- U.S. Court of Appeals, Second Circuit
- Macromex S.r.l. v. Globex International Inc.
LOST PROFITS (ART. 74 CISG) – RECOVERABLE IF FORESEEABLE AT THE TIME OF CONTRACT CONCLUSION
After having entered into a contract for the sale of chicken parts to be delivered to a Romania buyer, a U.S. seller failed to tender half of the goods within the agreed date of performance. The breaching party contended that its non-performance was justified by a recent Romanian regulation requiring certification of all chicken meat entering the country. When the seller, upon request of the buyer, refused to deliver the remaining goods to Georgia, the counterpart requested arbitration proceedings.
The arbitrator recognized that the seller’s delay did not amount to fundamental breach under Art. 25 CISG. However, its non-performance could not be justified under Art. 79 CISG, since the seller could have reasonably performed by delivering the goods to Georgia. The arbitrator, basing its decision upon CISG and the UCC provisions, ruled in favor of the buyer and awarded damages according to the Romanian market price. When the seller filed a lawsuit in federal District Court requesting the arbitration award to be vacated, the judges confirmed the arbitrator’s ruling. The seller’s contention that the buyer’s damages should have been calculated in accordance with the market price of Georgia was rejected. The court, in view of Art. 74 CISG, noted that the loss of profits cannot exceed the amount foreseeable at the time of the contract formation. Thus, as Romania was the place where the contract had to be performed, the Court affirmed the arbitrator’s determination of damages based upon the market price of Romania (see U.S. District Court, Southern District of New York, 16.04.2008, full text and abstract available in UNILEX).
The seller appealed the District Court decision to the Second Circuit, and requested the initial arbitration award to be vacated. As to the appellant’s defense of impossibility of performance, the Court, applying § 2-614(1) UCC, found that the seller had a duty to tender commercially reasonable substitute performance (in this case, by shipping to Georgia) once the Romanian importation ban made delivery to Romania impossible. As to damages, the Court rejected the seller’s argument that the arbitrator should have not awarded damages in full, as Art. 74 CISG imposes liability for damages suffered as a consequence of the particularly identified breach and that damages may not exceed the loss which the party in breach foresaw at the time of the conclusion of the contract.
Accordingly, the Second Circuit, finding that the arbitrator did not manifestly disregard the law, affirmed the District Court judgment.
United States Court of Appeals, Second Circuit
Macromex S.r.l. v. Globex International Inc.
26 May 2009
Present: John M. Walker, Jr., Sonya Sotomayor and J. Clifford Wallace,[*] Circuit Judges.
UPON DUE CONSIDERATION, it is hereby ORDERED, ADJUDGED AND DECREED that the judgment of the United States District Court for the Southern District of New York is AFFIRMED.
Respondent-appellant Globex International Inc. ("Globex") appeals from an April 16, 2008 judgment of the United States District Court for the Southern District of New York (Scheindlin, J.) granting petitioner-appellee Macromex Srl's ("Macromex") petition for confirmation of an arbitral award and denying Globex's cross-petition to vacate that award. We assume the parties' familiarity with the underlying facts and procedural history of the case, as well as the issues presented on appeal.
We agree with the district court there was at least a "barely colorable justification" for the arbitrator's finding that Globex breached its contract with Macromex. See Wallace v. Buttar, 378 F.3d 182, 190 (2d Cir.2004) ("[An arbitration] award should be enforced ... if there is a barely colorable justification for the outcome reached." (internal quotation marks omitted)). As the district court concluded, it is possible to read U.C.C. § 2-614(1)'s reference to "facilities" to include a facility that becomes unavailable as a result of an importation ban imposed by that facility's country. Thus, read this way, § 2-614(1) could impose a duty to tender commercially reasonable substitute performance once the Romanian importation ban made delivery in Romania impossible. Further, Globex cites no authority or convincing analysis in support of its contention that, pursuant to the Official Comment, the Romanian importation ban went "to the very heart of the agreement," and therefore § 2-614(1) did not apply to the contract. See Stolt-Nielsen SA v. AnimalFeeds Int'l Corp., 548 F.3d 85, 92 (2d Cir.2008) ("In the context of contract interpretation, we are required to confirm arbitration awards [even if we have] serious reservations about the soundness of the arbitrator's reading of the contract." (internal quotation marks and brackets omitted)).
With respect to damages, Globex argues that a proper reading of CISG Article 74 imposes liability for damages suffered as a consequence of the particularly identified breach, "with foreseeable damages ... simply as a cap on actual damages." See CISG Art. 74 ("Damages for breach of contract by one party consist of [the damages] ... suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw ... at the time of the conclusion of the contract."). Even if this argument were correct, and the arbitrator interpreted Article 74 erroneously by awarding the foreseeable damages in full, our precedent is clear that an arbitrator does not manifestly disregard the law in such circumstances. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 (2d Cir.1986) ("Manifest disregard of the law ... clearly means more than error or misunderstanding with respect to the law." (internal quotation marks omitted)); Wallace, 378 F.3d at 190 ("Our cases demonstrate that we have used the manifest disregard of law doctrine to vacate arbitral awards only in the most egregious instances of misapplication of legal principles.").
We have considered Globex's remaining arguments and hold them to be without merit.
For the foregoing reasons, the judgment of the district court is AFFIRMED.}}
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