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Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[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).]

excerpt from

The 1980 United Nations Convention on Contracts
for the International Sale of Goods

Joseph Lookofsky

Article 78

296. Section III of Chapter V contains a single - and deceptively 'simple' - provision which deals with the controversial subject of 'interest.' Article 78 provides: [page 158]

'If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.'

297. Some domestic systems take the view that interest is a component of damages;[1] others do not.[2] In most countries, interest (however conceived) is at least compensable; in others, it is not.[3]

Article 78 appears to resolve some, but not all of these conflicting views. Although Article 78, which sets forth a general obligation for the breaching party to pay interest, may well preclude the argument that an award of interest under Article 78 might be declared invalid under the applicable domestic law, such an award would surely be uneforceable in those fora where the applicable domestic law prohibits interest payments.[4]

According to Article 78, a claim for interest is 'without prejudice' to a claim for damages, so an injured party may claim damages or interest or both. Since that part of a loss which interest is designed to cover (compensation for lost use of capital) also may be awarded as damages, an injured party may be left with a choice between Articles 74 and 78 in this particular respect; but in exceptional circumstances, where a party cannot claim damages by virtue of an Article 79 exemption,[5] a claim under Article 78 would obviously be preferred. Similar reasoning might apply in cases where the injured party has reason to doubt that an award of interest under Article 78 would be enforced.

Nearly all Convention commentators agree that since the Convention does not determine the rate of interest, this is a matter for the applicable domestic law.[6]

Although the most common applications of Article 78 relate to situations where a seller claims interest (and/or damages) as a remedy for buyer's breach (late payment), Article 78 clearly authorizes an award of interest for any 'sum that is in arrears.'[7] Thus, a US Federal Court has cited CISG Article 78 as authority for awarding prejudgment interest to an Italian buyer who suffered various losses (profits, etc.) attributed to an American seller's failure to deliver conforming goods;[8] this holding accords with the view of many CISG commentators.[9]

1. Representing compensation for the lost use of capital.
2. In Scandinavia, where a distinction between damages and interest is made, interest is awardable without proof of economic loss.
3. In those countries where interest is forbidden, the mere mention of interest in the agreement will render it invalid. Regarding arbitration agreements, see Hunter and Triebel, 'Awarding Interest in International Arbitration', Vol. 6 Journal of International Arbitration No. 1 p. 8 with note 4 (1989).
4. Regarding Article 4, see supra No. 62 et seq. See also Schlechtriem, P., Internationales UN-Kaufrecht (1996) Rd.Nr. 317 and Ferrari, F., 'Uniform Application and Interest Rates Under the 1980 Vienna Sales Convention,' 24 Georgia Journal of International and Comparative Law 467 (1995) [available at <http://www.cisg.law.pace.edu/cisg/biblio/1ferrari.html>]. In two Austrian arbitrations (Nos. SCH-4318 and SCH-4366, both decided on 15 June 1994 and reported [at <http://cisgw3.law.pace.edu/cases/940615a3.html> and <http://cisgw3.law.pace.edu/cases/940615a4.html> and] in UNILEX) the arbitrator suggested, as dicta, that CISG interest might be awarded even if contrary to domestic law.
5. See infra No. 298 et seq.
6. See supra No. 80. But see Audit, Vente internationale, No. 179 (interest rate must be determined under the Convention itself). See also the cases cited supra in No. 79.
7. Although the Convention does not define the word 'sum' (nor indicate when interest begins to accrue), Article 78 seems broad enough to cover the situation where buyer rightfully avoids, but seller delays refunding the price. However, Article 84(1) contains a special rule on this [page 159] particular point: see the UNILEX report of the decision of OLG München (Germany), 8 February 1995, No. 7 U 1720/94 [also at <http://cisgw3.law.pace.edu/cases/950208g1.html>] (buyer entitled to interest on the sum to be refunded) and the decision of LG Landshut (Germany), 5 April 1995 [at <http://cisgw3.law.pace.edu/cases/950405g1.html>] (court granted buyer interest on price under Art. 84(1) from the date of payment as well as interest under Art. 78 on amount awarded as damages under Art. 74).
8. I.e., although the sum in arrears first became liquidated at the time of the judgment: see Delchi Carrier S.p.A. v. Rotorex Corp., 1994 WESTLAW 495787 (ND.N.Y.), CLOUT Case 85, aff'd. in part and rev'd in part, and remanded, 71 F.3d 1024 (2d Cir. 1995), CLOUT Case 138 [reported at <http://www.cisg.law.pace.edu/cisg/text/casecit.html>]: the District Court (at No. 14) held that plaintiff was 'entitled to prejudgment interest [at the US treasury bill rate] pursuant to ... Article 78' - a holding apparently not contested on appeal.
9. Accord Stoll in Schlechtriem, Commentary (1998) at 593-594. The 'matter' of whether interest is payable on sums in arrears is clearly 'governed by' the Convention (re. Article 7(2) see supra No. 78 et seq.); if the issue of whether 'sums in arrears' includes unliquidated sums is a matter 'governed but not settled' by the CISG, one might resolve it by reference to the general principle of full compensation in Art. 74: see supra No. 289 and compare Article 7.4.10 of the UNIDROIT Principles of International Commercial Contracts (Rome 1994) (declaring it 'only natural' that the aggrieved party be compensated as of the date of the harm).

Pace Law School Institute of International Commercial Law - Last updated April 5, 2005
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