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CISG Article 78: Endless disagreement among
commentators, much less among the courts

Francesco G. Mazzotta
July 2004

Appendix 2

AUSTRIA

Court

Oberlandesgericht Court of Appeals

1. Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft [Arbitral Tribunal], Wien, June 15, 1994, SCH-4318, available at <http://cisgw3.law.pace.edu/cases/940615a4.html>.

Original language:     
Translation:
German
Available

Court (translation):

"Article 78 of the CISG, while granting the right to interest, is silent on the question of the applicable rate. In international writings and case law to date it is disputed whether the question is outside the scope of the Convention - with the result that the interest rate is to be determined according to the domestic law applicable on the basis of the relevant conflict-of-laws rules (in this sense see, among others, HERBER/CZERWENKA, loc. cit., 1991, 347; Oberlandesgericht Frankfurt, 13 June 1991, Recht der Internationalen Wirtschaft 1991, 591) - or whether there is a true gap in the Convention within the meaning of Article 7(2) so that the applicable interest rate should possibly be determined autonomously in conformity with the general principles underlying the Convention (see in this sense, for example, J.O. HONNOLD, Uniform Sales Law, 2nd edition, Deventer, Boston 1991, 525-526; ICC Arbitral Award No. 6653 (1993), Clunet 1993, 1040). This second view is to be preferred, not least because the immediate recourse to a particular domestic law may lead to results which are incompatible with the principle embodied in Art. 78 of the CISG, at least in the cases where the law in question expressly prohibits the payment of interest. One of the general principles underlying the CISG is that of "full compensation" of the loss caused (cf. Art. 74 of the CISG). It follows that, in the event of failure by the debtor to pay a monetary debt, the creditor, who as a business person must be expected to resort to bank credit as a result of the delay in payment, should therefore be entitled to interest at the rate commonly practised in its country with respect to the currency of payment, i.e. the currency agreed upon by the parties (cf. Art. 7.4.9 of the Principles of International Commercial Contracts prepared by the International Institute of the Unification of Private Law (UNIDROIT), on which see M.J. BONELL, An International Restatement of Contract Law. The UNIDROIT Principles of International Commercial Contracts, Transnational Juris Publications, Irvington - N.Y., 1994, 114-115). The information received from the Deutsche Bundesbank is that the average "prime borrowing rate" for US dollars in Germany in the period in question was 6.25%. The interest due from the [seller] should be calculated at that rate."

2. Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft [Arbitral Tribunal], Wien, June 15, 1994, SCH-4366, available at <http://cisgw3.law.pace.edu/cases/940615a3.html>.

Original language:     
Translation:
German
Available

Court (translation):

"5.2. In accordance with Art. 78 of the CISG, the seller is entitled to interest in the event of arrears in payment of the price by the buyer.

5.2.1. The interest is payable from the effective date of the obligation for payment of the purchase price. According to Art. 58(1) of the CISG, this time is primarily determined by the agreements between the parties themselves; only in the absence of such a special agreement is it the time when the seller places the goods at the buyer's disposal in accordance with the contract. In the present case, the parties had derogated from the payment modalities and time-limits originally laid down in the contract by subsequently agreeing that the [buyer] could take delivery of and pay for the goods in partial consignments according to its possibilities of resale, provides that it bore the storage costs incurred thereby [...]. Accordingly, the invoices in question here stipulate "Payment: immediately upon receipt of the invoice". It was therefore at that time, and not earlier, that the [buyer] was under the obligation to pay the amount invoiced at the time, and it is only from that time that the [seller] was entitled to interest [...].

5.2.2. Article 78 of the CISG, while granting the right to interest, says nothing about the level of the interest rate payable. In international legal writings and case law to date it is disputed whether the question is outside the scope of the Convention - with the result that the interest rate is to be determined according to the domestic law applicable on the basis of the relevant conflict-of-laws rules (see inter alia HERBER/CZERWENKA, Internationales Kaufrechts, 1991, 347; Oberlandesgericht Frankfurt, 13 June 1991 in Recht der Internationalen Wirtschaft 1991, 591) - or whether there is a true gap in the Convention within the meaning of Article 7(2) so that the applicable interest rate should possibly be determined autonomously in conformity with the general principles underlying the Convention (see in this sense, for example, J.O. HONNOLD, Uniform Sales Law, 2nd edition, Deventer, Boston 1991, 525-526; ICC arbitral award No. 6653 (1993), Clunet 1993, 1040). This second view is to be preferred, not least because the immediate recourse to a particular domestic law may lead to results which are incompatible with the principle embodied in Art. 78 of the CISG, at least in the cases where the law in question expressly prohibits the payment of interest. One of the general legal principles underlying the CISG is the requirement of "full compensation" of the loss caused (cf. Art. 74 of the CISG). It follows that, in the event of failure to pay a monetary debt, the creditor, who as a business person must be expected to resort to bank credit as a result of the delay in payment, should therefore be entitled to interest at the rate commonly practiced in its country with respect to the currency of payment, i.e. the currency of the creditor's country or any other foreign currency agreed upon by the parties (cf. Art. 7.4.9 of the Principles of International Commercial Contracts prepared by the International Institute for the Unification of Private Law (UNIDROIT), on which see M.J. BONELL, An International Restatement of Contract Law. The UNIDROIT Principles of International Commercial Contracts, Transnational Juris Publications, Irvington - N.Y., 1994, 114-115). The information received from the leading Austrian banks is that the average "prime borrowing rates" for US dollars and DM in Austria in the period in question were 4.5% and 8%, respectively. The interest due from the [buyer] should be calculated at those rates."

3. Oberlandesgericht Linz, October 5, 1995, available at <http://cisgw3.law.pace.edu/cases/951005a3.html>.

Original language:     
Translation:
German
Unavailable

4. Schiedsgericht der Börse für Landwirtschaftliche Produkte [Arbitral Tribunal], Wien, December 10, 1997, S 2/97, available at <http://cisgw3.law.pace.edu/cases/971210a3.html>.

Original language:     
Translation:
German
Unavailable

Unilex abstract:

"The seller was further awarded damages for lost profits according to the rules of the market for farm products in Vienna expressly referred to by the parties - and interest on the sums due as damages (Arts. 78 and 74 CISG) at the rate fixed by the seller's standard terms."

SUMMARY

Cases involving Article 78: 4
Cases for which an English translation is available: 2
Cases for which only an abstract was available: 1
Cases for which neither translation nor abstract was available: 1

There are only four cases dealing with Article 78. Among them, two very well-known decisions were drafted by Professor Bonell in two arbitration proceedings. He basically says: Although Article 78 does not expressly determine the rate of interest, nonetheless this gap is to be filled with general principles of the CISG. One of the general legal principles underlying the CISG is the requirement of "full compensation" of the loss caused (cf. Art. 74 of the CISG). It follows that, in the event of failure to pay a monetary debt, the creditor, who as a business person must be expected to resort to bank credit as a result of the delay in payment, should therefore be entitled to interest at the rate commonly practiced in its country with respect to the currency of payment, i.e. the currency of the creditor's country or any other foreign currency agreed upon by the parties.


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