Reproduced with permission of 5 Vindobona Journal of International Commercial Law & Arbitration (2001) 185-211
Indraneel Basu Majumdar [a1]
Srishti Jha [aa1]
This article seeks to provide a comprehensive critique of the similarity and differences of the treatment of damages between Indian law governing contracts for sale of goods and the United Nations Convention on Contracts for the International Sale of Goods (the "CISG"). This endeavour gains significance in view of the following observation: '[N]o aspect of a system of contract law is more revealing of its underlying assumptions than is the law that prescribes the relief available for breach.' 
India is one of the countries that, despite having participated in the 1980 Vienna Diplomatic Conference which debated the various Articles of the CISG, chose not to ratify this Convention. Nevertheless, the CISG may still apply to an Indian contracting party even though India itself is not a party to the Convention. First, it is possible that one of the parties entering into a contract with the Indian party will be from a Contracting State whose laws will apply by virtue of laws of private international law.  [page 185]
These laws may well be the CISG. Secondly, an Indian party may well have his place of business in a Contracting State and he may have entered into an agreement with a party whose business is also in a Contracting State. In such a case, too, the CISG will apply.  Thirdly, the CISG may also apply in cases where none of the parties have their place of business in Contracting States because the parties chose CISG as the applicable law. This is in consonance with the principles of private international law. 
The authors hope that this analysis will help to demystify the CISG for Indian lawyers and hasten the change towards accepting the benefits of a uniform law governing contracts for international sale of goods. Understanding is the first step towards acceptance and this article aims to provide just that.
2. GENERAL PRINCIPLES GOVERNING MEASURE OF DAMAGES
2.1 Indian Law
Indian law relating to sale of goods is codified in two legislations: The Sale of Goods Act, 1930 (SGA) and The Indian Contract Act, 1872 (ICA). Sections 73 & 74 ICA contain the principles governing damages. The law relating to sale of goods (including provisions for damages) is also contained in the SGA. The general law governing contracts is however contained in the ICA. The question that naturally arises is how the law relating to damages specified in the two enactments is to be reconciled? The answer is provided in s. 3 SGA. This section provides that the provisions of the ICA shall continue to apply to the contracts for the sale of goods if they are not in conflict with the express provisions of the SGA.  Therefore an analysis of the damage provisions for the sale of goods under Indian law will encompass a detailed study of these two enactments and the relevant case laws.
As a general rule, the circumstances in which damages may be awarded are stated in the SGA but the measure of damages is to be determined with reference to ss. 73 and 74 ICA. [page 186]
(A) Section 73 ICA
Section 73 ICA reads:
"Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of breach.
"Compensation for failure to discharge obligation resembling those created by contract: When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
"Explanation: In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by non-performance of the contract must be taken into account."
The fundamental principle underlying damages is that a party who has sustained loss with regard to breach of contracts is with respect to damages to be placed in the same position that he would have been in had the contract been performed. 
(B) Three Rules in Hadley v. Baxendale 
Section 73 ICA affirms the rule of the Common Law of England as laid down in Hadley v. Baxendale.  The law laid down by Hadley forms the cornerstone of any analysis of the damage provisions in India.  They may be stated in the form of three rules: [page 187]
Damages that naturally arise from the breach are those that directly flow from it. It is the product of normal circumstances without the aid of "adventitious, accidental circumstances".  Further, merely because a particular damage was unexpected and the parties could not reasonably foresee it does not cease to be a damage which arose naturally in the usual course of things.  The measure of general damages is the pecuniary difference between the existing state of the plaintiff and that which it would have been had the contract been performed. 
The amount of compensation recoverable under this section may be expressed in the form of the following four rules:
The market price of goods is taken to be the benchmark on the basis of which damages are assessed.  Where the time for the performance of contract is fixed this is the date of breach and the damages will be calculated on the difference between the market price and the contract price on that day.  However where the time for performing the contract has been postponed at the request of either the seller or the buyer and the contract is ultimately broken damages have to be calculated with reference to the last date to which the contract was extended.  However here it must be stated that market price of goods is only a presumptive test. There is an important exception: if in fact the purchaser, when he obtains possession of the goods, sells them at a price much greater than the market value. In such a case he can allow for the profit he actually makes and he can recover only his actual loss; otherwise he would be placed in a better position than if the contract had been performed. 
However, the Hadley test fails when there is no market. In such a case the measure of damages must be the worth of the article at the time it ought to have been delivered. It cannot, however, be argued that in such cases only nominal damages can be awarded because the market price is difficult to determine.  The general rule is that where there is no available market one has to go to the place which is nearest to the place where the breach occurred. The most reasonable view seems to be that that taken by the Madras High Court  which held that Illustration (a) to s. 73 ICA did envisage damages in cases where there was no available market as well. The court quantified the damage as the sum by which the contract price falls short of the price for which the purchaser might have obtained goods of a like quality at the time when they ought to have been delivered.
In the case of non-acceptance of goods that are specially made to order and which are not marketable the rule for measuring of damages is the value of the goods.  It is unclear how the CISG would provide for such circumstances. It is probable that the [page 189] words "foreseeable" and "possible" will have to be taken recourse to for this purpose and the result may well be similar to the analysis of the Madras High Court.
(B1) Damages for Injured Feelings
In some cases damages have been awarded for injured feelings.  Damages have also been awarded for mental anguish.  However it must be noted that these are not applicable in contracts of sale generally.  There is no such provision in the CISG.
(B2) Mitigation of Damages
In India the duty to mitigate the damages has been recognised and laid down in the explanation attached to s. 73 ICA which reads:
"The expression 'the means which existed of remedying the inconvenience' has been interpreted to mean that it lays a duty upon a person complaining of a breach of contract, to use common intelligence and guidance, and take all natural and obvious steps available to diminish the loss arising from the breach.  However the rule in the explanation to s. 73 must be applied with caution: a party, who has already put himself in the wrong by breaking his contract, has no right to impose new and extraordinary duties on the aggrieved party. The latter can be only expected to use ordinary and reasonable diligence.  It must be noted that a person is under no obligation to take any steps to minimise the damages until a breach of the contract has actually accrued. The amount of damages should not, therefore, be reduced on the ground that he did not try to minimise the same before the date on which the defendant actually committed the breach."  [page 190]
Expenses arising from a contract are a loss or damage arising naturally from the contract. The test of reasonableness under the circumstances is whether a prudent man would have acted in the same way, as he did if the original wrongful act had been the result of his own default. 
(B3) Extent of Knowledge of Special Circumstances
Section 73 ICA provides that an aggrieved party is entitled to receive compensation for loss or damage which the parties knew, at the time of entering into the contract, to likely to result from the breach of it. However it must be noted that s. 73 does not refer to knowledge of special circumstances. It speaks only of knowledge in respect of loss or damage that is likely to result from the breach. It also does not refer to any undertaking, express or implied, to bear special or exceptional loss.  It follows that is both parties knew that a particular kind of loss would be likely to result from the breach, the defaulting party will have to make good that particular loss, and it is not necessary to show that he has undertaken to make it good to the party suffering.  Therefore mere notice or knowledge is sufficient to fix responsibility though no undertaking to bear the loss is given. 
2.2 Application of the CISG
(A) Article74 CISG
Art. 74 CISG reads as follows:
The Secretariat Commentary on the 1978 Draft  states that Art. 74 applies whenever the contract has not been declared avoided by the party claiming damages, whether or not it [page 191] could have been. It also applies where the contract has been avoided but there are damages in addition to those that can be calculated under Arts. 75 or 76 CISG.
The basic philosophy of the action for damages under Art. 74 CISG is to place the injured party in the same economic position he would have been in if the contract had been performed.  The specific reference to loss of profit is necessary because in some legal systems the concept of 'loss' standing alone does not include loss of profit. This is in accordance with the philosophy under the ICA's damage provisions.
The terms which appear in Art. 74 CISG will now be examined in detail.
(A1) "foresaw or ought to have foreseen"
The principle of recovery of the full amount of damages suffered by the party not in breach is subject to the qualification that the amount of damages that can be recovered by the party not in breach "may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters which he then knew or ought to have known, as a possible consequence of the breach of contract".  However, if a party at the time of the conclusion of a contract consider that breach of the contract by the other party would cause him exceptionally heavy losses or losses of an unusual nature, he may make this known to the other party with the result that if such damages are actually suffered they may be recovered.  The provision is exactly the same under Indian law.
Under Hadley, the damages must actually be 'contemplated' and not merely 'foreseeable'. The question is whether the choice of the word 'foreseeable' (in CISG) instead of 'contemplated' should make a difference in the scope of liability. A plain reading of the words would suggest that a difference in the scope of liability is intended.
Most authorities in the United States and some in England equated 'foreseeable' with 'in the contemplation of the parties' and concluded that Hadley established a rule of foreseeability.  The British case, The Heron II, preferred the 'contemplation' test and rejected the use of 'foreseeable' as a standard for measuring damages.  [page 192]
In applying the Convention relating to a Uniform Law on the International Sale of Goods (ULIS)  the German Supreme Court held that the seller is liable for damages that a "... reasonable, ideally typical obligor would know to be a serious consequence of a breach in light of the circumstances."  This test is similar to the Hadley rule and approximates the 'natural cause' test under the ICA.
(A2) "as a possible consequence of the breach of contract"
The United States District Court (Northern District of New York) in Delchi Carrier S.p.A. v. Rotorex Corporation  held that the CISG requires that damages be limited by the familiar the principle of foreseeability established in Hadley v. Baxendale . It has been suggested that this is an incorrect interpretation of Art. 74 CISG.  Article 74 limits recovery for consequential damages to those matters that "the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." On the other hand in Hadley the rule of foreseeability tends to restrict recovery to a greater degree in that it requires the loss to have been "such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."  It is evident that Hadley's "probable result" limitation is much more restrictive than the "possible consequence" limitation of Art. 74.  It follows that since Hadley states the rule in s. 73 ICA, the rule in Art. 74 is wider than the rule in s. 73.  In determining the standard of foreseeability under Art. 74 the usual or intended use by the buyer should be decisive.  [page 193] Subsequent cases obfuscated the issue. In Victoria Laundry (Windsor) Ltd. v. Newman Industries,  an attempt was made by Lord Asquith to describe the required degree of probability that the loss would occur. He described it as "liable to result"  and such that "a reasonable man"  "could foresee"  that the loss was "likely so to result"  or a "serious possibility"  or "a real danger"  and the probability was "on the cards".  Twenty years later, however, the House of Lords in The Heron II rejected the use of the term "foreseeable" and gave individual views of "probable" being the test.
(A3) "facts and matters of which he then knew or ought to have known"
The requirement of knowledge which the parties should have foreseen as a consequence of the breach of contract under the CISG resembles the Indian position which is clearly that the natural consequences of breach of contract are in the contemplation of reasonable men. 
(A4) Measure of damages
The first sentence of Art. 74 CISG does not specify the time or place for measuring the loss suffered by the injured party. This issue is likely to arise in international transactions, particularly transactions involving goods that fluctuate significantly in price. A footnote to the 1978 Secretariat Commentary of Art. 70 offers one plausible answer to this problem. The footnote states that the place for measurement should be where the seller delivered the goods, and adds that the point in time should be an "appropriate [one] ... such as the moment the goods were delivered, or the moment the buyer learned the non-conformity would not be remedied by the seller" under other Articles of the Convention. 
Breach of warranty claims would probably be covered under the exclusion in Art. 5 and therefore the correct position of law is that personal injury is excluded from the scope of [page 194] the convention.  In addition, the language of Art. 74 CISG appears to authorise only commercial measures of damages.  Under Indian law, however the position is different and damages for personal injury can be claimed if they "are the natural consequence of the breach of contract" and therefore "reasonably in the contemplation of the parties". 
It should also be borne in mind that the Convention does not have a rule concerning punitive damages.  The position is the same in India unless there is a clause in the contract providing for such damages in which case such damages will be available.
Where the goods have a market price, the injured party can also measure his damages independent of any cover transaction.  This method of measuring damages presupposes that a cover transaction has not been undertaken with regard to the contract breached. To meet the requirement, it is enough that the injured party is constantly dealing in "market transactions" and that it is therefore difficult or impossible to determine which particular transaction should be considered the cover for the breached contract.  However, the requirement of constant dealing in market transactions stated by Schlechtriem  is not stated in the CISG and, if correct, differs from Indian law which does not impose any such restriction.
2.3 Mitigation of damages
The duty to mitigate damages is present in Art. 77 CISG, which reads:
When the contract is avoided, damages generally amount to the difference between the contract price and the costs of a cover transaction, together with any further damages.  The cover transaction must be undertaken within a reasonable time after avoidance. This [page 195] is in keeping with the duty to mitigate damages in Art. 77 CISG.  The requirement of mitigation is present under Indian law as well.  Article 75 of the Convention, however, does not specify the adjustment for expenses saved by the party claiming damages as a result of the breach such as transportation expenses saved by the aggrieved party in a substitute transaction  A similar result can be reached under Art. 75 CISG by construing the phrase 'price in the substitute transaction' to permit such adjustment. Equitable considerations demand this construction, given that increased transportation costs and similar items of extra expense associated with a substitute transaction would constitute losses suffered 'as a consequence of breach' and thus would be recoverable under Art. 74 CISG.  The position, if Art. 75 is so construed would be the same as Indian law. 
The thrust of Art. 77 is to deny recovery of damages that could have been reasonably avoided.  The judge in Delchi  turned a shield into a sword and interpreted Art. 77 CISG as requiring mitigation and allowing consequential damages for costs incurred in the mitigation process.  This interpretation is in accordance with Indian law  but it is doubtful if this is the correct interpretation of the provision. 
Further Art. 77 CISG provides that, if it is clear that one party will commit a fundamental breach of the contract, the other party cannot await the contract date of performance before he declares the contract avoided and takes measures to reduce the loss arising out of the breach by making a cover purchase, reselling the goods or otherwise.  This position is very different from Indian law where the duty does not arise till the breach of contract. [page 196]
Article 74 CISG provides for damages for loss suffered 'as a consequence of the breach' for both the buyer and the seller. This should cover the losses caused by expenses and other inconvenience which the parties could be reasonably expected to foresee.
Thus if the seller fails to deliver, a buyer who elects not to avoid the contract and who seeks specific performance under Art. 46(1) CISG can also claim damages under Art. 74 of the Convention for losses caused by the delay in receiving the goods provided the losses were foreseeable when the contract was formed and could not have been avoided by reasonable attempts to mitigate.  Art. 74 damages can also be recovered by the buyer "if it reduces the price under Art. 50, seeks substitute goods under Art. 46(2), or demands repair of defective goods under Art. 46(3) CISG."  The position is the same under Indian law.
3. SELLER'S RIGHT TO CLAIM DAMAGES
[3.1] Indian Law
Section 56 SGA provides that where the buyer wrongfully neglects or refuses to accept and pay for the goods the seller may sue him for damages for non-acceptance. 
The precondition for the seller to get any damages is that the buyer had to have acted 'wrongfully' in refusing to accept delivery.  The determination of whether the act of neglect or refusal was 'wrongful' is a question of fact and has to be determined in the facts and circumstances of each particular case. 
Under Indian law the seller has various remedies against the goods and the buyer personally and even when those remedies exist, it still has the right to sue for damages under this section.  However, where the property in the goods has not passed to the buyer  and the contract does not entitle him to make a re-sale and charge the buyer with the difference between the contract price and the price realized on re-sale, or to sue the [page 197] buyer for the price irrespective of delivery, the remedy provided by this section is the only one by which he may recover damages for the breach of contract. 
The expression 'property in the goods' refers to ownership. When the Indian law of sale of goods refers to property in the goods it means that that person is the owner of the goods.  The rules governing damages are determined with reference to s. 73 ICA.
Acceptance of the goods and payment of the price in accordance with the contract and the convention is an obligation of the buyer under the Art. 53 CISG. There is a general rule under Art. 61 (1) (b) CISG which states that where the buyer fails to perform any of his obligations under the contract or the Convention, the seller may claim damages in accordance with Arts. 74-77 CISG.  This would include a case of non-acceptance of the goods and non-payment of the price. The principles of damages have already been dealt with earlier under Art. 74 CISG.
4. BUYER'S RIGHT TO CLAIM DAMAGES
4.1 Indian Law
Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.  The general principles governing damages under this section is dealt with under ss. 73-74 of the ICA.
Article 30 CISG sets out the seller's obligation to deliver the goods, hand over any documents relating to them and transfer the property in the goods as required by the contract and the convention.
Article 45 CISG states that where the seller fails to perform any of his obligations the buyer has the right to claim for damages under Arts. 74-77 of the Convention. This would clearly include a breach of the obligations under Art. 30 of the Convention. [page 198]
5. DAMAGES FOR BREACH OF WARRANTY
5.1 Indian Law
The SGA makes a distinction between a condition and a warranty. A stipulation in a contract of sale may be a condition or a warranty.  A condition is a stipulation essential to the main purpose of the contract, the breach of which gives a right to treat the contract as repudiated  whereas a warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim of damages but not to a right to reject the goods and treat the contract as repudiated.  Whether a stipulation in a contract is a condition or warranty or neither depends on the construction of the contract in each case.  It must be noted that the buyer has the right to treat the condition as a warranty if he so wishes.  There are circumstances where the buyer may be compelled to treat a breach of condition as a breach of warranty, for example, where a contract of sale is not severable and the buyer has accepted the goods or a part of them then the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty. 
Section 59 is a codification of the common law of the United Kingdom.  It states that cases where the seller breaches a warranty or where the buyer elects or is compelled to treat any breach of a condition by the seller as a breach of warranty the buyer is not entitled to reject such goods by reason only of such breach. However the buyer has two other remedies, being to:
It may be noted here that the buyer may, in all cases, pay the price for the goods and bring a distinct action for damages.  [page 199]
(A) Measure of damages by applying s.73 ICA
The measure of damages in the case of breach of warranty is the estimated loss directly and naturally arising in the ordinary course of events from the breach, and this loss, in the case of breach of warranty of quality, is the difference between the value of goods at the time of delivery to the buyer and the value they would have had if they answered to the warranty.  Where there is a market value, the actual contract price or the price at which the goods have been resold is irrelevant for fixing these values.  However there is rarely any market price for damaged or defective goods, and thus the price at which the buyer resold the goods may be evidence of their value. 
Under the second rule in s. 73 ICA special damages for the breach of warranty were held recoverable on the principle that such damages were known to the parties at the time of entering into the contract. 
However where the particular purpose for which the goods were required was not communicated to the seller, special damages resulting from breach of warranty cannot be granted. 
Thus the measure of damages for breach of warranty cases is to be determined on the basis of the principles laid down in s. 74 ICA.
The Indian law with regard to breach of warranty focuses greatly on the conceptual difference between "condition" and "warranty". Therefore for any meaningful comparison between CISG and Indian law it is necessary to examine whether any similar concepts exist in the CISG.
An examination of the terms used in the CISG would lead to the conclusion that though the distinction is not made in terms of "condition" and "warranty". However the concepts find a place in the CISG. Case law dealing with breach of warranty under the Convention also brings an important fact to light: breach of warranty under the CISG generally refers to a breach of an assurance of facts regarding the goods and such breach [page 200] may be "fundamental".  In contrast the definition of "warranty" under Indian law excludes such a possibility. The Circuit Court case Delchi Carrier S.p.A. v. Rotorex Corporation  arose as a warranty dispute between a U.S. seller of compressors ("Rotorex") and its Italian customer ("Delchi"), a manufacturer of air conditioner units. Interpreting Art. 25 of the Convention, the court held that Rotorex's failure to deliver conforming goods constituted a "fundamental" breach, which is a breach that substantially deprived Delchi of "... [what] it was entitled to expect under the contract." 
However it is clear that the distinction exists is so far as the CISG provides for "fundamental breach" of the contract. Article 25 CISG defines fundamental breach as one which results in "such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract". Therefore it is obvious that such a stipulation is "essential to the main purpose of the contract" in terms of the Indian law on the point. Further, Art. 72 CISG gives the right of avoidance of the contract the moment it is clear that the other party will commit a fundamental breach of the contract.  Therefore the result of a "fundamental breach" under the CISG is the same as that of a "breach of a condition" under Indian law. Hence it may be said that the concept of "fundamental breach" in the CISG approaches that of "condition" under Indian law.
The question of whether breach of warranty cases are covered under the CISG must also be answered in the affirmative. Article 74 CISG authorises a buyer who has accepted the goods to recover damages for breach of warranty.
(A) Measure of damages by applying Art. 74 of the CISG
Damages under the CISG are measured by the difference between the value of the goods delivered and "the value they would have had if they had been as warranted."  In a German case  the Supreme Court had stated that under Art. 82 ULIS, a seller is liable for damages for a delivery of defective goods, including lost profits, but only to the extent that losses and lost profits should have been foreseen by the seller at the time of [page 201] formation of the contract. Art. 82 ULIS is substantially similar to Art. 74 CISG and therefore the analysis is material.  The subjective and objective test (as in Art. 74 CISG) was used to measure damages.
In Delchi, having determined a breach of warranty, the court examined Art. 74 of the Convention to determine the recovery amount that would "equal ... the loss" suffered by Delchi, including consequential and incidental damages "suffered by [Delchi] as a consequence of the breach" and it applied the "foreseeabiliy" test for this purpose.  Thus the case is a clear authority on the point that the principles laid down in Art. 74 CISG for calculating damages have to be used for calculating damages in breach of warranty cases as well.
Take, for example, where a seller delivers non-conforming goods and the buyer can neither avoid the contract nor demand substitute goods because the defects do not satisfy the fundamental breach standard.  Further, say that the buyer cannot require the seller to repair because that would be "unreasonable having regard to all the circumstances."  In such cases under Art. 74 of the Convention, the buyer can claim damages measured by its losses from the defects.  In these circumstances, Art. 74 authorises a buyer who has accepted the goods to recover damages for breach of warranty. The measure of damages under Art. 74 CISG is the difference between the value of the goods delivered and 'the value they would have had if they had been as warranted.'  The conclusion which, the authors' opinion, follows is that the principles of damages as laid down under Art. 74 CISG (foreseeability, subjective and objective test etc.) will have to be used to determine the measure of damages for breach of warranty. The position is the same under Indian law.
6. DAMAGES ON REPUDIATION OF THE CONTRACT BEFORE DUE DATE
6.1 Indian Law
Where either party to a contract of sale repudiates the contract before the date of delivery, the other party may either treat the contract as subsisting and wait till the date [page 202] of delivery, or he may treat the contract as rescinded and sue for damages for breach of contract.  This section (which does not appear in the English Sale of Goods Act) deals with the case of anticipatory breach of contract. The term "repudiation" may be taken to be a refusal to perform the contract.  What constitutes repudiation is to be inferred from the circumstances of the case and the conduct of the party.  If he brings an action for damages after treating the contract as rescinded (akin to "avoided" under the CISG) he will be entitled to such damages as would have arisen from the non-performance of the contract at the appointed time. 
(A) Measure of damages by applying s. 73 ICA
The most important question in the case of anticipatory breach is with reference to what date is the market price to be calculated, whether on the date of breach or on the date fixed for performance. 
As per the first rule in s. 73 ICA, the rule in India is that in estimating damage in the case of anticipatory breach the value of the performance at the date fixed for performance must be taken and not the value at the date when the refusal to perform was made.  The reasoning is that "since the value of a contract would normally be determined by the benefit which its performance would confer, the exact measure of damages upon an anticipatory breach is ... precisely the same as it would be, if the repudiation were not accepted as a breach and the injured party brought a suit, after the time of performance, for the non-performance at the time set."  The rule is the same as in England.
(B) Duty to mitigate
Where a party to a contract refuses to perform the contract the other party has a right to decide whether he accepts the repudiation at once, or refuse to accept the repudiation and wait till the date of performance of the contract. In the case of an anticipatory breach of contract the duty to mitigate the damages arises immediately on the [page 203] acceptance of the repudiation.  On the other hand if the repudiation is not accepted and the promisee waits till the due date and still the promisor refuses to perform the contract the duty to mitigate arises only on the contractual date for performance.  The position is the same under English law as well. 
(A) Damages on avoidance for anticipatory breach
The CISG gives a right to a party to declare the contract avoided if it becomes apparent that one of the parties to the contract would commit a fundamental breach of contract.  However the party intending to avoid the contract is to give notice of such avoidance to the other party, if time allows, so that it can provide adequate assurance of its performance.  It is important to note that notice of the intent to avoid is unnecessary if the other party has already declared that he will not perform the contract. 
The point to be noted here is that under the CISG (as under the SGA) there is an immediate right to avoidance if the other party refuses to perform the contract. It is also evident from a reading of Art. 81 of the Convention that avoidance of contract releases both parties to the contract from their obligations under it "subject to any damages that may be due". The measure of damages will have to be determined in accordance with Arts. 75 and 76 CISG.
(B) Measure of damages
Articles 75 and 76 of the Convention provide two methods for measuring damages when a party avoids a contract due to a fundamental breach of the contract by the other party and they are specific applications of Art. 74 CISG. Article 74 establishes the rule for the measurement of damages "whenever and to the extent that Arts. 75 and 76 are not applicable."  [page 204]
Damages under this provision are established by the action of the injured seller in reselling the goods and the action of the injured buyer in buying the goods elsewhere.  The measure of damages is the difference between the price under the contract and the price of the substitute transaction. 
The substitute transaction may occur in a different location than that provided for in the contract. The amounts of damages are altered to reflect any increased costs or expenses saved. The injured party is obligated to obtain cover or seek resale in a "reasonable manner [and] within a reasonable time after avoidance."  Therefore the time limitation does not begin to run until the party in breach has actually avoided the contract.  If the substitute transaction is not carried out in a reasonable manner the injured party can rely on Art. 76 CISG that provides for measurement of damages by current market price. 
The measurement of damages rule authorised by Art. 76 may be used when resale or purchase is not reasonable under Art. 75 CISG, when no resale or purchase occurs, or when it is impossible to tell "which was the resale or purchase contract in replacement of the contract which was breached."  The relevant date for determining the market price is the first date when the contract could have been avoided. 
Articles 75 and 76 CISG have the phrase, "as well as any further damages recoverable under Art. 74."  The scope of this phrase is controversial and it remains unclear if this phrase extends to a "lost volume" situation.  Some scholars maintain that the damages provisions of the Convention also allow, albeit not explicitly, for lost volume damages.  Indeed in Delchi the Court noted that the CISG allows lost profits from a diminished volume of sales.  "Lost volume" transactions are completely alien to the Indian law of damages. [page 205]
The 'further damages' to be recovered under Art. 74 CISG would usually be the additional expenses which may have been caused as a result of the receipt of non-conforming goods or the necessity to purchase substitute goods as well as losses which may have been caused if goods purchased in the substitute transaction could not be delivered by the original contract date.  The amount of the recoverable damages of this type is limited by the requirements of foreseeability. The position is the same under Indian law.
Article 76 of the Convention, which deals with situations where the contract is avoided but a substitute transaction is not entered into, relies on the 'declaration of avoidance' or the 'taking over' of the goods as the reference point for calculating damages, the earlier of the two being decisive. Commentators have noted, and the authors agree, that this solution is very unsatisfactory and uncertain. 
The result in India is quite different. Where the time for the performance of contract is fixed this is the date of breach and the damages will be calculated on the difference between the market price and the contract price on that day.  Where the time for performing the contract has been postponed at the request of either the seller or the buyer and the contract is ultimately broken damages have to be calculated with reference to the last date to which the contract was extended.  The result in India is more certain and the date of performance of contract is a more certain reference point than either 'declaration of avoidance' or 'taking over of goods' and avoids the problems envisaged by Schlechtriem. 
(C) Duty to mitigate
The duty to mitigate applies to an anticipatory breach of contract under Art. 72 CISG as well as in relation to a breach in respect of an obligation the performance of which is currently due. If it is clear that one party will commit a fundamental breach of the contract, the other party cannot await the contract date of performance before he declares the contract avoided and takes measures to reduce the loss arising out of the breach by making a cover purchase, reselling the goods or otherwise.  This is diametrically opposite to the position in India where the duty to mitigate arises only if a [page 206] party exercises the right to avoidance immediately. Otherwise the duty arises only when the date of performance has passed.
7.1 Indian Law
Both the seller and the buyer have been given the right to recover interest where under law they can be recovered. 
If there is no contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of the price to :
(A) Pre-judgment interest
The common law of the United Kingdom does not permit the award of interest by way of general damages for delay in payment of a debt.  However the court can enforce a stipulation between the parties in their contract regarding payment of interest within the bound of statutory provisions. Special damages could be awarded where the plaintiff had actually incurred interest charges in raising finance from another source as a result of the defendant's failure to pay money when due. 
Under the Indian Interest Act 1978 the Court may, if it thinks fit, allow interest to the person entitled to damages at a rate not exceeding the 'current rate of interest'  for the period from the date mentioned in this regard in a written notice given by the person [page 207] claiming it to the person liable for the interest claimed, to the date of institution of the proceedings.  However pre-judgment interest (as explained above) will only be given on a 'sum certain'  and is therefore not available for unliquidated damages. 
However, it must be noted that interest by way of damages may be awarded if there is an express stipulation to that effect. 
Article 78 CISG deals with the issue of interest on damages. The provision does not apply to interest payments on the refund of the purchase price if the purchase contract is avoided because this case is covered by the specific provisions of Art. 84 CISG. It also does not apply to interest payments on interest and, thus, gives no right to compound interest. 
Here it must be noted that the interest provision under Art. 84 gives the buyer the right to interest from the seller from the date on which the price was paid. This requirement is the same as under Indian law.
Article 78 CISG authorises recovery of interest on the payment price or 'any other sum that is in arrears'. It is clear that, like in Indian law, the seller in a suit for refund of the price can get interest on it. However it is doubtful whether a party is entitled to recover interest on an unliquidated amount, which was the position upheld in Delchi . Given the internationally controversial nature of interest, the final language of Art. 78 entitling a party to interest on "any ... sum ... in arrears" was a compromise among the States which should not be interpreted to encompass unliquidated damages. The history of the Article supports this view.  [page 208]
The other problem is the interest rate applicable.  In Delchi the court "in its discretion" awarded interest at the rate established by United States federal law for the award of post-judgment interest. However it made no reference to Art. 7 CISG which lays down rules for interpreting the Convention. It did not examine the legislative history of the Convention or refer to scholarly opinion. Therefore the case cannot be said to serve as a good authority to determine the interest rate applicable.
As stated above, there was much debate over the drafting of Art. 78 CISG, resulting in a rule on interest being omitted in earlier drafts of the Convention. There is therefore no commentary to allow insight on its development as is provided for in other Articles. However, a 1976 draft included a provision for interest awards to the seller.  Article 58 of this draft provided for interest at the rate of the country of the seller's principal place of business and this has been opined to be the correct rule.  The International Court of Arbitration has applied the law of the place of payment to determine the interest rate owed on an unpaid balance to the seller.  There is a view that in conformity with the general principles of the Convention, specifically those from Art. 74 CISG (which strives to award recovery of suffered losses), and Art. 75 CISG (which calculates compensation by the cost of the substitute transaction), interest should be calculated by the cost of credit faced by the injured party.  Thus the interest rate applicable remains shrouded in mystery and appears to be at the discretion of the governing Court or Tribunal.
The most important issues, which arise from a comparative analysis of the law relating to damages in international sale of goods, may be summarised as follows:
In general one can conclude that the similarities relating to the law of damages between the CSIG and Indian law outweigh the differences, and that the CISG may be a viable alternative when dealing with international sale of goods transactions. [page 211]
a1. Mr. Indraneel Basu Majumdar is currently completing his LL.M. at the University of Michigan Law School, USA. His email address is imajumda @umich.edu. He had participated in the Willem C. Vis. International Commercial Arbitration Moot in the year 2000.
aa1. Ms. Srishti Jha is in the fifth year of the BA. LL.B. (Hons.) course at the National Law School of India University, India. Her email address is: email@example.com.
1. E. A. Farnsworth, "Damages and Specific Relief" (1979) 27 Am. J. Comp. L. 247.
2. Art. 1 (1)(b), CISG.
3. Art. 1 (1)(a), CISG.
4. Art. 1 (1)(b), CISG.
5. See s. 3 SGA. See also Munniswami Chetty & Co., AIR 1944 Mad. 418, which confirmed the view that provisions of the ICA apply to the sale of goods.
6. Union of India v. Baij Nath Mandal, AIR 1951 Pat. 219 at 221.
7. 156 Eng. Rep. 145 (Ex. 1854).
8. C. K. Rao, Law of Damages and Compensation, 1959, Law Book Company, India, p. 132.
9. Indian law of damages closely follows the common law tradition
10. Weld-Blundell v. Stephens (1920) A.C. 956 at 983.
11. C. K. Rao, Law of Damages, p. 127.
12. Michael v. Hart & Co. (1902) 1 KB 482.
13. Werheim v. Chitcoutimi Pulp Co. (1911) A. C. 301 at 308, followed in Union of India v. Baijnath (1951) Pat. 219.
14. See Illustration (o) to s. 73 ICA.
15. Kedar Nath Behari Lal v. Shumbhunath Nandu Mull AIR (1927) Lah. 176.
16. Wertheim v. Chicoutimi Pulp Co. (1911) A.C. 301.
17. For example in Stroms, Braks Aktie Bolag v. Hutchinson (1905) A.C. 515 the Privy Council upheld the view that where there is no market for goods their value must be ascertained by taking the price at the place of manufacture and adding to it the cost of carriage and adding to it the importers profit. It has been held in Hinde v. Liddel, (1875) 10 Q.B. 265 that if the buyer can obtain in the market an article that is the nearest available substitute for the one he failed to obtain under the contract, the value of that substitute even though of superior quality and the price must be taken as the value of the article for the owner.
18. Haji Ismail Sait & Sons v. Wilson & Co, ILR 41 Mad. 709.
19. G. D. Gear & Co. v. French Cigarettes C., AIR 1921 Lah. 742.
20. Jarvis v. Swan Tours Ltd. (1973) 1 QB 223.
21. R. K. Abichandani, Pollock and Mulla on The Indian Contract and Specific Relief Act, 1994 N. M. Tripathi, India, p. 841.
23. C. K. Rao, Law of Damages, p. 298.
24. C. K. Rao, Law of Damages, p. 299.
25. Burn & Co. v. H. H. Thakur Saheb & Co. AIR 1924 Cal. 427.
26. La Blanche v. London & North Western Ry. Co. (1876) ICPD 286.
27. C. K. Rao, Law of Damages, p. 161.
28. A. H. P. Mohammad v. Sakavat Hussain AIR 1923 Mad. 103 at 107.
Illustrations (i) and (j) to s. 73 ICA confirm this view since they impute liability based on knowledge but do not refer to any undertaking to bear exceptional loss.
30. Since Art. 70 of the 1978 Draft CSIG is substantially similar to Art. 74 of the Official Text (with the exception of the inclusion of the word "of" before "which" in the second sentence, which appears to be merely a grammatical alteration, the two Articles are identical) the Commentary is a useful guide for the interpretation of Art. 74 CISG.
31. Secretariat Commentary on Art. 70 of the 1978 Draft, paragraph 3.
32. Art. 74 CISG.
33. Secretariat Commentary on Art. 70 of the 1978 Draft, paragraph 8.
34. Arthur G. Murphey, "Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley" (1989) 23 Wash. J. Int'l L. & Econ 415.
35. The Heron II,  1 App. Cas. 350.
36. Art. 82 ULIS provides (in almost the same terms as Art. 74 CISG) that, where the contract has not been avoided, liability to pay damages extends to the loss, including loss of profit, suffered and confines liability to the loss which the party in breach ought to have foreseen at the time of the conclusion of the contract as a possible consequence of the breach of the contract. See http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-u-74.html. Therefore the German case can be referred to for the purposes of this analysis.
37. Judgment of Oct. 24, 1980, 1981 IPRAX at 97.
38. 71 F.3d 1024 (2d Cir. 1995)
39. (1854) 156 ER 145.
40. See V. S. Cook, "The UN Convention on Contracts for the International Sale of Goods: A Mandate to Abandon Legal Ethnocentricity" (1997) 16 Journal of Law and Commerce 257 at 259.
41. V. S. Cook, "The UN Convention", p. 260.
43. J. E. Murray, "The Neglect of CISG: A Workable Solution" (1998) 17 Journal of Law and Commerce 365 at 370 (arguing that the Hadley test is broader than Art. 74).
44. P. Schlechtriem, Uniform Sales Law-The UN Convention on Contracts for The International Sale of Goods, 1986 Manz, Vienna, p. 297.
45.  2 K.B. 528 (C.A.).
46.  1 All. E.R. 997 at 1003 (relying on the observation of Lord Du Pard in Monarch Steamship Co. v. A/B Karlshamns Oljefrabriker  1 All. E.R. 19.
47.  1 All. E.R. 997 at 1003.
53. H. K. Saharay and S. K. R. Chowdhury, Dutt on Contract, 1994 Eastern Law House, India, p. 559.
54. Secretariat Commentary on Art. 70 of the 1978 Draft, footnote 2.
55. J. S. Sutton, "Measuring Damages Under the United Nations Convention on the International Sale of Goods" (1989) 50 Ohio State Law Journal 737 at 744.
57. Mowbray v. Merryweather (1895) 2 Q. B. 640.
58. J. S. Sutton, "Measuring Damages", p. 737.
59. Article 76 CISG.
60. P. Schlechtriem, Uniform Sales Law, p. 298.
62. Article 75 CISG.
63. P. Schlechtriem, Uniform Sales Law, p. 298.
64. Explanation to s. 73, ICA and Illustration (b). See also Thawardas Pherumal v. Dominion of India, AIR 1955 SC 468
65. H. M. Flechtner, "Remedies Under the New International Sales Convention: The Perspective from Art. 2 of the U.C.C." (1988) 8 Journal of Law and Commerce 53 at 98.
66. H. M. Flechtner, "Remedies" 98.
67. R. K. Abichandani, Indian Contract and Specific Relief Act, p. 835.
68. E. C. Schneider, "Consequential Damages in the International Sale of Goods: Analysis of Two Decisions"  16 Journal of International Business Law 615; cited from http:// cisgw3.law.pace.edu/cisg/wais/db/articles/schnedr2.html
69. 71 F.3d 1024 (2d Cir. 1995).
70. E. C. Schneider, "Consequential Damages" 615.
71. Heskel v. Continental Express Co.,  1 All. ER. 1033, 1046.
72. E. C. Schneider, "Consequential Damages" 615.
73. Secretariat Commentary on Art. 73 of the 1978 Draft, paragraph 4
74. Article 45(2), CISG. An aggrieved seller is protected by an equivalent provision in Art. 61(2), CISG.
75. H. M. Flechtner, "Remedies", p. 106
76. Section 56 of the SGA
77. K. Shanmuskari, A. Ramaiyas, The Sale of Goods Act, 1995 The Law Book Company Pvt. Ltd., India, p. 841
78. K. Shanmuskari, The Sale of Goods Act, p. 841.
79. Coorla Mills v. Vallabhas AIR 1925 Bom. 547.
80. When the property in the goods passes to the buyer is to be determined with respect to the rules provided on this behalf in the SGA. See s. 19 SGA. This enquiry is however beyond the scope of this article.
81. K. Shanmuskari, The Sale of Goods Act, p. 841.
82. H. S. Pathak, Mulla on the Sale of Goods Act and the Indian Partnership Act, 1992 N. M. Tripathi, India, p. 8
83. See Art. 61 CISG.
84. Section 57 SGA.
85. Section 12 (1) SGA.
88. Dudhia Forest Co-op. Labourers and Artisans Co. Ltd. v. Mohammed Saiyed & Abdul Rehmans Co. 1980 (21) Guj. L.R. 272.
89. Sub-section 13 (1) SGA.
90. Sub-section 13 (2) SGA.
91. R. K. Abichandani, Pollock and Mulla on The Sale of Goods Act 1990, N. M. Tripathi, India, p. 357
92. Davis v. Hedges (1871) L.R. 6 Q.B. 68.
93. Bosogomoff v. Nahapict Jute Co. ILR 29 Cal. 587, 591
94. R. K. Abichandani, Indian Contract and Specific Relief Act, p. 820
95. Slater v. Hoyle & Smith Ltd (1920) 2 KB 11 at 17
96. Illustration (m) to s. 73 ICA
97. R. K. Abichandani, Indian Contract and Specific Relief Act, p. 831
98. As the U.S. District Court for the Northern District of New York stated in Delchi Carrier, SpA v. Rotorex Corp, No. 88-CV-1078, 1994 WL 495787 (N. D. N. Y. Sept, 9, 1994)
99. 71 F.3d 1024 (2d Cir. 1995)
100. Ibid, pp. 1028-1029
101. Art. 72(1), CISG. See also Secretarial Commentary on Art. 63 of the 1978 Draft, paragraph 1.
102. H. M. Flechtner, "Remedies", at p. 107.
104. For the use of prior convention to interpret a subsequent one see F. A. Mann, "Uniform Statutes in English Law" (1983) 99 Law Quarterly Review 382.
105. 71 F.3d 1024 at 1029.
106. Articles 46(2), 49(1) CISG.
107. Article 46(3) CISG.
108. The buyer could also use the reduction in price remedy in this setting, although resort to this remedy is optional: see Art. 50 CISG.
109. H. M. Flechtner, "Remedies", p. 107.
110. Section 60 SGA.
111. A. N. Saha, Mitras Legal and Commercial Dictionary, 1990, Eastern Law House, India, p. 617.
112. C. K. Rao, Law of Damages, p. 155.
113. Raimer & Bros. v. Ramudu, AIR 1933 Mad. 176.
114. C. K. Rao, Law of Damages, p. 152
115. C. K. Rao, Law of Damages, p. 154.
116. Manindra Chandra Nandy v. Aswini Kumar ILR 48 Cal. 427.
117. C. K. Rao, Law of Damages, p.302
120. Article 72(1) CISG.
121. Article 72(2) CISG.
122. Article 72(3) CISG.
123. Article 74 CISG.
124. Called a "cover transaction".
125. J. S. Sutton, "Measuring Damages Under the United Nations Convention on the International Sale of Goods" (1989) 50 Ohio State Law Journal 737 at 745.
126. Secretariat Commentary on Art. 71 of the 1978 Draft Convention, paragraph 4.
127. Secretariat Commentary on Art. 71 of the 1978 Draft Convention, paragraph 5.
128. J. S. Sutton, "Measuring Damages" (1989) 745.
129. Secretariat Commentary on Art. 72 of the 1978 Draft Convention, paragraph 3.
130. Article 76(1) CISG.
131. Secretariat Commentary on Art. 72 of the 1978 Draft Convention, paragraph 8.
132. 'Lost volume' refers to a situation where if the buyer breaches the contract the seller loses profits since they have an unlimited supply of goods to sell.
133. Professor Farnsworth points to the broad language of Art 74, authorizing damages for "loss of profits" as justification for his view: see E. A. Farnsworth, Damages, p. 252.
134. 1994 WL 495787, p. 6.
135. Secretariat Commentary on Art. 71 of the 1978 Draft Convention, paragraph 9.
136. P. Schlechtriem, Uniform Sales Law, p. 298.
137. See Illustration (o) to s. 73 ICA.
138. Kedar Nath Behari Lal v. Shumbhunath Nandu Mull AIR (1927) Lah. 176.
139. P. Schlechtriem, Uniform Sales Law, p. 298.
140. Secretariat Commentary on Art. 73 of the 1978 Draft, paragraph 4.
141. Section 61(1) SGA.
142. Section 61(2) SGA.
143. President of India v. La Pintada Compania Navegacion S. A. (1985) A. C. 104.
144. Baon v. Cooper Ltd.  1 All. E.R. 397.
145. The current rate of interest is an amount that can be calculated. It has been defined in s. 2 (b) of the Indian Interest Act 1978.
146. Section 3 of the Interest Act (1978).
147. Section 2 (c) of the Indian Interest Act (1978) defines 'debt' in these terms.
148. AIR 1979 SC 852.
149. Section 3(3)(a)(i) of the Indian Interest Act (1978).
150. Christian Thiele, "Interest on Damages and Rate of Interest Under Art. 78 of the U.N. Convention on Contracts for the International Sale of Goods" (1998) 2(3) VJ 3.
151. 71 F.3d 1024 (2d Cir. 1995).
152. J. S. Sutton, "Measuring Damages", 737 at 749.
153. See Arbitral Tribunal - Vienna 15 June 1994, SCH-4366 Case law on UNCITRAL texts (CLOUT) abstract no. 93; Arbitral Tribunal - Vienna 15 June 1994, SCH-4318 Case law on UNCITRAL texts (CLOUT) abstract no. 94 for examples of how the tribunals tried to settle the issue with reference to the general principles on which the CISG is based.
154. J. M. Darkey, "A U.S. Courts Interpretation of Damage Provisions under the U.N. Convention on Contracts for the International Sale of Goods: A Preliminary Step towards an International Jurisprudence of CISG or a Missed Opportunity?" (1995) 15 Journal of Law and Commerce 139 at 149.
155. J. M. Darkey, "A U.S. Court's Interpretation", p. 149.
156. J. M. Darkey, "A U.S. Court's Interpretation", p. 150.