lookosky and H Flechtner, ‘Zapata Retold: Attorneys’Fees Are (Still) Not Governed by the CISG,’ 26 Journal o Law and Commerce 1 (2006–2007) at p.3; H. Stoll and G. Gruber, op. cit. n. 19 at p. 757; P. Huber, op. cit. n. 18 at p. 278.

24 Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., op. cit n. 9.

25 C. Orlandi, ‘Procedural Law Issues and Law Conventions,’ 5 Uniorm Law Review 23 (2000) at p. 23.

26 J. Gotanda, ‘Awarding Interest in International Arbitration,’ 90 American Journal o InternationalLaw 40 (1996) at p. 40.

27 While civil law jurisdictions usually treat limitation period as an issue o substantive law governedby the lex causae, common law jurisdictions, on the other hand, traditionally deem limitation periodas an institute o procedural law, governed by the law o the orum. See American Bar Association

Section o International Law and Practice Reports to the House o Delegates - Convention on theLimitation Period in the International Sale o Goods, 24 International Lawyer 583 (1990) at p.584; K. Boele Woelki, ‘Te Limitation o Actions in International Sale o Goods,’ 4 Uniorm LawReview (1999–3) at pp. 621–650, available at:


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the international sales contract rom the perspective o his/her own domestic laws,the eorts on harmonizing the law o international sales would be in vain and thedoors or application o domestic rules and standards in this sphere would be againwide open. As Peter Schlechtriem correctly noted when commenting on the Zapata

decision on appeal:

‘I national courts simply qualiy the recoverability o litigation costs and lawyers’ ees asa procedural matter to be decided under their own lex ori, thereby circumventing Article74 and the analysis o whether such costs are a risk to be borne by any party having tolitigate in the US, there will soon be more enclaves o domestic law, which or the deciding

judge may seem to be sel-evident and which conorm to his or her convictions, ormedby historic rules and precedents, but which will not be ollowed in other jurisdictions and,thereby, will cause an erosion o the uniormity achieved.’28

On the same lines, Warren Khoo noted that the label given by domestic law isnot conclusive as to whether a particular matter alls within the Convention.29

Consequently, although Justice Posner has, in my view, reached the correctconclusion by not awarding the attorneys’ ees on the basis o Article 74 o theCISG, the rationale o such a decision is incorrect since it undermines the need orautonomous interpretation o the Convention and its international character.

2. Recovery o attorneys’ ees was not envisioned by thedraters o the CISG – he tale o the ‘hallowed American Rule’

he second group o authors bases their arguments on the draters’ intent or,more precisely, on the lack thereo.

‘[]he matter o lawyer’s ees never arose during the drating and negotiation o the treaty. hisstrongly suggests that those involved in the drating did not expect or intend that CISG wouldchange such a signiicant aspect o the litigation process. While some “unexpected” eects onnational law may result rom ratiication o an international treaty, it is surely going too ar tosuggest that such a undamental change to civil procedure could have happened by omission.’ 30

Furthermore, Justice Posner notes:

200254/1999Boele Woelki LIMIAION.pd>; G.Biehler, Procedures in International Law (Berlin,Springer 2008) at pp. 14–15.

28 P. Schlechtriem ‘Introduction’ in P. Schlechtriem and I. Schwenzer, eds., Commentary on the UNConvention on the International Sale o Goods (CISG) (New York, Oxord University Press 2005)at p. 7.

29 ‘Te substance rather than the label or characterization o competing rule o domestic law determineswhether it is displaced by the Convention. In determining such questions, the tribunal, it is submitted,should be guided by the provisions o Article 7, and give the Convention the widest possible applicationconsistent with its aim as a unier o legal rules governing the relationship between parties to aninternational sale.’ See W. Khoo ‘Article 4’ in C. M. Bianca and M. J. Bonell, Commentary on theInternational Sales Law – the 1980 Vienna Sales Convention (Milan, Giuffrè 1987) at p. 48.

30 A. Mullis, ‘wenty-Five Years On - Te United Kingdom, Damages and the Vienna SalesConvention,’ 71 Rabels Zeitschrif ür ausländisches und internationales Privatrecht 35 (January2007) at p. 44. C. P. Schlechtriem, ‘Legal Costs as Damages in the Application o UN Sales Law,’26 Journal o Law and Commerce 71 (2006/2007) at pp. 77–78.


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‘And how likely is it that the United States would have signed the Convention had itthought that in doing so it was abandoning the hallowed American rule? o the vastmajority o the signatories o the Convention, being nations in which loser pays is the ruleanyway, the question whether “loss” includes attorneys’ ees would have held little interest;

there is no reason to suppose they thought about the question at all.’ 31

Although the drating history o the CISG does not support the presumptionput orward by these authors that the recovery o legal costs was consciouslydisregarded by the draters o the CISG, it is important to note that accepting suchinterpretation without allowing or any exceptions would prevent the CISG torespond to new challenges brought by the modern age.32 What is true, though, isthat this issue was not discussed in the drating process as it does not appear in thetravaux préparatoires. 33

While it is impossible to assess what was in the minds o the draters in theabsence o any indication thereo in the travaux préparatoires, there is no evidencethat the United States as the architect o the ‘American Rule’ was not willing toabandon it when it comes to international disputes. Namely, the joint eort o theAmerican Law Institute and UNIDROI to uniy the rules o transnational civilprocedure, especially with respect to commercial disputes, has resulted in theadoption o the provision that ollows the ‘loser pays’ approach.34 Such a route hasalready been taken by the leading American arbitral institutions35 and some statelaws on arbitration.36 Hence, the argument that the US might be unwilling to deviaterom the ‘American rule’ when it comes to transnational litigation does not stand

and CISG cases are always cases o transnational commercial character. Ater all, the31 Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co. case, op. cit. n. 9. See also: H. Flechtner

and J. Lookosky, op. cit. n. 23 at p. 97.

32 Te application o the CISG and its interpretation by legal doctrine with respect to another issue,evidently not envisioned or discussed by the CISG drafing team and at the Diplomatic Conerencewhen its text was finalized – an issue o exchange o e-mail communications as means o contractconclusion, clearly proves that the act that the issue was not raised by the drafers does not preventclassiying such issue under relevant CISG provisions and finding it covered by the Convention.Consequently, despite e-mails not being mentioned in the Convention and not being discussedduring the drafing process, it is widely accepted that the definition o ‘writing’ rom Art. 13CISG includes e-mails. See CISG-AC Opinion No. 1, Electronic Communications under CISG,15 August 2003, Rapporteur: Proessor Christina Ramberg, Gothenburg, Sweden, available at:.

33 See J. Honnold, Documentary History o the Uniorm Law or International Sales – the studies,deliberation and decisions that led to the 1980 United Nations Convention with introductions andexplanations (Deventer, Kluwer Law and axation Publishers 1989).

34 Art. 25 o 2006 ALI/UNIDROI Principles o ransnational Civil Procedure, loc. cit. n. 6.

35 All major arbitral institutions in the US allow or recovery o costs o arbitration including thereasonable costs or legal representation o a successul party. See Art. 31 o the InternationalArbitration Rules o International Centre or Dispute Resolution o the American ArbitrationAssociation; Art. 37 o the Arbitration Rules o Chicago International Dispute Resolution

Association (CIDRA); Art. 34.1. o the Rules o JAMS International Arbitration Rules.36 See Caliornia Civil Procedure Code §1297.318 (West 1988); Hawaii Revised Statutes §658D–7(d)(6) (Michie 1996); Florida Statutes Annotated §684.19(4) (West 1996); exas Civil Practice &Remedies Code Annotated §172.254(i) (West 1997).


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‘American rule’ does not orm part o US public policy and US courts have generallyenorced oreign arbitral awards o costs and attorneys’ ees despite adhering to theAmerican rule in domestic cases.37

Furthermore, by ratiying the CISG the US has already accepted to departrom two important aspects o its legal system – the ‘parol evidence rule’ and ‘thestatute o rauds’, just like the Islamic countries have accepted general entitlement othe parties to interest on the sums due, although such a provision is otherwise notenorceable under Sharia law.38 Ater all, it is not only speculative but also irrelevantwhether the United States would have signed the Convention or the qualiication othe recovery o attorneys’ ees as a matter governed by the CISG or not.39 However,it might be true that in the minds o the draters the issue o recovery o attorneys’ees was at all times considered as a procedural issue not worthy o discussion at thatorum, since it is indeed recognized as such in all jurisdictions around the world.

Nevertheless, the act that the issue o recovery o attorneys’ ees as damages wasnot discussed by the draters o the Convention, should not in itsel preclude suchrecovery under the Convention.

3. Recovery o attorneys’ ees runs against the principle o partyequality – What i the deendant won?

he third group o authors, gathered in the CISG Advisory Council,40 agreeson the point that the answer to this question cannot be made on the basis o thesubstance-procedure distinction.41 hey ind reliance upon such a distinction in

this context outdated and unproductive. Instead, they propose that it should bedetermined whether the payment o litigation expenses was deliberately excludedrom the Convention and, i not, whether the issue may be resolved ‘in conormitywith the general principles on which [the Convention] is based or, in the absenceo such principles, in conormity with the law applicable by virtue o the rules oprivate international law,’ as required by Article 7(2) o the CISG. hey concludethat the issue is not expressly excluded rom the Convention and that, consequently,it should be resolved by application o general principles o the CISG. hey also

37 J. Gotanda, op. cit. n. 6 at p. 32.

38 See J. Gotanda, ‘Awarding Interest in International Arbitration,’ 90 American Journal o InternationalLaw 40 (1996) at pp. 47–50; . S. wibell, ‘Implementation o the United Nations Convention onContracts or the International Sale o Goods (CISG) under Shari’a Law: Will Article 78 o the CISGBe Enorced When the Forum Is an Islamic State?,’ 9 International Legal Perspectives 25 (1997) at pp.25–92; D. Klein, ‘Te Islamic and Jewish Laws o Usury: A Bridge to Commercial Growth and Peacein the Middle East,’ 23 Denver Journal o Law & Policy 535 (1995) at pp. 535 et seq.

39 R. Koch, ‘Te CISG as the Law Applicable to Arbitration Agreements?,’ in C. Andersen and U.Schroeter, eds., Sharing International Commercial Law across National Boundaries, estschrif or Albert H Kritzer on the Occasion o his Eightieth Birthday (London, Wildy, Simmonds & HillPublishing 2008) at pp. 277–278.

40 For the work o the CISG Advisory Council see M. Đorđević, ‘Pravo međunarodne trgovine,

Rad Savetodavnog veća za primenu Konvencije UN o ugovorima o međunarodnoj prodaji robeod 1980. godine’ [International rade Law: Te Work o CISG Advisory Council], 9–12 Pravo i privreda (2008) pp. 137–145.

41 CISG-AC Opinion No. 6, op. cit. n. 17, comment 5.2.


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acknowledge that application o the principle o ull compensation might lead torecovery o such expenses. Yet, they ind such an outcome contrary to anothergeneral principle o the Convention, namely, the principle o party equality (equalitybetween buyers and sellers as expressed in Articles 45 and 6142). In their words:

‘I legal expenses were awarded as damages under Article 74, an anomaly would resultwhere only a successul claimant would be able to recover litigation expenses. he abilityto recover damages under Article 74 is grounded on a breach o contract; thus, a successulrespondent will not be able to recover its legal expenses i the claimant has not committeda breach o contract. hereore, the purpose o awarding attorneys’ ees and costs, to makea prevailing party whole or costs incurred in litigation, will not be realized in those caseswhere the respondent prevails. Remedies are the core o contract law, and to interpret

Article 74 to create unequal recovery o damages between buyers and sellers is contraryto the design o the Convention. However, Article 74 does not preclude a court or arbitraltribunal rom awarding a party its attorneys’ ees and costs when the contract provides or

their payment or when authorized by applicable rules.’ 43

However, even i the Advisory Council was right in making a recourse tothe general principles in order to resolve this issue, this does not mean that theyare also right in inding the existence o a conlict between the principle o ullcompensation and the principle o party equality i the successul claimant’s claimor recovery o attorneys’ ees is granted. It is perhaps too ar etched to claim thatArticles 45 and 61 provide or an absolutely equivalent system o remedies to bothbuyers and sellers. his is, o course, not possible given the dierent modalities oparties’ obligations.44 Whilst it is true that both parties have the right to exercise

avoidance and claim damages, some o the buyer’s remedies are speciically tailoredin order to address a non-conorming perormance by the seller. Consequently,the seller does not have a comparable remedy to the buyer’s right to claim pricereduction, or example.45 Still, this does not mean that the parties are not given equaltreatment under the Convention when it comes to their right to claim damages,even i the attorneys’ ees are considered a ‘loss or breach o contract’. Accordingly,i a successul plainti in CISG litigation would be entitled to recover attorneys’ees as damages or breach o contract this would not put the successul deendant

42 Arts. 45 and 61 CISG provide similar system o remedies to buyer and seller, respectively, in case

o a ailure o the other party to perorm its obligations.43 CISG-AC Opinion No. 6, op. cit. n. 17, comment 5.4. C. H. Flechtner, op. cit. n. 7, at p. 151;. Keily, ‘How Does the Cookie Crumble? Legal Costs under a Uniorm Interpretation o theUnited Nations Convention on Contracts or the International Sale o Goods,’ Nordic Journal oCommercial Law o the University o urku, Issue 2003 #1, § 6.2(b), available at: ; J. Vanto, ‘Attorneys’ ees as damages in international commerciallitigation,’ 15 Pace International Law Review 203 (Spring 2003) at p. 221.

44 Te seller has an obligation to deliver the goods, hand over any documents relating to them andtranser the property in goods, while the buyer has an obligation to pay the price and to takedelivery o the goods (Arts. 30 and 53 CISG).

45 See Secretariat Commentary on Article 57 o the 1978 Draf, para. 2, available at: . For an overview o variant rights andobligations o the seller and the buyer under the CISG see K. W. Diener, ‘Recovering Attorneys’Fess under CISG: An Interpretation o Article 74,’ Nordic Journal o Commercial Law, issue 2008#1, Appendix A, available at: .


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in an unequal position since both parties would have the right to claim damagesamounting to attorneys’ ees incurred in litigation provided that there is a breach ocontract. But, i there is no breach, the issue o recovery o attorneys’ ees (thus notbeing a loss suered as a consequence o breach as required by Article 74) remains

an issue regulated under the otherwise applicable law. Consequently, the resultinginequality in the treatment o the parties in such a case should not be construed asinequality in the sense o the CISG, but rather as the inequality induced by virtueo procedural rules o the orum, provided that the case is being resolved beore thecourt o the ‘American rule’ country.46 he dierential treatment o the successullitigants that the domestic rules might provide or is not a matter that should bereconciled by the CISG in such an instance but by harmonizing attempts in theield o procedural law. he recovery o attorneys’ ees under the CISG would beconsistent – whenever they are incurred as a consequence o breach o contract

beore or during litigation/arbitration, its recovery would be granted. Finally, theCISG draters were aware that an absolute equality amongst the parties cannot beachieved at all times on such a global level.47

In conclusion, agreeing with the argument o party equality as opposed toull compensation advocated by these authors brings us to a paradoxical result –inequality o the parties. Namely, by leaving this issue to be dealt with under thedomestic procedural rules the Advisory Council is actually approving de actounequal standing o litigants in dierent jurisdictions (e.g. a successul deendant ina US court would not be able to recover its expenses, whilst a successul deendantin Serbia would be reimbursed or its expenses including legal ees paid).

4. he CISG principles are not well-suited todeal with calculation o attorneys’ ees asrecoverable loss – Don’t trust the judge!

Some authors have questioned the applicability o the CISG to this issue on thebasis o lack o certainty in calculation o attorneys’ ees i their recovery is deemedto be covered by the CISG.48 According to these authors, while certainty in thecountries that ollow the ‘American rule’ is secured by non-recoverability o theseexpenses, and in ‘loser pays’ countries by irm domestic rules on their calculation,in the case o the CISG being applied to this issue they see the danger or uniormapplication o the Convention. Namely, they claim that: ‘Use o such vague principles

46 Te CISG would preempt the domestic procedural law only where there is a breach o contract andconsequently a loss including legal costs would be reimbursed to the ‘winning’ party. In case thatthere is no breach o contract, the rules o domestic procedural law allowing or not allowing orrecovery o litigation expenses (including attorney’s ees) to the successul litigant would remainunchanged, i.e. in a ‘loser pays’ country the successul litigant would be reimbursed or its legalexpenses, whereas in ‘American rule’ country the successul litigant would not be entitled to suchreimbursement.

47 For example, Art. 28 CISG makes the availability o the remedy o specific perormance contingenton the existence o such a remedy under the lex ori.

48 A. Mullis, op. cit. n 30 at pp. 44–45; . Keily, op. cit. n. 43 at § 6.2 (c), § 6.3; H. Flechtner, op. citn. 7 at p. 152; J. Gotanda, op. cit n. 19 at pp. 131–133.


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[ull compensation, oreseeability, mitigation] in an area such as lawyers’ ees would bea recipe or dierence rather than harmony.’49

However, while it is true that the attorneys’ ees are calculated on dierentbases in dierent countries, this argument alone is not persuasive enough to preventrecovery o attorneys’ ees under the CISG. Similarly, the act that there are dierentapproaches to calculation o lost proit in dierent jurisdictions50 does not preventits recovery under the CISG.

5. Case-law – Almost uniorm in its ignoranceIt is true that the analysis o the majority o cases where the CISG was applied

clearly shows that the recovery o attorneys’ ees was almost exclusively claimedunder the applicable procedural rules and that such requests, where granted, weregranted under such rules.51 Although such practice clearly shows uniormity o

the approach to this issue it does not necessarily mean that this uniormityrelects the international character o the Convention. It is air to say that inall these cases both the parties’ counsels and the judges (arbitrators) wereinluenced by the preconceived ideas under their own domestic laws; andwhere those laws allow or a ‘loser pays’ system they saw no need to look or adierent legal basis or making a request or an award on that issue. However,it might also be true that such an overwhelming similarity in approaches tothis question in both ‘American rule’ and ‘loser pays’ jurisdictions actuallyrelects the international consensus on the legal nature o recovery oattorneys’ ees.

IV. RECOVERY OF AORNEYS’ FEES IS COVERED BYHE CISG IS HE PLAIN MEANING PLAIN ENOUGH?

As previously mentioned, the discussion over the issue whether attorneys’ eesconstitute a recoverable loss under the CISG or not arose ater the irst instancedecision in the Zapata case.52 In this case, the court o irst instance awardedlitigation expenses, including attorneys’ ees, as part o damages and avoidedapplication o the ‘American rule’ by inding that this rule did not apply when there

was a law that provided otherwise. he Court held that the CISG, and in particularits Article 74, was such a law. Consequently, given that the deendant could oreseethat there might be litigation and legal expenses i it ailed to pay sums admittedlydue, the court granted the plainti’s request on the point o damages. he result, theCourt stressed, is consistent with the almost universal rule that a successul partymay recover its legal expenses and, thereore, supported CISG policies o promoting

49 A. Mullis, op. cit. n. 30 at p. 45.

50 J. Gotanda, ‘Recovering Lost Profits in International Disputes,’ 36 Georgetown Journal oInternational Law 61 (Fall 2004) pp. 61–112.

51 Tere are more than 2,500 cases rom 45 jurisdictions available at the Pace University database onCISG (). Yet, less than 10 (0,4%) invoke CISG as the applicable law orthe issue o recovery o attorneys’ ees.

52 Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co, etc., op. cit n. 3.


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uniormity and certainty. Namely, the court invoked the analysis in another casedecided by a US court where the CISG was applied53 and stated that the rationaleo this judgment although written about a dierent provision o the Convention,applies with equal orce to mandate universality rather than a purely home-town

rule as to the awardability o attorneys’ ees under the Convention.54he group o authors advocating or recovery o attorneys’ ees under the Article

74 o the CISG are basing their arguments on the plain wording o Article 74 andprinciples o ull compensation, oreseeability, mitigation and reasonableness.55 Allowing dierent domestic rules on recovery o legal costs would, in their view,undermine not only the uniorm interpretation o the Convention, but the coreprinciple o ull compensation itsel since the aggrieved party would not be adequatelycompensated or its loss i.e. would not be made whole. Felemegas cites numerous judgments and awards in support o his position that the principle o ull compensationconirms this view.56 However, while these decisions support the existence o theprinciple o ull compensation as the general principle o the CISG, they do not, atthe same time, conirm Felemegas’ assumption that attorneys’ ees are covered by theCISG. Quite the contrary, the recovery o attorneys’ ees in these cases was grantedon the basis o lex ori. he number o decisions where recovery o attorneys’ ees wasgranted on the basis o the CISG is much smaller and not necessarily persuasive.57 Consequently, although the Appellate Court in the Zapata case ailed to consider

53 Judgment o Federal Appellate Court or 11th Circuit o 29 June 1998, MCC-Marble CeramicCtr., Inc. v. Ceramica Nuova D’Agostino, S.F .A., 144 F.3d 1384, 1391 (11th Cir.1998), available at:.

54 Te court stated: ‘One o the primary actors motivating the negotiation and adoption o the CISGwas to provide parties to international contracts or the sale o goods with some degree o certaintyas to the principles o law that would govern potential disputes and remove the previous doubtregarding which party’s legal system might otherwise apply. […] Courts applying the CISG cannot,thereore, upset the parties’ reliance on the Convention by substituting amiliar principles o domesticlaw when the Convention requires a different result. We may only achieve the directives o good aithand uniormity in contracts under the CISG by interpreting and applying the plain language o article8(3) as written and obeying its directive to consider this type o [legal issue].’

55 J. Felemegas, ‘An Interpretation o Article 74 CISG by the U.S. Circuit Court o Appeals’, 15Pace International Law Review 91 (2003) at pp. 91–147, available at: ; B. Zeller, Damages under the Convention on Contracts or the

International Sale o Goods (New York, Oceana Publications Inc. 2005) at pp. 143–166; K. W.Diener, op. cit. n. 45.

56 J. Felemegas, op. cit. n. 55, n. 7.

57 See Judgment o Rechtbank van Koophandel Hasselt o 25 February 2004, available at: ; judgment o the Court o Appeal in urku o 12April 2002, available at: ; China InternationalEconomic & rade Arbitration Commission award o 11 February 2000, available at: ; China International Economic & radeArbitration Commission award o 12 February 1999, available at: ; judgment o AG Berlin-iergarten o 13 March 1997, available at <http://cisgw3.law.pace.edu/cases/970313g1.html>; award o Schiedsgericht der Handelskammer

Hamburg o 21 March 1996, available at: ;China International Economic & rade Arbitration Commission award o 14 May 1996, availableat: ; judgment o AG Augsburg o 29 January1996, available at:, ICC award No. 7585/1992,


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international jurisprudence in respect o this issue, it would be too much o a stretchto claim that had it done so it would reach a dierent conclusion.

Felemegas urther suggests that under the ‘breach o duty o loyalty’ the allegedanomalies in equal treatment o the parties would be eliminated.58 Such an approachis being criticized by other authors as a ‘result-oriented jurisprudential stretch’59 thatshould not be taken seriously.

Zeller, on the other hand, also advocates or the recovery o attorneys’ ees underthe CISG general principle o ull compensation and the ‘asset test’ which conirmsthe view that attorneys’ ees constitute loss under the meaning o Article 74.60 Inaddition, Zeller suggests, while recognizing the anomaly mentioned by Posner andthe Advisory Council that the successul deendant would be able to recover its legalexpenses under the otherwise applicable procedural law, since recovery o successuldeendant’s expenses (where there is no breach o contract on part o the plainti)

is not covered by the CISG. According to Zeller: ‘I there is an anomaly, and it is notdenied that there will be one, it is not or judges to usurp the power o the draters othe legislation. [...][]he CISG like any other legal document is not a perect tool andhence some problems or imbalances must be expected .’61

However, while Zeller is right in qualiying the attorneys’ ees as a inancialloss, he ails to take into account both the requirement o Article 74 o the CISGthat such a loss should be a consequence o breach o contract and the very natureo the recovery o attorneys’ ees. Under my view, this is where both Felemegas’ andZeller’s propositions are lawed, as will be elaborated in detail below.

V. NO A REVOLUIONARY SOLUION

Although the application o the general principles o the CISG, as invoked inlegal doctrine, does not prevent recovery o attorneys’ ees as damages since it doesnot jeopardize the principle o equality o the parties, it is my view that this issueis not governed by the Convention and that, consequently, there is no need orexploring the general principles o the CISG in supporting such a stance.

It goes without saying that legal costs incurred in pursuing a contract claimbeore court (arbitration) constitute inancial loss. However, although they are in

causal link with the breach o contract (provided that there is a breach o contract),they are more closely connected with the proceedings themselves. Consequently, theyare uniormly not regarded as ‘loss suered as a consequence o breach o contract’ ineither countries that ollow the ‘loser pays’ rule (where their recovery is regulated by

available at: < http://cisgw3.law.pace.edu/cases/927585i1.html>. For criticism o some o thesedecisions see H. Flechtner, op. cit. n. 7 at pp. 127–134.

58 J. Felemegas, op. cit. n. 55 at § 5 (d).

59 H. Flechtner, op. cit. n. 7 at p. 152.

60 ‘o put a party into a position – it would have been nancially – is simply asking the question, has

the balance sheet changed? I the asset base is diminished as a consequence o the breach, then thoseitems diminishing the asset base must be understood to all under the principle o ull compensation pursuant to Article 74.’ See B. Zeller, op. cit. n. 55 at pp. 151–155.

61 B. Zeller, op. cit. n. 55 at pp. 155, 164.


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procedural laws) or in the countries that adhere to the ‘American rule’ (where theirrecovery is not allowed as a rule).62 his is not surprising given that the recovery oattorneys’ ees incurred in litigation indeed diers rom recovery o such ees beorelitigation. he dierence results rom the nature o litigation itsel, since its initiation

(iling a claim in the court and delivering the claim to the deendant) transorms thetwo-party relationship i.e. sales contract (buyer-seller) into a three party relationshipi.e. litigation (plainti-court/arbitration tribunal-deendant).63 Hence, the legal basisor the recovery o attorneys’ ees incurred in litigation is in the litigation itsel and notin the breach o sales contract which was the reason or initiating the proceedings.64 Consequently, it is air to say that both parties have suered inancially as a resulto litigation,65 and not necessarily as a result o breach – since these expenses areincurred even i the court ound that there was no breach o contract, so they can existindependently rom the breach.66 Furthermore, the amount o the incurred expenseswill depend not only on the behavior o the breaching party but also on the extento the court’s orders and instructions. his makes the causal link between the breachand this type o loss interrupted. Consequently, in my view, once the litigation isinstituted the incurred attorneys’ ees become a loss that is too distinct rom the usualloss suered as a consequence o breach o contract thus not allowing or its recoveryunder Article 74 o the CISG.67

It is important to emphasize that this view is conirmed by comparative researchand systematic analysis o dierent legal systems and not based exclusively ondomestic law. Namely, to the best o my knowledge, there is not a single jurisdiction

62 ‘Universally, the allowability o costs and their allocation is regarded as a matter o procedural law. ’See J. G. Wetter, C. Priem, ‘Costs and Teir Allocation in International Commercial Arbitrations,’2 American Review o International Arbitration 249 (1991) p. 329.

63 Such an understanding o litigation, as a three-party relationship, is said to represent the prevailing view in contemporary academic writing on civil procedure. See B. Poznić and V. Rakić-Vodinelić,op. cit. n. 7, at pp. 31–33; A. Jakšić, op. cit. n. 7 at pp. 16–18.

64 See supra note 7.65 See J. Vanto, op. cit. n. 43 at p. 214.

66 Some rules in the ‘loser pays’ countries urther show how recovery o legal costs in the civilproceedings is treated differently than the ‘usual’ request or damages. For example, claim orreimbursement o the costs o the civil proceedings can only be made until the closure o the

main hearing and cannot be invoked in different legal proceedings (Art. 159(3) o the Law onCivil Procedure [Zakon o parničnom postupku] in Serbia, published in the Offi cial Gazette o theRepublic o Serbia No. 125/2004). On the contrary, the act that a plaintiff omitted to claim onepart o the damages does not preclude him rom requesting such damages in other proceedings.Furthermore, unlike the damages claim, a claim or reimbursement o the costs o the proceedingsis limited to the ‘actual loss’ and does not include loss o profit suffered as a consequence olitigating (B. Poznić and V. Rakić-Vodinelić, op. cit. n. 7, at pp. 31–33). Finally, in many jurisdictionscalculation o legal costs is usually being made pursuant to a fixed ee schedule that may result in anaward amounting to less than the actual ee incurred (the ee agreed upon with the attorney) (seecomment P25-A to Art. 25 o 2006 ALI/UNIDROI Principles o ransnational Civil Procedure, loc. cit. n. 6). Tis runs contrary to the principle o ull compensation, which, as the landmark

principle o the law o contract damages, aims at making the aggrieved party whole.67 It could also be argued that irrespective o the ‘American rule’ or ‘loser pays’ background o a

party, the party could not oresee that attorneys’ ees incurred in litigation could constitute a ‘loss’recoverable under Art. 74 CISG.


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that treats attorneys’ ees incurred in litigation as a ‘loss or breach o contract’.68 Although it is true that the substance-procedure distinction in the ield o uniormlaw is erroneous i it leads to the qualiication o a relevant legal issue under theapplicable domestic law, there should be no obstacles in invoking such distinction

when based on a comparative survey and supported by the international uniormclassiication o this matter.69

Not only do domestic legal systems regulate this issue in the procedural codes,but some international acts also accept the same classiication. Namely, ALI/UNIDROI Principles o ransnational Civil Procedure (Article 25),70 as well as therules o many international arbitral institutions71 (including the ones rom ‘American

68 For the sake o clarity, in (at least) one judgment o the Belgium Supreme Court o 2 September2004 (which was made beore adoption o the ‘loser pay’ rules into the Belgian legal system)it has been stated that: ‘the ees o an attorney or technical expert which have been paid by thevictim o a contractual non-compliance can be part o the damage to be compensated, as ar asthey are a necessary effect o the non-compliance’. However, this judgment should be careullyexamined within the wider context in which it was made. Namely, until recently recovery olawyers’ ees was not allowed under Belgian law: it was neither provided by the procedural rulesnor allowed on the basis o liability law (either because o their legal nature - not being considereda component o damages or based on the doctrine o breach o causality). However, such practicewas abolished in 2002 as a consequence o implementation o the Directive 2000/35/EC o theEuropean Parliament and the Council o 29 June 2000 on combating late payment in commercialtransactions (Offi cial Journal o the European Communities, L 200/35 o 8 August 2000) in Belgianlegal system which allowed recovery o attorneys’ ees to creditors alling within the scope o theLate Payment Act. Te alleged inequality created by this Act i.e. discrimination between litigantsalling within or outside the scope o the Act, was confirmed as unconstitutional by the judgment

o the Belgian Constitutional Court (judgment n° 16/2007 o 17 January 2007). According to theCourt ‘the discrimination was not situated in the Late Payment Act, but in the lack o a generalsolution [with regards to recovery o attorneys’ ees] which must be provided by the legislator inline with the articles 10 and 11 o the Constitution’. Tis, in turn, orced the Belgian legislatorto introduce general rules with regard to the recovery o attorneys’ ees (the Act o 21 April2007 extended the definition o the ‘expenses o judicial procedure’ so to include attorneys’ ees).As a result, recovery o attorneys’ ees in Belgium is nowadays covered by procedural rules andnot by the substantive law (see V. Sagaert and I. Samoy, ‘Questionnaire on Funding, Costs andProportionality in Civil Justice Systems: Belgium,’ at pp. 14–17, available at: ). For an overview o theacademic understanding o the recovery o attorneys’ ees in Serbia, Croatia, Japan, Denmark, the

Netherlands and the US, see supra note 7.69 For example, the issue o capacity o the parties is not deemed governed by the Convention sinceit is traditionally separated rom sales law. See M.J. Bonell, ‘Article 7’ in C. M. Bianca and M.J. Bonell, eds., Commentary on the International Sales Law - the 1980 Vienna Sales Convention(Milan, Giuffrè 1987) at p. 76.

70 It is important to note that UNIDROI, which was involved in drafing o the ALI/UNIDROIPrinciples o ransnational Civil Procedure, has been the drafer o yet another important text onunification o laws - UNIDROI Principles on International Commercial Contracts. By comparingthe texts o these two documents it is easy to conclude that the issue o recovery o legal costs wasregulated by the principles on procedure, and not by the principles on substantive law.

71 UNCIRAL Arbitration Rules Art. 40; London Court o International Arbitration Rules Art.

28(4); ICC Arbitration Rules Art. 31; DIS Arbitration Rules, Art. 35; Swiss Rules o InternationalArbitration Art. 38; Arbitration Rules o the Arbitration Institute o the Stockholm Chamber oCommerce Art. 44; Rules o Arbitration and Conciliation o the International Arbitral Centreo the Federal Economic Chamber o Vienna, Art. 19; Rules o the International Commercial


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Rule’ jurisdictions72) and international courts,73 treat the recovery o attorneys’ eesincurred in litigation/arbitration as a matter o procedural law and not substantivelaw, thus governed by the procedural codes or rules. Moreover, the overwhelmingmajority o CISG cases, including the amous Italian decisions o Vigevano and

Rimini court,74 provides or recovery o these expenses on the basis o applicableprocedural rules.75 Consequently, treating the recovery o attorneys’ ees incurred inlitigation as a ‘loss suered as a consequence o breach o contract’ would go againstthe global consensus on their legal nature and their real cause.76

Again, as Justice Posner correctly noted, CISG is about contracts and notprocedure. his is conirmed by interpretation o the relevant provisions on thescope o application o the Convention. Namely, Article 4 o the CISG by limiting itsscope o application to the narrow notions o ‘ormation o contract o sale’ and ‘therights and obligations o [the parties] arising rom such a contract’, has clearly limitedthe Convention’s applicability to issues o substantive character, unless speciicallyprovided otherwise.77 his view is urther conirmed by the legislative history o theConvention.78 Ater all, the Preamble to the CISG itsel states that the object and

Arbitration Court at the Chamber o Commerce and Industry o the Russian Federation §14and its Schedule o Arbitration Fees and Costs §6; CIEAC Arbitration Rules Art. 46(2); Ruleso Foreign rade Court o Arbitration attached to Serbian Chamber o Commerce, Art. 51, andmany others.

72 See supra note 35.

73 For example, both the European Court o Justice and the Court o First Instance regulate thisissue in the rules o procedure. See Rules o Procedure o the Court o Justice o the EuropeanCommunities, Arts. 69–75 (OJ L 176 o 4 June 1991, last amended on 15 January 2008); Rules oProcedure or the Court o First Instance, Arts. 87–93 (OJ L 136 o 30 May 1991, last amendedon 18 December 2006).

74 Tese decisions surely cannot be criticized or ‘homeward trend’ in interpretation o the CISGsince they have quoted 40 and 37 oreign cases respectively in the reasoning o the judgment, andstill have not awarded the attorneys’ ees on the basis o CISG but rather on the basis o the lex ori. See judgment o ribunale di Vigevano o 12 July 2000, available at: ; judgment o ribunale di Rimini o 26 November 2002, available at:.

75 Such a trend sub silentio supports the view that this issue should not be dealt with under the CISGdespite the lack o express language (H. Flechtner, op. cit. n. 7, at p. 153).

76 It may sound odd that the attorneys’ ees incurred in litigation are the only type o irrecoverablefinancial loss under the CISG apart rom those losses limited by virtue o Article 5 o the CISG.However, such a stance would be incorrect since by the same token an equal understanding shouldapply to any cost incurred during litigation/arbitration, such as the cost o expert witnesses, costo travel associated with litigation, translation costs etc. For example, while the costs or hiringan expert to inspect the goods beore litigation undoubtedly represent recoverable loss under theCISG i the goods were ound to be non-conorming, the costs or expert opinion on the non-conormity during the proceedings should not be recovered on the basis o the CISG but ratheron the basis o lex ori.

77 E.g. contract may be proved by witnesses (Art. 11 CISG) or breaching party must prove that thegrounds or his excuse or non-perormance are ulfilled (Art. 79(1) CISG) [emph. added].

78 For example, when discussing on the issue o burden o proo the national delegations agreed thatit was not the intention to deal in the Convention with any questions concerning the burden oproo. Furthermore, the consensus was that such questions must be lef to the court as matterso procedural law (W. Khoo, ‘Article 2’ in C.M. Bianca and M.J. Bonell, Commentary on the


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purpose o the CISG is the ‘adoption o uniorm rules which govern contracts orthe international sale o goods’ and not the procedures o their court enorcement.79 Consequently, the quest or the proper meaning and scope o the phrase ‘any losssuered as a consequence o breach o contract’ reerred to in Article 74 and its

autonomous yet uniorm understanding as mandated by Article 7(1) o the CISGclearly shows that recovery o attorneys’ ees should not be governed by the CISGsince it is one o the issues excluded rom the Convention.

Finally, at the risk o oversimpliying this matter I cannot help but cite amaxim that relects the guiding idea in the analysis o this problem: ‘I it looks likea duck, swims like a duck, and quacks like a duck, then it probably is a duck .’80 Inother words, i it (i.e. recovery o attorneys’ ees) is governed by the proceduralcodes, requested and awarded under procedural rules, and caused by initiationo the proceedings, then it probably is a procedural expenditure (and not the loss

suered as a consequence o breach o contract) that should be excluded rom the(substantive) realm o the CISG.In conclusion, given that the issue o recovery o attorneys’ ees incurred in

litigation is not a matter governed but not expressly settled in the Convention thereis no need to apply the general principles o the CISG to this matter and no needor discussion whether their application allows or does not allow or recovery oattorneys’ ees.81 Instead, this issue should be let to the applicable procedural rules.82 Although this will not bring the harmony in international trade relations, it is notor the arbitrators and judges ‘to usurp the power o the draters o the legislation’ andimpose uniorm rules to states that never adhered to such an outcome. Although Iagree that uniication o the procedural rules is a key actor in the eective uniormapplication o international bodies o rules as it contributes to the removal o legalbarriers in international trade and promotes the development o international trade,I am also ully convinced that the CISG was not intended to be the tool or achievingsuch a goal. As Alastair Mullis correctly noted:

International Sales Law – the 1980 Vienna Sales Convention (Milan, Giuffrè 1987) at p. 39; J.Lookosky and H. Flechtner, op. cit. n. 23, at pp. 6–7; C. Orlandi, op. cit. n. 25, at pp. 25, 27–28).

79 I. Schwenzer, P. Hachem, B. Zeller, J. Lookosky and many others also concur that proceduralquestions are not addressed by the CISG. See I. Schwenzer and P. Hachem, ‘Te CISG – Success and

Pitalls,’ 57 American Journal o Comparative Law 457 (Spring 2009) p. 471; B. Zeller, op. cit. n. 55,at p. 80; J. Lookosky, Consequential Damages in the Comparative Context: From Breach o Promiseto Monetary Remedy in the American, Scandinavian and International Law o Contracts and Sales (Jurist – og Økonomorbundets Forlag 1989) at p. 283, n. 158. Tis view was also emphasizedby the Swiss Federal Supreme Court: ‘[]he Convention itsel does not regulate procedural matters[…]’ (judgment o 11 July 2000, available at: ).

80 Te origin o this phrase is attributed to the amous American poet James Whitcomb Riley (1849–1916). See .

81 In accord: H. Flechtner and J. Lookosky, op. cit. n. 23, at p. 102; J. Lookosky, ‘Walking theArticle 7(2) ightrope Between CISG and Domestic Law,’ 25 Journal o Law and Commerce 87(2005–2006) at pp. 98–99.

82 However, even i one is to find that a recourse to the general principles is needed, the evidencesubmitted in this paper that justiy recoverability o attorneys’ ees under the lex ori should bedeemed to constitute a general principle on which the CISG is based and consequently, recoveryo attorneys’ ees should nevertheless be avoided under the CISG.


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‘Even as an advocate o the harmonisation o international commercial law, I can seenothing to be gained, and indeed much to be lost, by treating lawyers’ ees as recoverabledamages under Art. 74. I one wants a good example o a matter that should not be shoe-

horned into the Convention, this is surely it.’ 83

In the end, it is important to emphasize that all countries, including the onesthat ollow the ‘American rule,’ allow or recovery o attorneys’ ees incurred inlitigation/arbitration i agreed so by the parties.84 Consequently, parties should beadvised to speciically provide or such a provision i a possibility o litigating beorea court that ollows the ‘American rule’ is anticipated. Or, in the alternative, theyshould use the choice o orum clauses that call or jurisdictions where these costsare recoverable, or agree to arbitration under the rules that provide or recovery osuch expenses. his will relieve both the parties and the courts o uncertainties inthis regard.85

83 A. Mullis, op. cit. n. 30, at p. 45.

84 See F.D. Rich Co. v. United States /u/o Industrial Lumber Co., 417 U.S. 116, 126 (1974); AlyeskaPipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 257 (1975).

85 For a model clause on allocation o costs and ees in arbitration see: J. Gotanda, op. cit. n. 6, at pp.26–27.

Private Law Reform in South East Europe

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