Methods of Evaluating the Damages under Iranian and English Legal Systems and International Instruments

Minimal contemplation of the institution of damages under Iranian legal and contractual liability systems is the reason leaves the constant temptation of a legal study (compared to other legal systems and the common experiences especially formed in the field of international trade). Consequently, review of the methods for evaluation of damages and reconsideration of the notions brought in modern world (with a glance at the economic requirements of the progressive countries such as Iran) seems inevitable.

This study attempts to reconsider, at the very first point, the concept of “actual harm” under the Iranian legal system (as well as the contractual liability system) which leaves a major impact on our economic ambiance. We, as the Iranian lawyers, are acquainted with the phrase “there remain the possibility for the actual harms only to be compensated” (or claimed to be compensated). In light of the modern world progresses (as well as the theories rendered during the same) and the complexities of the relations therein, we have to apparently reconsider the veracity of the said phrase. The point, in our view, is laid in our contemplation of the institution of damages as a remedy for breach which lead us to go beyond the restitution of the aggrieved party’s former status. This is, indeed, the role of economic notions in modern world which enables the similar construes.

During this article and having studied the methods of evaluating the damages caused by non-performance of the obligations in English legal system (as well as exploring the latest studies in this field) and also a number of most reputable international legal instruments such as United Nations Convention on International Sale of Goods, Undroit Principles of International Commercial Contracts, Principles of European Contract Law and Draft Common Frame of Reference, we tried to support a construe under Iranian law which goes beyond the current contemplations regarding the damages.

United Nations Convention on International Sale of Goods (“CISG”), having considered the methods for valuation of damages in Articles 75 and 76, has also invalidates both the subjective and objective tests in claiming the damages. In other words, the modern world necessitates to even remove the subjective test in the course of appraisal of damages (as referred in Article 76 of CISG). In addition, other major international instruments have almost paved the same path and approved the methods of “buying the goods in replacement” and “current price of the goods”. This point reveals when we come up with Article 7.4.13 of the Undroit Principles of International Commercial Contracts (“Unidroit”) and compare the same with Article 230 of IRI Civil Code. Thus, the institution of damages is mainly designed to cover the expectations of the parties before entering into a contract and we can, consequently, come to conclusion that “Restitution Basis”, as a minimal construe of the same, shall stand in exterior of the territory of damages.Analyzing the economic outcomes of “Restitution”, “Expectation” and “Reliance” methods as well as more recent theories such as “Incomplete Contracts” and “Efficient Breach” (besides the studies based on economic analysis of law during the years of 20th century), with due regard to the necessities of the local market and during the short term at least, we can rely on a justifiable basis like “Expectation”.

Taking the foregoing into account, we have to remark on a few points as follows:1) The legislator’s approach to the institution of damages shall be varied at the very first stage so as the efficiency of the contractual liability system be improved (in terms of legal view point and more particularly in terms of economic point of view). Providing a set of certain and practical methods for valuation of damages, empowers the parties to measure the risks (and the scope thereof) and cover the same through the means such as insurance. Accordingly, the proposed techniques by the international instruments are so close to our dominant notions under Iranian (and Fiqhi) framework. Having done the same, the given approach in our system will become more consistent with the prevailing methods in Common Law (realization of “Expectation Basis” as the pioneer ways suggested by the classic division of Fuller and Perdue).2) Concentration on the criminal feature of the liquidated damages assists us to guide the appetite of the legal system to Expectation and Reliance Basis as the real outcomes of the concept of damages while the Restitution Basis may be analyzed within the area of termination and the consequences thereof.3) Insofar as we know, the law on adjustment of the contractual terms has a major impact on modern theories raised in this respect. However, even if the re-negotiation of the said terms enables the parties to achieve a sort of post efficiency, this kind of adjustment would certainly damage the former distribution of the contractual risks as considered by the parties in prior. So, in order to design an efficient scheme for the parties, we have to consider (inasmuch as viable) the nature of the given risks and the manner to cover the same. By the way, comparing the effects of such studies with the key notions of the Iranian legal system, the economic impacts of the relevant methods on a progressive economy such as Iran shall not be ignored. That is the reason we propose not to copy the ultra-modern theories such as “Incomplete Contracts” and “Efficient Breach” and focus on the “Expectation Basis”.