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| A Mexican seller and a buyer from the United States entered into a contract for the sale of cookie tins. A dispute arose between the parties and the seller commenced a legal action.
The first instance court held that the contract was governed by CISG as both US and Mexico are contracting States. As to the merits, the court awarded damages to the seller for breach of contract, and ordered the buyer to pay the attorneys’ fees, basing this order both on article 74 CISG, and on "the inherent authority of the courts to punish the conduct in litigation in bad faith". Buyer appealed, arguing that in a US Court the "American rule" should apply, i.e. the winner must bear its own litigation expenses, rather than the rule set forth in an international convention. The appellate court reversed the lower's court decision, holding that according to Art. 74 and Art. 7(2) CISG, there is no suggestion in the background of these provisions that “loss” is intended to include attorneys’ fees as well. According to the court, legal expenses are not usually governed by substantive law such as CISG but normally by procedural law. Therefore they are not covered by the provisions of article 7(2) CISG relating to “matters which are not expressly settled” by CISG. The court held that since art. 74 does not include attorneys' fees, this issue should be be settled according to the otherwise applicable domestic law (in the case at hand, the law of Illinois). |