Disgorgement and the CISG – Comparative and Future Perspectives University of Lapland Faculty of Law Master’s thesis Author: Onni Rostila Supervisor: Petri Keskitalo University of Lapland, Faculty of Law Title: “Disgorgement and the CISG – Comparative and Future Perspectives” Author: Rostila Onni Level: Master’s thesis Number of pages: XV + 78 Month and year: September 2017 Abstract In the traditional contract law doctrines of both civil- and common law the liability of the party who breaches a contract is limited to paying compensatory damages for the injured party’s provable loss. According to the doctrine of disgorgement, however, the function is to strip the profits that were made through the breach. This thesis introduces and analyzes the so-called disgorgement remedy within contract law and specifically under the United Nations Convention on Contracts for the Interna- tional Sale of Goods (CISG). Closely related issues include the application and influence of the principle of good faith within the CISG and the principle of full compensation, which might preclude the applicability of disgorgement under the CISG. The doctrine of disgorgement was not discussed at the time of drafting the CISG and therefore the question must be resolved instead through interpretation. More specifically, by virtue of the CISG’s interpretation doctrine, the interpretation shall be conducted with the help of the general principles underlying the Convention. Therefore, the principles such as good faith and full compensation and their appropriate interpretation are highly relevant to this thesis. In order to understand the remedy and its possible operability within the CISG, this thesis provides background information about disgorgement by way of introducing different theories and viewpoints through which this remedy has been evaluated, namely theories of efficient breach and corrective justice. As a comparative viewpoint, this thesis analyzes some of the recent developments within common law, where there has been an observable drift towards accepting disgorgement in certain limited sets of circumstances. In particular, the most articulated acceptance of the remedy in the form of Restatement (Third) of Restitution and Unjust Enrichment of the U.S. will receive considerable attention. This thesis concludes that the interpretative analysis regarding this issue as well as the issue of good faith under the CISG need to be discussed and should preferably be also addressed by the CISG Advisory Council. Should disgorgement become feasible under the CISG, it is the writer’s contention that this would require further interpretation of Art. 84 CISG and recognition of this article as an embodiment of a general a general principle lending support for disgorgement. Subjects and Topics United Nations Convention on Contracts for the International Sale of Goods (CISG) Contract damages Disgorgement of profit Restatement (Third) of Restitution and Unjust Enrichment (R3RUE) Good faith I Table of Contents! Index of Authorities ........................................................................................................ IV! Statutes and Official Material ..................................................................................... IV! Court Cases and Arbitral Awards ............................................................................... IV! Bibliography ................................................................................................................ V! Abbreviations ............................................................................................................ XV! Disgorgement and the CISG – Comparative and Future Perspectives ............................. 1! 1. Introduction ................................................................................................................... 1! 1.1 Overview of the Subject Matter and Approach ...................................................... 1! 1.2 The CISG ................................................................................................................ 4! 1.3 Structure of the Thesis ............................................................................................ 5! 2. What is Disgorgement? ................................................................................................. 7! 2.1 Terminology ............................................................................................................ 7! 2.2 Traditional Contract Law Approach ..................................................................... 11! 3. The Disgorgement Debate .......................................................................................... 15! 3.1 The Origins of Disgorgement ............................................................................... 15! 3.1.1 Disgorgement Outside Contract Law ............................................................. 16! 3.1.2 Disgorgement’s Advancement into Contract Law – Introduction to the Blake v. Attorney General and the Adras v. Harlow Jones ............................................... 19! 3.2 Efficient Breach Theory and Disgorgement ......................................................... 20! 3.2.1 Efficient Breach as a Counter-argument for Disgorgement .......................... 21! 3.2.2 The Reception and Critique of the Theory .................................................... 23! 3.3 Corrective Justice and Disgorgement ................................................................... 27! 4. The Restatement (Third) of Restitution and Unjust Enrichment ................................ 32! 4.1 The Restatements of Law: A Brief Overview ....................................................... 32! 4.2 Restatement (Third) of Restitution and Unjust Enrichment ................................. 33! 4.3 Disgorgement as Prescribed in the R3RUE .......................................................... 36! 4.4 Reception in Legal Literature ............................................................................... 40! 4.5 Critique Towards § 39 R3RUE ............................................................................. 41! 4.6 Summary of the R3RUE’s Disgorgement and Its Context ................................... 43! 5. Relevant Remedial Provisions of the CISG ................................................................ 44! 5.1 Article 74 CISG – the General Damages Provision .............................................. 44! 5.2 Ambiguities in the Interpretation of Article 74 ..................................................... 46! 5.3 Article 84 as a Possible Basis for Granting Disgorgement ................................... 48! 6. Interpretation of the CISG Regarding Disgorgement ................................................. 52! 6.1 Article 7 CISG ...................................................................................................... 52! II 6.2 Gap-filling Under the CISG .................................................................................. 54! 6.3 Analogous Application ......................................................................................... 55! 6.4 General Principles in Gap-filling and Interpretation ............................................ 56! 7. General Principles of the CISG and Disgorgement .................................................... 59! 7.1 What General Principles the CISG Entails? ......................................................... 59! 7.2 The Principle of Good Faith ................................................................................. 61! 7.2.1 History and Content of Good Faith Under the CISG ..................................... 61! 7.2.2 The Divide Between Civil- and Common Law Perceptions of Good Faith .. 64! 7.2.3 More Tangible Derivatives of Good Faith Principle ..................................... 66! 7.2.4 The Principle of Good Faith and Disgorgement ............................................ 67! 7.3 The Principle of Full Compensation ..................................................................... 68! 7.4 Uniformity of Application .................................................................................... 71! 8. Conclusions ................................................................................................................. 73! III Index of Authorities Statutes and Official Material American Law Institute (website). Accessed September 2017. (at: https://www.ali.org/about-ali/.) Contract Law of the People’s Republic of China (Adopted and Promulgated by the Se- cond Session of the Ninth National People's Congress March 15, 1999). Convention relating to a Uniform Law on the International Sale of Goods, The Hague, 1 July 1964, United Nations, Treaty Series, vol. 834. Dutch Civil Code. Available at: http://www.dutchcivillaw.com/civilcodegeneral.htm. Principles of European Contract Law. Available at: http://www.cisg.law.pace.edu/cisg/text/textef.html. Restatement (First) of Restitution 1937. American Law Institute. Restatement (Second) of Contracts 1979. American Law Institute. Restatement (Third) of Resitution and Unjust Enrichment 2011. American Law Institute. Secretariat Commentary on the 1978 (CISG) Draft (Draft counterpart: Art. 70). Available at: http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-74.html. UNIDROIT Principles 2010. International Institute for the Unification of Private Law. Uniform Commercial Code of United States. The United Nations Convention on Contracts for the International Sale of Goods, Vienna 1980. Court Cases and Arbitral