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Published by Manz, Vienna: 1986. Reproduced with their permission.

excerpt from

Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods

Univ. Prof. Dr. Peter Schlechtriem [*]

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G. Interest (Article 78)

The interest question provoked extraordinary difficulties at the Conference. The 1978 Draft Convention's sole provision concerning the payment of interest related to the seller's duty to refund the price after avoidance of the sales contract in Article 69.[409] The proposals at the Conference [410] reflected differing beliefs and divergent theoretical approaches to the duty to pay interest as well as to the conflicting practical needs. Interest payments were opposed in part for religious reasons.[411] Others believed that a special provision on interest was unnecessary because the lost use of the capital could be recovered as damages.[412] The goal of the delegations that believed that a special interest provision was necessary was [page 99] precisely to prevent interest from being considered as damages and thereby to maintain the obligation to pay interest in case of exemptions under Article 79. Likewise, all attempts to find the "proper" rate of interest proved fruitless. Opposition to the use of the official discount rate in the creditor's country, as adopted in ULIS Article 83, was based partly on the fact that it is not an internationally valid indicator of the capital costs in individual countries. Above all, no agreement could be reached on whether the cost of credit should be based on the interest rate prevailing in the debtor's or in the creditor's country. In connection with Article 84(1), the debtor's ability to use capital owed to the creditor was perceived as an unjust enrichment, so that the rate of interest in the debtor's country should be determinative. In reality, some of the socialist countries, with regard to interest owed to them on outstanding debts, were principally interested in basing the interest rate not on their low internal interest rates but rather on interest rates in the countries of their debtors, since, when asking for credit in these countries, they have to pay the there prevailing interest rates.[413]

The present version of Article 78 is the result of a compromise reached at the Plenary session and based upon a proposal submitted by a working group. It conceives the obligation to pay interest as a general rule, so that a debtor still remains liable for interest payments even if his default is due to an impediment beyond his control and he is, therefore, not liable for damages under Article 79. On the other hand, the details of the obligation to pay interest - in particular, the amount - are governed by the applicable domestic law chosen by conflicts rules.[414] Damage claims under CISG remain unaffected even if they exceed the relevant interest rate.[415]

The Convention's interest provision will probably have practical impact only in the exceptional cases where the debtor can claim an exemption under Article 79 for his default, such as when some impediment - for example, unforeseeable currency restrictions in the country of the debtor - temporarily relieves the debtor of his duty to pay under Article 79(1) and (3). Otherwise, it will generally be easier and more promising for the creditor - at least in countries with a free capital market - to claim the lost use of capital as damages in the amount of his own costs of credit according to Article 74 rather than to expose himself to uncertainties as to the applicable law and its interest provision.

Article 84(1) contains a provision corresponding to Article 78 for the case of the seller's obligation to refund the purchase price after avoidance of the contract. Although it is not explicitly stated, the creditor should also - on the basis of Article 7 in conjunction with Article 78 - be able to claim damages for a violation of the duty to refund the price and measure his damages from the time the refund was due and in the amount of his own credit costs.[416] [page 100]

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FOOTNOTES

* The author of this book participated at the Conference as a member of the delegation from the Federal Republic of Germany. The views expressed here are personal to the author and do not necessarily represent the position of the F.R.G. or its delegation.

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409. This corresponds to ULIS Article 81(1). However, for the more important case of delay in payment, ULIS Article 83 provided for the payment of interest as damages. The various UNCITRAL drafts also contained different rules. Cf. 1977 Draft Convention Article 58.

410. A/Conf. 97/C.1/L.216, 218, 222, 226 Rev. 1, 247 (= O.R. 137); A/Conf. 97/L.16, 18 (= O.R. 173).

411. See A/Conf. 97/C.1/SR.34 at 4 10 (= O.R. 416) (Egyptian proposal for a reservation clause).

412. The U.K. repeatedly submitted motions and proposals to this effect.

413. The details of the discussion cannot be repeated here at length. See A/Conf. 97/C.1/SR.29 at 2 et seq. (= O.R. 388 et seq.); id. SR.34 at 2 et seq. (= O.R. 415 et seq.); A/Conf. 97/SR.10 at 8 et seq. (= O.R. 220) (Plenary); id. SR.11 at 3 et seq. (= O.R. 226).

414. To the extent applicable domestic law prohibits interest payments, Article 78 would, of course, be unenforceable.

415. It was primarily the F.R.G. that defended this reservation of damage claims (for lost use of capital).

416. For further discussion on the gaps in the avoidance provisions, see infra at VI.J.4.

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Pace Law School Institute of International Commercial Law - Last updated June 9, 2000
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