[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]
287. Section II of Chapter V supplements the remedial rules in Chapters II and III. Those chapters deal primarily with the remedies of specific performance and avoidance. Chapter V deals with provisions common to buyers and sellers alike, in particular with the important topic of damages for breach. [page 151]
B. CISG Liability: Basis, Extent and Exemptions
288. Before proceeding with an examination of the damages rules in Chapter V, it should be remembered that Chapters II and III of CISG Part III also contain significant provisions as regards damages for breach. In particular, Articles 45(1) and 61(1) do more than merely catalogue the various CISG provisions regarding buyer's and seller's breach. These rules provide the basis of Convention liability; they are the very source of the buyer's and seller's respective rights to claim damages for breach.
According to Articles 45(1) and 61(1), if the seller or buyer fails to perform any of its obligations under the contract or this Convention, the other party may...'claim damages as provided in articles 74 to 77.' As indicated below, these articles concern only the extent or the measurement of damages, the question being 'how much' compensation the injured party should receive; in other words Articles 74 to 77 operate on the assumption that the breaching party is liable on the basis of either Article 45(1) or 61(1). And since Articles 45(1) and 61(1) allow the injured party to claim damages for any breach, these provisions represent no-fault liability rules: assuming that the injured party has suffered some loss, the basis of Convention liability in damages is the breach itself; there is no requirement that the party claiming damages must establish a 'culpable' breach.
The Convention thus operates on the basis of an essentially no-fault liability scheme, but this does not mean that CISG liability is absolutely 'strict.' In certain exceptional circumstances, a promisor may be held not liable in damages for his failure to perform, particularly to the extent such non-performance is attributable to unforeseeable and unavoidable circumstances, i.e. the kind of 'impediments' often associated with a force majeure event. For the present, however, it is sufficient to note that the possibility of such an 'exemption' does not water down Convention liability to a regime based culpable breach.
C. Expectation Protection: the General Rule
289. Article 74 sets forth the general principle by which the CISG measures liability for breach:
The basic CISG formula is quite simple: damages for breach of contract are designed to compensate (and are thus measured by) the loss suffered by the other [page 152] party as a consequence of breach. Assuming a causal connection between the breach and the loss, the Convention scheme seeks to place the injured party in the position he would have enjoyed 'but for' the breach. Like the remedy of specific performance, substitutionary relief serves to protect the promisee's expectation of full performance, i.e., his or her 'expectation interest.' And because the promisor's breach, without more, entitles the injured party to compensation to this extent, it may be said that the CISG provides a no-fault basis of liability for expectation interest protection. Depending on the circumstances, a lesser/alternative measure of 'reliance interest' protection might also be awarded with reference to the Article 74 rule.
Damages measured by the promisee's expectation are often described in terms of 'direct' and 'indirect' loss. Direct loss refers to loss of bargain: the contract/cover or contract/market differential. For example, a buyer who retains goods which are defective in some (less than 'fundamental') respect may recover damages calculated, inter alia, to compensate the difference between the value of the goods delivered and the value conforming goods would have had. And although all kinds of loss are, in principle, recoverable under the general Article 74 rule, Articles 75 and 76 provide more detailed, lex specialis, rules for measurement of direct loss when the contract is avoided. On the other hand, as discussed below, the contract/cover price differential (and the corresponding lex specialis rule) may not always be adequate to compensate the seller's expectation in the case of the buyer's failure to perform; in such cases, the general Article 74 rule will provide the seller the supplementary expectation protection deserved.
Article 74 is particularly significant as regards the 'indirect' consequences of breach. Such claims for 'consequential damages' can include, e.g. compensation for a buyer, lost profits (pure economic loss) as well as physical damage to buyer's property, just as a seller will also sometimes be entitled to compensation for consequential loss. Also damages sometimes characterized as 'incidental' are easily subsumed under the general Article 74 rule. On the other hand, damages for lost profits may sometimes be limited or denied, inter alia by the Convention's foreseeability and/or mitigation rules.
D. Foreseeability as a Limitation
290. A major component of Article 74 is the 'foreseeability' limitation familiar to many students of domestic law: damages may not exceed the loss which the breaching party foresaw or ought to have foreseen as a consequence of the breach of contract. Foreseeability under the Convention is measured at the time of the conclusion of the contract in the light of the facts and matters of which the breaching party then knew or ought to have known, the underlying idea being that the 'parties, at that point in time, should be able to calculate the risks and potential liability they assume by agreement.
Although the Convention test seems quite liberal, requiring only that the loss be foreseeable  by the defendant  at the time of contracting as a 'possible consequence' of breach, full compensation for profits lost will sometimes be precluded either by the mitigation requirement  or by domestic standards of proof (and' certainty') applicable with respect to such loss. A more controversial question is whether the foreseeability limitation in Article 74 will function as a sufficient surrogate for other domestic law standards designed, inter alia, to prevent compensation for 'disproportionate' loss. Here as elsewhere, Courts must coordinate the limited catalogue of CISG conceptions with those of domestic law.