Manual Damages Under the Convention on Contracts for the International Sale of Goods

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Incorporating both worldwide judicial and arbitral decisions, Damages Under the CISG is a unique and comprehensive guide to fully understanding this important area of law. It provides authoritative guidance on the differences that exist between uniform international instruments and domestic laws and offers comparative analysis of the calculation of damages under the civil and common law systems.

The fault system and causation principle are compared with the foreseeability principle, one of the key considerations under Article 74 of the CISG. These principles have been updated and the information revamped for the second edition, as well as additional information on fundamental breach of contract. However, apart from a refund, if the buyer wants to recover damages he could only be able to do so if he can prove the difference between the market price and the contract price, otherwise the buyer cannot have the decree beyond a refund of the price.

A problem arises where there is no market of the goods, meaning that the difference between the contract price of the goods and the market price cannot be determined at all. The court in such situations allowed the buyer to receive compensation for loss of profit, which may be calculated according to the price at which the buyer had contracted to resell the goods. In Sitaram Srigopal v Daulati Desi , [29] the goods were sold to the Appellant, which were purchased at an auction but never delivered to the Appellant.

United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG)

The Appellant paid the sales price of the goods in advance but because of non-delivery the Appellant claimed a refund of the price paid in advance and also claimed damages on the basis of the difference between the contract price and market price of the goods on the day of the breach of contract. The apex court opined that the buyer needed to establish convincing and reliable evidence to establish either that the goods were in brand new condition at the time of the sale or of the market price of goods of similar specifications.

The seller attempted to supply to the buyer only a fraction of the actual delivery. However, the quality and description of the goods under the contract did not conform to the original contract and hence eight per cent interest by way of damages was given to the buyer to recover his money.

The buyer must mitigate his loss as much as possible taking reasonable steps but not at the cost of his business reputation. Section 59 [36] of SOGA explains circumstances where the buyer can bring a suit against the seller for breach of a warranty. The general principle is that a breach of warranty by the seller does not entitle the buyer to reject the goods. The remedy for breach of warranty is embodied in s 59 of SOGA In Gopalakrishna Pillai v K M Mani [37] where the buyer elected to treat the breach of condition as breach of warranty, the buyer could not reject the goods.

The loss incurred by the buyer in case of the breach of warranty was determined based on the loss directly and naturally resulting in the ordinary course of events. Afterwards, it was found that it was stolen and the police seized it. This was considered as a breach on the part of the seller of the warranty of quiet possession. The court was of the opinion that the buyer was entitled to recover damages including the cost spent in getting it overhauled.

The buyer did the natural thing in getting it overhauled in order for him to work properly and effectively. The court further observed that the amount the buyer had spent was a loss directly and naturally resulting from the breach. A seller would only be responsible for the direct and natural consequences of his breach. In Bostock Co v Nicholson [40] the buyer bought sulphuric acid and the seller wrongly warranted it to be commercially free from arsenic.

The buyer used the acid for making glucose and sold it to the brewers for brewing beer. The acid was poisonous and killed people who consumed the beer. The court allowed the buyer to recover the damages for the price paid, and for damages to others in compensation and for loss of goodwill. The farmer had an accident that resulted in the death of two people. The famer and manufacturer were both held liable in negligence. For example, a Chinese exporter a major trading country of Pakistan insists that Chinese law is applicable. The article states:. In the example above, the Chinese seller insists on Chinese law.

Article 1 is applicable as both businesses are in different states and subs b notes that the conflict rule points to the law of China, which is a contracting state. The CISG is an opt-out convention. To opt out of the CISG a party can have recourse to art 6, which allows either a partial or total opting out of the CISG, but preferably it should be expressly stated. Using our example again, the conflict of laws clause in brief would say that Chinese law is applicable with the exclusion of the CISG.

The reason to state an application of art 6 expressly is to avoid uncertainties as some courts have suggested that an implied exclusion is also possible. Article 2, specifically art 2 a , excludes consumer sales from the sphere of the CISG and art 3 notes that it only applies to goods and not services. However, art 3 still considers mixed contracts as goods if the supply of goods is the dominant feature.

Chapter I - Sphere of Application

Therefore, the CISG might not be a perfect tool as it has exceptions and gaps that need to be filled by the otherwise applicable law. This should not be a surprise or cause any problems to any common-law country as many statutes are also not complete statements of law, that is, they are not codes. To fill the gaps requires the aid of the judge-made common law. In addition, specifically in Pakistan and India, and now to a lesser degree in Australia, the system still relies on a foreign law, namely English law, to fill the gaps.

Hence, working with the CISG does not require a complete change, merely an adaptation to a similar, but at the same time different, system. In sum, it is argued that the CISG , despite non-accession by India and Pakistan, via the route of private international law rules on choice of law and party autonomy, can be the governing law. As a matter of private international law, it would apply as part of Pakistani or Indian law and not operate in conflict with Pakistani or Indian law.

There are two courses of action a buyer can take if the seller has breached the contract, which crystalize the available remedies. The CISG takes the stand that if a contract is broken it is basically still alive and certain remedies are available for the aggrieved party. This corresponds only to a breach of warranty under common law as the contract is also still alive.

However, if the breach is of a fundamental nature the contract can be avoided. The common law terminology for such a breach corresponds again broadly to a breach of a condition. However, the difference between the two systems is that the CISG unlike the common law determines when avoidance can occur based on the severity of the breach, rather than by the classification of the term.

A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. The language in relation to fundamental breach compared with breach of a condition has a different, but at the same time similar, principle embedded within the text. It lists the preconditions for avoidance and is also the base from which substitute goods can be demanded if the goods do not conform to the contract.

Disputes over interpretation of the CISG are to be resolved by applying the 'general principles' of the CISG, or where there are no such principles but the matters are governed by the CISG a gap praeter legem by applying the rules of private international law. A key point of controversy was whether or not a contract requires a written memorial to be binding. The CISG allows for a sale to be oral or unsigned, [40] but in some countries, contracts are not valid unless written. In many nations, however, oral contracts are accepted, and those States had no objection to signing, so States with a strict written requirement exercised their ability to exclude those articles relating to oral contracts, enabling them to sign as well.

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The CISG is not a complete qualification by its own definition. An offer to contract must be addressed to a person, be sufficiently definite — that is, describe the goods, quantity, and price — and indicate an intention for the offeror to be bound on acceptance. Generally, an offer may be revoked provided the withdrawal reaches the offeree before or at the same time as the offer, or before the offeree has sent an acceptance.

Other remedies

The CISG attempts to resolve the common situation where an offeree's reply to an offer accepts the original offer, but attempts to change the conditions. The CISG says that any change to the original conditions is a rejection of the offer—it is a counter-offer —unless the modified terms do not materially alter the terms of the offer. Changes to price, payment, quality, quantity, delivery, liability of the parties, and arbitration conditions may all materially alter the terms of the offer. Articles 25—88; sale of goods, obligations of the seller, obligations of the buyer, passing of risk, obligations common to both buyer and seller.

The CISG defines the duty of the seller, 'stating the obvious', [52] as the seller must deliver the goods, hand over any documents relating to them, and transfer the property in the goods, as required by the contract. Generally, the goods must be of the quality, quantity, and description required by the contract, be suitably packaged and fit for purpose.

Damages under the convention on contracts for the international sale of goods

The CISG describes when the risk passes from the seller to the buyer [59] but it has been observed that in practice most contracts define the 'seller's delivery obligations quite precisely by adopting an established shipment term, [52] such as FOB and CIF. Remedies of the buyer and seller depend upon the character of a breach of the contract. If the breach is fundamental, then the other party is substantially deprived of what it expected to receive under the contract. Provided that an objective test shows that the breach could not have been foreseen, [61] then the contract may be avoided [62] and the aggrieved party may claim damages.

If the breach is not fundamental, then the contract is not avoided and remedies may be sought including claiming damages, specific performance, and adjustment of price. The CISG excuses a party from liability to a claim of damages where a failure to perform is attributable to an impediment beyond the party's, or a third party sub-contractor's, control that could not have been reasonably expected. Where a seller has to refund the price paid, then the seller must also pay interest to the buyer from the date of payment.

Articles 89— final provisions include how and when the Convention comes into force, permitted reservations and declarations, and the application of the Convention to international sales where both States concerned have the same or similar law on the subject. The Part IV Articles, along with the Preamble, are sometime characterized as being addressed 'primarily to States', [73] not to business people attempting to use the Convention for international trade. They may, however, have a significant impact upon the CISG's practical applicability, [74] thus requiring careful scrutiny when determining each particular case.

- United Nations Convention on Contracts for the International Sale of Goods (CISG)

It has been remarked that the CISG expresses a practice-based, flexible and "relational" character. It places no or very few restrictions of form on formation or adjustment of contracts; in case of non-performance or over-performance it offers a wide array of interim measures before the aggrieved party must resort to avoiding the contract e.

On the other hand, its good faith obligation may seem relatively limited and in any case obscure Art. All communications require "reasonable time. Although the Convention has been accepted by a large number of States, it has been the subject of some criticism. For example, the drafting nations have been accused of being incapable of agreement on a code that "concisely and clearly states universal principles of sales law", and through the Convention's invitation to interpret taking regard of the Convention's "international character" [76] gives judges the opportunity to develop "diverse meaning".

A contrary view is that the CISG is "written in plain business language," which allows judges the opportunity to make the Convention workable in a range of sales situations. Uniform application of the CISG is problematic because of the reluctance of courts to use "solutions adopted on the same point by courts in other countries", [81] resulting in inconsistent decisions.