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Reproduced with permission of 1 Vindobona Journal of International Commercial Law and Arbitration (1997) 3-43

Determination of the Interest Rate under the 1980 United Nations Convention on Contracts for the International Sale of Goods:
General Principles vs. National Law

Alan F. Zoccolillo, Jr.
Pace University School of Law

  1. Introduction
  2. Legislative History of the CISG
    1. The Working Group (1974)
    2. The 1977 UNCITRAL "Sales" Draft
    3. 1980 Diplomatic Conference
    4. First Committee Deliberations
    5. Plenary Conference Deliberations
  3. Determination of the Interest Rate
    1. The General Principles
            Article 74
            Article 84
            Article 55
            Article 57
            Articles 75 & 76
    2. UNIDROIT Principles
    3. National Law
  4. Conclusion

I. INTRODUCTION

One of the most complex problems facing judges and arbitrators in adjudicating international commercial disputes falling under the 1980 United Nations Convention on Contracts for the International Sale of Goods (hereinafter CISG or Convention)[1] is which rate of interest to apply in fixing judgments and awards. Article 78 of the CISG clearly provides that 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,[2] but the text fails to stipulate how to determine what rate of interest to apply. A majority of national courts and arbitral tribunals have resorted to national law to settle this problem. However, an analysis of the detailed legislative history of the Convention, several academic authorities, and the CISG caselaw, clearly reveals that resorting to national law to fix the rate of interest detracts from both the legislative intent of the Convention and its central theme of promoting uniformity. Thus, in determining the applicable rate of interest, judges and arbitrators should look instead to the underlying general principles of the CISG to remedy the problem. This approach provides for both determination of the interest rate and preservation of uniform application in spite of varying jurisdictions or forums.

The modern institution of interest is deeply rooted in Roman Law in which interest existed as a penalty due from a debtor who delayed or defaulted in repayment of a loan.[3] The measure of interest due for the delay or default was id quod interest -- that which is between -- the difference between the creditor’s current position and what it would have been if the loan had been timely and repaid.[4] In the modern world, interest generally acts as compensation for the loss of use of money.[5] The importance of this loss, however, must not be understated. In certain disputed international transactions, involving parties from countries with high interest rates, the interest awarded to a debtor can substantially add to an award or even exceed the original amount sought.[6] Thus, unless there is an equitable calculation of interest, the damages sought in an international proceeding could reflect only a fraction of a total debt a party in default may encounter. The determination of interest, therefore, is not an issue to be simply resolved after the establishment of liability, but a question that deserves the strictest scrutiny.

II. LEGISLATIVE HISTORY OF THE CISG

The text of the CISG that was developed at the 1980 Vienna Diplomatic Conference contains two specific references to interest. They appear in Articles 78 and 84(1).

CISG Article 78. 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.

CISG Article 84(1). If the seller is bound to refund the price, he must also pay interest on it , from the date on which the price was paid.

Analysis of the legislative history of these provisions reviews deliberations on the subject at the Diplomatic Conference and on the following antecedents to CISG Articles 78 and 84(1):

Antecedents to CISG Article 78. Article 83 of the Uniform Law of International Sales (ULIS); a revised version of this text was prepared for the UNCITRAL Work Group "Sales" Draft; and Article 58 of the 1977 "Sales" Draft prepared by the UNCITRAL Committee of the Whole. Each of these texts differs from CISG Article 78 in certain respects.

Antecedents to CISG Article 84(1). Article 69(1) of the 1978 UNCITRAL Draft. This article is substantively identical to CISG Article 84(1). It is also substantively identical to an earlier antecedent, Article 81 of the Convention relating to a Uniform Law on International Sales (ULIS) done at The Hague in 1964.

A. The Working Group (1974)

In 1969, the United Nations Commission on International Trade Law (UNCITRAL) established a Working Group on International Sales with one of its purposes being to consider comments and suggestions by States in order to ascertain which modifications of existing texts might render them capable of wider acceptance by countries of different legal, social and economic systems, or whether it would be necessary to elaborate a new text of the same purpose, or what other steps might be taken to further the harmonization or unification of the law of the international sale of goods.[7] The fifth session of the Working Group in March of 1974, comprised of delegates from many different States,[8] for the first time during the sessions, addressed the question of interest. The Working Group first reviewed the antecedent of the CISG, the 1964 Uniform Law of International Sales (ULIS), which contained an explicit provision relating to interest. Its Article 83 states:

Where the breach of contract consists of delay in the payment of the price, the seller shall in any event be entitled to interest on such sum as is in arrears at a rate equal to the official discount rate in the country where he has his place of business or, if he has no place of business, his habitual residence, plus 1%.[9]

Proposals to amend and change ULIS 83 were considered, but the Working Group chose to adopt the 1964 ULIS version of Article 83 without change.[10]

Following the completion of the fifth session, the sixth session made two changes to ULIS Article 83.[11] At the suggestion of the Norwegian representative of the Working Group, the words "or, if he has no place of business, his habitual residence" were deleted from the article because they were deemed unnecessary in view of the general provision in Article 4 (b) of the "Sales" Draft.[12] Additionally, the Working Group chose to add to the article the words:

"but his entitlement shall not be lower than the rate applied to unsecured short-term commercial credits in the seller’s country"[13]

The reasoning of the change was to avoid advantaging a debtor who purposely delayed payment. The Working Group noted that since the rate of interest for commercial credits was frequently greater than 1 per cent higher than the official discount rate,[14] a debtor, if required to only pay interest at the official discount rate, could purposely delay payment so as to take advantage of the lower rate and not have to resort to borrowing additional funds at the higher commercial credits lending rate. The addition was designed to prevent the possibility of abuse by requiring the debtor to pay interest at the commercial credits rate when that rate is greater than 1 per cent above the official discount rate. Therefore, the debtor’s interest obligation to the creditor would parallel any other debtor obligations it could assume, and the possibility of this benefit derived from delayed payment should be extinguished.

The version of ULIS Article 83, adopted by the Working Group and incorporated into the Working Group "Sales" Draft appeared as follows:

Where the breach of contract consists of delay in the payment of the price, the seller shall in any event be entitled to interest on such sum as is in arrears at a rate equal to the official discount rate in the country where he has his place of business plus 1 per cent, but his entitlement shall not be lower than the rate applied to unsecured short-term commercial credits in the seller’s country.[15]

B. The 1977 UNCITRAL "Sales" Draft

UNCITRAL, in May of 1977, established the Committee of the Whole whose purpose was to consider the "Sales" Draft adopted by the Working Group.[16] At its third meeting on 24 May 1977, the Committee established a Drafting Group, comprised of representatives of many different States,[17] to redraft certain articles of the "Sales" Draft in respect to modifications of substance agreed upon in the Committee, to consider drafting proposals submitted by Governments and international organizations in their written comments and in the course of the Committee’s discussions, and, generally, to examine the text of the Draft Convention from the point of view of consistency of the terminology used and between language versions.[18] The Drafting Group, in considering the Working Group’s article on interest, now numbered Article 58,[19] considered various proposals on topics including the place at which interest should be calculated, the possibility of reservations or declarations in regard to interest, and possible deletion of the entire article.

In addressing the issue of at which place interest should be calculated, the Committee considered a proposal which stated that the place at which interest should be calculated should be the buyer’s country.[20] It suggested that if the rate of interest in the seller’s country was significantly lower than the rate of interest in the buyer’s country, the buyer might be tempted to delay payment so as to take advantage of this favorable rate.[21] Alternatively, it was proposed that the rate of interest be based on the average of the rates in the seller’s and buyer’s countries.[22]

In opposition to these proposals it was noted that, if the buyer did not pay the price when due, and the seller had to borrow money as a result of the late payment, he would ordinarily have to borrow at the prevailing rate in his own country.[23] Also, even if the buyer did not have to seek such credit as a result of the late payment, he would have less on deposit in his account in his own country gaining interest.[24] For example, if the prevailing rate of interest in the seller’s country was 15 per cent, but in the buyer’s country it was only 6 per cent, it would not be appropriate for the seller to be limited to the lower interest rate in the buyer’s country.[25]

Other proposals called for either rendering the article inoperative in relation to individual States by means of reservation and/or declaration, or simply deleting the entire article.[26] These proposals arose from the fact that many countries had mandatory guidelines of public policy prohibiting interest rates to exceed a maximum amount and that some countries prohibited the charging of any interest whatsoever.[27] Thus, it was reasoned that an article which would require the charging of interest at a rate which might be far in excess of that usual or allowed in the buyer’s country, the place in which any judicial procedure for late payment would normally take place, would make it difficult for some countries to adhere to the Convention.[28] Additionally, the Committee noted that Article 58 of the 1977 "Sales" Draft contained a particular method of assessing damages which, although convenient in practice, was not essential.[29] Loss suffered by a seller due to delay in payment of the price could be recovered under the general formula for damages expressed in Article 55 of the 1977 "Sales" Draft.[30]

The Draft Group also encountered other significant problems relating to the actual wording of Article 58 of the 1977 Draft during its session. Representatives noted that Article 58 specifically referred to the "official discount rate" in setting the rate at which interest would be calculated, yet many countries did not have an "official discount rate".[31] Other representatives pointed out that Article 58 referred to "the rate applied to unsecured short-term commercial credits", but no one such rate usually exists since the rate varied depending on the parties or the nature of the sale.[32] Furthermore, the addition of "one per cent" to the "official discount rate" was considered by some representatives to be unjust.[33]

These difficulties encountered by the Draft Group, coupled with the fact that the article was, in any version, inherently unacceptable to a number of representatives, particularly those of developing countries, forced the Committee to delete Article 58 from the 1977 "Sales" Draft.

The only remaining mention of interest in the 1977 "Sales" Draft was contained in its Article 69 (1),[34] which stated, "If the seller is bound to refund the price, he must pay interest thereon from the date on which the price was paid."[35] The seller’s obligation to pay interest is automatic because it is assumed that the seller has benefited from being in possession of the purchase price during this period.[36] Since the obligation to pay interest partakes of the seller’s obligation to make restitution and not of the buyer’s right to claim damages, the rate of interest payable would be based on that current at the seller’s place of business.[37]

C. 1980 Diplomatic Conference

The 1980 Diplomatic Conference in Vienna, Austria drew together representatives worldwide to deliberate on the 1978 Draft[38] and consider various proposals and modifications of its articles before final adoption as the law of international sales.[39] The Conference itself was divided into two main sessions: The First Committee (hereinafter Committee) which considered the previous texts and proposals for inclusion into the Convention, and the Plenary Conference, which by a two-thirds majority would give approval to the drafts submitted by the Committee for final inclusion into the Convention.[40]

D. First Committee Deliberations

At the 29th meeting of the Diplomatic Conference, on 31 March 1980, representatives from 23[41] countries took part in discussion on Article 69 of the 1978 Draft as well as other provisions regarding the payment of interest.[42] Six distinct proposals on the treatment of Article 69 and/or the general treatment of interest were put forth for discussion. Three of these proposals, the Pakistani, German, and Japanese proposals, received only minimal support.

The Pakistani delegation’s proposal related only to a possible modification of the existing text of Article 69. The proposal sought to add the words "The rate of interest would be the one current at the seller’s place of business" to the end of paragraph one of Article 69.[43] The proposal simply attempted to clarify the applicable rate of interest at which buyers would be able to recover on a refund of the price paid.[44]

The German proposal called for the awarding of interest, but did not provide any answers as how to calculate it. It stated that, "[a]t all events, the innocent party should be entitled to interest on the sum due in an amount based on interest rates fixed by law or by the Convention itself and which represented a minimum figure."[45]

The Japanese Delegation’s proposal, however, called for the creation of a new Article 73 bis[46] to be included within the Convention. The proposal of the new article stated:

If a party has failed to pay the price or any other sum that is in arrears, the other party is presumed to have suffered damages equivalent to the amount calculated at the interest rate for [unsecured short-term commercial credits] prevailing at his place of business.[47]

This proposal, however, was less concerned with the awarding of interest and focused more on the measurement of damages.[48] This proposal, along with the Pakistani proposal, garnered little support among the delegates at the Conference. Both proposals were eventually withdrawn.[49]

Religious concerns, although not a tremendous part in the deliberations, brought forth some suggestions. One delegate noted the concern of some Islamic countries, in that, since the charging of interest was either limited or strictly forbidden, the Convention should include the availability of a reservation in regard to any interest provisions.[50] This proposal, however, received little support from other delegations.

The most contested debate over the questions concerning interest emerged with lines drawn to parallel the Cold War. The struggle between the Western industrialized nations and the socialist economies of Eastern Europe provided a serious impediment to resolving the complex questions presented in arriving at a uniform rule in regard to interest.

A proposal, submitted on behalf of socialist countries by the Czechoslovakian delegation, called for the creation of a new Article 60 bis dealing with interest owed to the seller for a delay in payment of the price. The Czechoslovakian proposal stated:

(1) If the breach of contract consists of delay in the payment of the price, the seller is in any event entitled to interest on such sum as is in arrears at a rate equal to the official discount rate prevailing in the country where the buyer has his place of business, at the time of delay increased by one per cent, or, if there is no such a rate, at the rate applied to unsecured short-term international commercial credits increased by one percent.

(2) The seller may claim damages as provided in this Convention, if the loss is not covered by interests.[51]

Western industrialized countries in the late 1970’s, where the applicable rates of interest were formed in the market and were at the time considerably high, significantly differed from the interest rates in socialist countries which were fixed by law and relatively low.[52] The Czechoslovakian proposal, as opposed to the proposal of the Western industrialized nations described below,[53] attempted to allow sellers from socialist countries to take advantage of the higher Western rates. For example, a socialist seller (creditor), in dealing with a Western buyer (debtor), could enjoy the high rates of interest of a Western buyer’s country on any delayed payment of the price. The proposal, however, also attempted to redress certain concerns of Western countries. If the article allowed for the rate of interest of the buyer’s (debtor’s) country to control, buyers from socialist countries with low interest rates would pay interest at far below what a Western seller (creditor) would have borrowed at to cover his expenses or would have earned in interest. Thus, paragraph two of the Czechoslovakian proposal additionally allowed for a seller (creditor) to claim damages if his losses were not completely redressed by the awarding of interest. So, if under subsection one of the Czechoslovakian proposal a Western seller resorts to credit at a rate of ten per cent, or loses interest earned on the price at ten percent, due to non-payment from a buyer in a country with an interest rate of three percent, the Western seller would receive four percent (three per cent plus one per cent)[54] on the delayed payment of the price as interest, and under paragraph two could claim the additional 6 per cent as damages.

The Western industrialized countries, however, opposed the Czechoslovakian proposal for a number of reasons. Some considered that the Czechoslovakian proposal was too similar in form to the article on interest under ULIS which had been abandoned by UNCITRAL[55] in preparing the 1977 "Sales" Draft.[56] Others rejected the Czechoslovakian proposal since it would be difficult to define or foresee the applicable rate of interest.[57] They also believed that it further confused the subject with regard to damages.[58]

Supporting the opposing view of most Western industrialized nations at the Convention, the "joint proposal"[59] also called for the addition of a new Article 73 bis, not only for interest owed to the seller due to a delay in the payment of the price, but on any sum that may be due. The joint proposal stated:

If a party fails to pay the price or any other sum as is in arrears, the other party is entitled to interest thereon at the customary rate for commercial credits at his place of business.[60]

As a consequence of the proposal, the title "Section IV. Damages" would be amended to read "Section IV. Damages and interest"[61]

The joint proposal received wide support from most Western delegations.[62] Under the joint proposal, Western countries would enjoy both the higher market fixed interest rates as sellers (creditors) when dealing with late payment from a buyer (debtor) residing in a socialist country, and conversely, enjoy the extremely low, legislatively set interest rates as buyers (debtors) when transacting with socialist State sellers (creditors).[63] Minimal opposition to the "joint proposal" was voiced at the Conference by delegates from the socialist and emerging nations, but a clear opposition to it was evident in its lack of support.[64]

The final proposal tabled at the Diplomatic Conference, the United Kingdom (UK) proposal, aimed to put the question of interest completely outside of the scope of the Convention. The UK proposal called for the deletion of the mention of interest on a seller’s refunding of the price contained in Article 69 (1),[65] and the creation of a new Article in Part I, chapter 1 (sphere of application) to read, "This Convention does not affect any right of the seller or buyer to recover interest on money."[66] The UK proposal attempted to remove interest entirely from the Convention and leave its determination to national law, since it appeared that the topic was too complex and that resolution of conflicting opinions seemed irremediable.[67] Opponents of the proposal commented that its application would lead to problems in regard to conflicting national laws and depart from the uniformity desired by the Convention.[68]

Since various proposals on the treatment of interest were put forth without agreements as to any one of them, the Committee decided to create an ad hoc working group on interest in an attempt to consolidate the aforementioned proposals into a single one.[69] The working group consisted of delegates from several interested countries,[70] but the working group was unable to formulate a single, consolidated proposal on the subject of interest. Instead, three separate alternatives to the treatment of interest under the Convention were presented. Each alternative, which proposed a new article on interest (Article 73 bis), was in two parts; an introductory phrase which defined the rate of interest and a provision dealing with the place where the rate should be calculated.[71] The alternatives read as follows:

Alternative I:

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest thereon at the rate for a short-term commercial credit or at another similar appropriate rate prevailing in the main domestic financial center of the party claiming payment.[72]

Alternative II:

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest thereon at the rate for a short-term commercial credit or at another similar appropriate rate prevailing in the main domestic financial center of the party in default, or, in case the other party’s actual credit costs are higher , at a rate corresponding thereto but not at a rate higher than the first said rate in his own country.[73]

Alternative III:

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest thereon at the rate for a short-term commercial credit or at another similar appropriate rate prevailing in the main domestic financial center of the party in default. However, in case the party claiming interest is not fairly compensated by such a rate, he may claim interest up to the first said rate in his own country.[74]

The first part of the text was identical in each of the three alternatives.[75] The working group felt that in light of the considerable differences involved, it was important, when determining the applicable interest rates, to establish a realistic scale of rates that were neither artificial nor excessive.[76] Thus, the working group decided to take the short-term commercial credit as a point of reference, but the possibility of applying another similar appropriate rate was envisaged for countries where short-term commercial credit did not exist.[77] As far as the problem of the time at which the rate should be calculated was concerned, it had been observed that the matter frequently depended on a decision by a judge or by one of the parties, with consequent fluctuations in that rate.[78] Thus, it was left outside the scope of the alternatives.[79]

With respect to the second part of the proposed alternatives, delegates remained divided on which should be adopted, but felt that compromise could ensure adoption of one of the alternatives. Alternative I, which fixed the place at which interest would be calculated in the main domestic financial center of the party claiming payment, received the most support within the ad hoc working group on interest and from other delegates.[80] To some delegates, it purported to be the simplest solution to the problem of fixing a rate of interest and it seemed the most natural, logical and simply drafted alternative.[81]

Other delegates, however, found Alternative I unacceptable in that it could promote bad faith among the parties. Alternative I, like the joint proposal mentioned above,[82] could allow a debtor to deliberately avoid payment so as to take advantage of a lower interest rate in a creditor’s country.[83] Also, some delegates did not regard the creditor’s place of business as the most logical place to fix a rate of interest.[84] Most socialist and developing countries used their foreign trade earnings to pay for imports from countries in which those earnings were made.[85] Delays in payment, therefore, would force these parties to solicit credit on the international financial markets to pay for their imports. Thus, the prevailing rate of interest in the creditor’s country was of no consequence, since these countries would most often only resort to credit in the debtor’s country.[86]

Furthermore, high rates of inflation dissuaded socialist and developing nation delegates from supporting Alternative I. If the defaulting party had his place of business in country where the rate of inflation was high, and if he was in arrears with his payment, the purchasing power of the sums due to the creditor would decrease.[87] Therefore, socialist and developing nations who were forced to pay for imports in those countries where earnings were made would suffer significant depletion of their ability to make additional purchases.

Alternative II, which fixed the place of the calculation of the rate of interest in the main domestic financial center of the party in default, garnered most of its support from socialist and developing nations.[88] The second alternative, like the Czechoslovakian proposal,[89] attempted to fix the rate of interest in the place of the buyer. This permitted creditors from socialist and developing countries to take advantage of higher, Western, market driven rates, but also prevent Western buyers from purposely delaying payment so as to avail themselves of cheap credit.[90]

Additionally, Alternative II, like the Czechoslovakian proposal,[91] would not undercompensate aggrieved Western sellers (creditors) by fixing the interest rate in a socialist or developing country with lower statutory interest rates. Alternative II’s second provision permits a party whose actual credit costs are higher than those in the country of the party in default, to recover at a corresponding rate, but not a rate higher than the first said rate in his own country.[92] Thus, Western creditors, who had to resort to higher interest rates due to delayed payment by a buyer from a country with low interest rates, would not be bound to the low rate of the country of the party in default, but could recover at an amount equal to its actual credit costs.

There was, however, opposition to Alternative II. Some delegates felt that Alternative II could significantly overcompensate an injured party if the rate of interest in the debtor’s country proved to be more favorable than the rate of interest in the creditor’s country.[93] Also, the terms "the other party’s actual credit costs", which sets forth a default rule in the case that the creditor’s rates are higher than the short-term commercial credit rate in the main financial center of the debtor, was deemed dubious. Actual credit costs were usually higher than the first rate of interest for short-term commercial credits in the creditor’s country, which is the highest rate available under Alternative II for a creditor, while the latter were calculated on the basis of rates applied for the most solvent borrower.[94] Thus, many traders had to pay credit costs well above their own domestic short-term commercial credit rates and would be significantly undercompensated by the formula of Alternative II.[95]

Alternative III, which purported to be a simplified version of Alternative II, received little support in the ad hoc working group on interest and was almost left aside in the ensuing discussions.[96] Many delegates, however, saw Alternative III as a possible compromise to the problems encountered in agreeing on an interest article. To some delegates it appeared to be more flexible than Alternatives I and II,[97] it took into account the conditions of international trade,[98] seemed to amply compensate a creditor,[99] and that it would make the Convention’s article on interest more satisfactory to a number of differing views.[100] No real opposition to Alternative III was voiced at the Conference.

With all three alternatives put fourth at the Conference meeting, the Chairman called for a vote to adopt an alternative which would be passed on to the Plenary Conference for a vote of inclusion into the Convention.[101] Alternative I was rejected by a vote of 22 to 17.[102] The Chairman then put to a vote possible amendments to Alternatives II and III which purported to delete the last sentence of each alternative.[103] Both amendments were defeated by votes of 16 to 9 and 15 to 8.[104] Voting on Alternative II followed and was adopted by a slim margin of 20 votes to 14.[105] Before being sent to the Plenary Conference, the text was passed on to the Drafting Committee to clear up any technical language problems with the text.[106] In addition to Alternative II, it is important to note that the Committee, armed with an equation for the determination of the rate of interest, inserted the same formula for interest rate determination in Article 69 for cases involving restitution of the price.[107]

To the dismay of some of the members of the first Committee, the Drafting Committee made some modifications to the version of Alternative II that seemed to substantially confuse some of its provisions. The revised Article 73 bis stated:

(1) 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 at the normal rate for a short-term commercial credit prevailing in the main financial center in the State where the party in default has his place of business or, in the absence of such a rate, at another similar appropriate rate prevailing in that center.

(2) However, if the other party’s actual credit costs are higher, he is entitled to interest on the sum in arrears at a rate corresponding to such credit costs, but not in excess of the rate defined in the proceeding paragraph prevailing in the main financial center in the State where he has his place of business.[108]

This text, according to certain members of the first Committee, was incomprehensible, obscure, and would create significant difficulty for businessmen, lawyers, and judges in interpreting it.[109] In spite of the objections to the Drafting Committee’s Article 73 bis modifications, the Committee felt that it was better not to change the Drafting Committee’s text at that point in the debate. Therefore, Article 73 bis, as modified by the Drafting Committee, was adopted by the Committee,[110] as well as the modifications to Article 69,[111] which set the interest rate in restitutionary situations in accordance with interest calculation in Article 73 bis. Article 73 bis was then forwarded to the Plenary Conference for final modifications, adoption, or deletion.

E. Plenary Conference Deliberations

At the Conference’s 8th plenary meeting, the problems surrounding the text of Article 73 bis brought forth many objections to its incorporation.[112] The text was attacked as being vague, uncertain, and contrary to the central purpose of developing a clear and precise formula for the calculation of interest.[113] Additionally, it was noted that if legal experts, such as those at the Diplomatic Conference, grappled so extensively with the text of Article 73 bis, what could be expected of bankers and financiers in dealing with the text.[114] Thus, some delegates called for adoption of the UK proposal to put the question of interest outside of the scope of the Convention or simply delete Article 73 bis.[115]

Other delegates found themselves split on the text of Article 73 bis. Some found paragraph one acceptable because it referred to a rate which should be generally applied in a commercial setting, but also found paragraph two to be confusing and unsatisfactory.[116] Thus, a motion to divide the two paragraphs and have them voted on separately was made, but the motion for division was rejected 35 votes to 4 with 7 abstentions.[117]

Further resistance to the incorporation of Article 73 bis rested on the continuing religious concerns of some delegates of the Convention. Many Islamic countries still wished to allow for a reservation or declaration in regard to Article 73 bis so as not to incur any significant problems in regard to Islamic Law’s prohibition or limitation of interest.[118] Other delegates also saw this as a significant problem and felt that adoption of the UK proposal would best remedy the concerns of Islamic nations.[119]

The President of the Plenary Conference, amidst all of the turmoil and controversy surrounding the interest problem, put Article 73 bis to a vote.[120] There were 24 votes in favor, 17 against and 10 abstentions.[121] One delegate noted that his delegation had voted against Article 73 bis because of what it saw as a contradiction between its two paragraphs.[122] He believed that only actual credit costs should be taken into account in the calculation of interest rates.[123] Another delegate stated that his delegation had abstained from the vote because it could not accept paragraph 2 of the article, the effect of which would be to entitle one party to claim interest as a kind of penalty.[124]

Although Article 73 bis did not receive approval by the required two-thirds majority of the delegates at the Plenary Conference, it was not an entirely dead subject. Since a large group of delegates favored the article, one delegate called for the creation of a new working group on interest in an attempt to remove the uncertainties of paragraph 2.[125] The President put the proposal for the new working group to a vote[126] and it was adopted 16 votes to 12, with 16 abstentions.[127] Opposition to the creation of the new working group was primarily based on a combination of time constraints and fears that resolved issues might be reopened, thus fueling further difficulties in rendering an acceptable text.[128] At the close of the plenary meeting, the President appointed a small number of delegates[129] to form the new working group on interest.[130]

The following day at the 11th plenary meeting, the new working group on interest submitted its proposals to the Conference.[131] The proposals stated:

"The words "and interest" should be deleted from the title of section II, so that it would read: "Damages";

There should be a new section II bis section III entitled "Interest", consisting solely of Article 73 bis;

Article 73 bis should read:
"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 70.";

Article 69 (1) should read:
"(1) If the seller is bound to refund the price, he must also pay interest on it from the date on which interest was paid."[132]

The exact words of Mr. Khoo, the Singapore delegate and Chairman of the working group on interest, clearly explain the reasoning behind the drastic change from the former text. Mr. Khoo stated:

It (the working group) had initially tried to work on the basis of the text of Article 73 bis, [but] had finally come to the conclusion that fundamental differences in the approach of different national legal systems to the question of interest rendered that task too difficult. A further difficulty arose from the attempt to treat damages and interest under the same heading. The working group had decided to recommend a provision based, as it were, on the highest common factor, so that the Convention might at least contain a clear statement on the question of interest. The text of Article 73 represented such a solution. The first part of the article established that a party which failed to pay the price or any other sum in due time was under the obligation to pay interest on that sum to the other party. The second part of the article, intended to accommodate legal regulations under which interest was considered to be part of the damages recoverable in default situations, referred to the right of the second party to claim damages under Article 70 Article 74.[133]

Article 73 bis as proposed by the working group was adopted by 30 votes to 2, with 12 abstentions,[134] as was the proposal to change the title of the section III to "Interest" by 35 votes to 1, with 3 abstentions.[135]

One delegate, in voting against the adoption of the article, noted that he had voted against both the adoption of Article 73 bis and the title change since he believed it was useless to have a section on interest without stipulating to a specific interest rate.[136]

III. DETERMINATION OF THE INTEREST RATE

The legislative history of CISG Articles 78 and 84(1) reveals that, when focusing on interest in and of itself, the drafters of the Convention had different views as to the manner in which interest rate should be applied in situations where interest is due. A consequence is what many have referred to as a gap in the Convention with regard to which rate of interest judges and arbitrators should award to injured parties.[137] In filling this gap in the Convention, one must ascertain whether the gap is considered lacuna intra legem, i.e., when the matter is outside the scope of the Convention, as opposed to a lacuna praeter legem, i.e., when the Convention applies to the issue but does not expressly resolve it.[138] Although a majority of scholars considers the question of determining the interest rate as being intra legem, or outside the scope of the Convention since it does not expressly fix a rate of interest and is therefore governed by the domestic law applicable to the sales contract,[139] there is merit to the view of other authorities who consider the gap lacuna praeter legem, and believe that the question should be resolved within the Convention itself. Their thesis is that interest payment is itself not excluded from the Convention (matter governed by the Convention), but rather the method of accomplishing it is not expressly resolved.[140] The Convention in Article 7(2) states that matters governed by the Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence (emphasis added) of such principles, in conformity with the law applicable by virtue of the rules of private international law.[141] The text of Article 7(2) is clear in that it requires, where a matter is governed by the Convention, that the text of the Convention and the principles on which it is based have priority over any reference to rules of law applicable by virtue of the conflicts provisions of private international law.[142] Only if the resolution of the problem cannot be found in the text of the Convention or its general principles should one consult the domestic law applicable to the contract.[143] Therefore, since it is beyond dispute that payment of interest is a matter governed by the Convention,[144] judges and arbitrators in deciding on an applicable rate of interest in a decision should only refer to the applicable domestic law by virtue of the rules of private international law if there is an absence of general principles within the Convention to provide a solution.[145]

A. The General Principles

The first step in using the general principles of the CISG to fill a gap in the Convention is to determine what general principles, if any, are applicable.[146] The Convention does not provide a list of these principles, nor does it indicate where any are to be found. However, close scrutiny of the underlying themes of the articles of the Convention provide a significant number of general principles with which one could fill the interest rate gap. They include principles derived from Articles 74, 84, 55, 57, 75 and 76.

Article 74

The general principle contained in Article 78, which permits an aggrieved party to obtain interest on all "sums in arrears", is very similar to the principle underlying Article 74 which provides for "damages . . . equal to the loss . . . suffered as a consequence of the other party’s breach."[147] From Article 74, one can derive a general principle of "full compensation" in which the interest paid to an aggrieved party is calculated by the formula for the assessment of damages, i.e., to place the injured party in the position he would have been had the contract not been breached.[148] Two arbitral awards rendered in Austria have adopted this approach of filling the interest rate gap in the Convention with the use the general principles of the CISG, specifically the one contained in Article 74.[149] The arbitral awards stated:

One of the general legal principles underlying the CISG is the requirement of "full compensation" of the loss caused.[150] 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 on by the parties.[151]

Other courts and tribunals appear to have employed this principle of "full compensation" with regard to interest. These courts and tribunals seem to use a combination of national law and the "full compensation" principle to award interest at the statutorily defined rate, but in addition, award further interest under Article 74 as damages so as to make the injured party whole.[152]

Some authorities, however, have criticized the theory of applying the general principle of "full compensation" from Article 74’s damages provision within the context of interest since it confuses the distinct difference between interest and damages in the Convention.[153] However, the issue of whether or not interest is or is not part of damages would seem to be immaterial since the Convention explicitly states that a party is entitled to interest without prejudice to any claim for damages.[154]

Article 84

Article 84 of the CISG contains another general principle which may lend assistance in the determination of the interest rate.[155] At the Convention, a main concern of the delegates was to protect against parties purposely delaying payment so as to take advantage of the other party and the availability of either high interest rates or cheap credit.[156] To prevent these types of deceitful behavior, Article 84 sets forth a general principle protecting against the "unjust enrichment" of one of the parties.[157] Thus, in situations where the seller is due to refund the price, in order to prevent the "unjust enrichment" of the seller, any interest the seller has earned while in possession of the sum to be refunded should be disgorged by ordering him to pay interest from the date of payment to the date of the refund.[158] Since the obligation to pay interest is a restitutionary concern and not one of damages for the buyer, the rate of interest payable should be calculated based on the current rate at the seller’s place of business.[159] Thus, in situations calling for restitution of the price and interest to be paid thereon, the applicable rate of interest should be determined in accordance with the principle of "unjust enrichment" so as to deprive the debtor of any benefit gained as a result of retaining the sums due.

It is worthy at this point to note, however, that in filling this gap in the CISG with the general principles of "full compensation" and "unjust enrichment", the question arises: Which principle should take precedence in cases where one party should be "fully compensated" for its injury and the other party disgorged of its "unjust enrichment"? Koneru, in exploring this problem, provides a stark example of how such a situation could easily arise.

Imagine two scenarios, in which in both cases the interest rates at the buyer’s place and seller’s place are ten per cent and five per cent respectively. In the first scenario, the buyer breaches and does not pay. Should the seller be compensated for his actual loss, which is five per cent at his place of business, in which case he is fully compensated, or should he get the buyer’s unjust enrichment of ten percent? If the seller gets the ten per cent rate, the buyer’s unjust enrichment is taken away, but the seller is certainly being overcompensated and arguably is being unjustly enriched.

In the second scenario, it is the seller who defaults and does not return the price or down payment. If the aim is to prevent unjust enrichment, the seller needs to pay only five per cent interest (the prevailing rate at the seller’s place of business). If the objective is to "fully compensate" the aggrieved party, the seller must pay a ten per cent interest rate, which works out to be a type of penalty to the seller. However, there is no unjust enrichment to the buyer. Thus in one case, "full compensation" of the aggrieved party (seller) may lead to unjust enrichment of the breaching party (buyer) with no penalty to either party. In another case it may lead to a penalty for the breaching party (seller, by not refunding the buyer’s money) and no "unjust enrichment" to either party.

Now assume the converse position that preventing "unjust enrichment", rather than "full compensation" is the goal to be pursued. When the seller breaches and withholds buyer’s payment, the seller is required to pay five per cent interest, but the buyer is not fully compensated. Because the seller’s payment is limited to his actual "unjust enrichment" there is no penalty to the seller. More interestingly, however, when the buyer breaches, preventing "unjust enrichment" requires that he pay at a ten per cent interest rate. While there is no penalty to the buyer, the result confers "unjust enrichment" on the seller because he is compensated at a ten per cent interest rate while his loss is only five per cent. Thus, the goal of preventing unjust enrichment eliminates the penalty to the breaching party, but leaves the aggrieved party either under or over compensated.[160]

As it has been illustrated, the competing results of the general principles contained in Articles 74 and 84 can lead to very different results in regard to which rate of interest should apply. However, it is clearly the purpose of the CISG to remedy the injury of the aggrieved party fully.[161] If "full compensation" is achieved, and depending on the factual circumstances of the case, primarily the good faith and fair dealings of the parties involved, should any "unjust enrichment" also be disgorged. For example, a party who has complied with the good faith requirement of the CISG[162] but has been unable to perform (not a force majeure situation), should not be stripped of all benefit derived from the lack of performance. However, a party who has purposely delayed payment, so as to avail itself of cheap credit or ride a high interest rate to accrue extra earnings, should be disgorged of all such benefit due to its bad faith and deceitful dealings.[163] Therefore, a judge or arbitrator, in applying the general principles of the CISG in Articles 74 and 84 to resolve the gap of an interest rate, should look first to "fully compensate" the aggrieved party and then, depending on the nature of the parties involved, proceed with preventing any "unjust enrichment".

Article 55

Article 55, although a very controversial article of the CISG,[164] contains text that could suggest a general principle which could be helpful in filling the Article 78 gap. Article 55 addresses price determination in a validly concluded contract when provisions for fixing the price have not been either expressly or implicitly made.[165] It fixes such a price in coordination with the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned.[166] Thus, one could derive a general principle from Article 55 to state that when a sum of money is due, and the amount is not expressly or implicitly fixed by the contract, the sum should be calculated in accordance with the amount generally charged for the sum at the time of the conclusion of the contract for such sums under comparable circumstances in the trade concerned. This suggests that interest should be therefore determined at a rate generally charged at the time of the conclusion of the contract in the international market in which the parties transact their business.

Article 57

Article 57 of the CISG provides another alternative for extracting a general principle to assist in determination of the interest rate. Article 57 states that "if the buyer is not bound to pay the price at any other particular place, he must pay it to the seller at the seller’s place of business."[167] One can extract from the text of Article 57 a general principle to signify that payment of any sum must be done in the "sphere of control of the creditor."[168] Under this line of analysis, the interest rate should be calculated where the creditor has his place of business.[169]

Articles 75 & 76

Articles 75 and 76 provide yet two additional general principles that could be used to fill the interest rate gap left in Article 78.[170] Article 75,[171] which speaks directly to a buyer’s ability to recover additional costs in a substitute transaction, furnishes a general principle that the costs of a "substitute transaction", reasonably incurred as a result of the other party’s breach, may be recovered.[172] Thus, in a case where a buyer has failed to pay the price and the seller has, in a reasonable manner, resorted to borrowing additional funds, the general principle of Article 75 suggests that the seller’s loss may appropriately be measured by the cost of the "substitute transaction", i.e., the rate of interest on the borrowed funds.[173]

Article 76, which affords a remedy for situations when substitute transactions under Article 75 have not taken place,[174] suggests a general principle which allows for the recovery of the difference between the current price and the contract price. In many enterprises, there is a constant in-and-out cash flow, supplemented when necessary by a general line of credit or by the diversion of capital; in these scenarios, the failure of one party to pay the price may not be matched by a substitute loan.[175] Financial loss from the defaulting party’s breach is none the less real.[176] Thus, in cases where a creditor has internally financed the loss, the underlying principle of Article 76 insinuates that the loss may be measured by the "current price" of credit.[177]

It is therefore apparent that a number of general principles do exist which could assist one in the determination of an applicable rate of interest. Arbitrators and judges should feel free to select such principles in tailoring their interest awards for each factually sensitive situation. The general principles afford judges and arbitrators latitude to ensure that a fair and just award is reached without being constrained by national laws and procedures.

B. UNIDROIT Principles

A decision rendered by an International Chamber of Commerce Arbitration Tribunal[178] suggests that the interest gap should be answered by the general principles on which the CISG is based, as Article 7(2) stipulates. However, the principles from which the Tribunal derived its solution do not come from the text of the Convention. The Tribunal instead, referred to UNIDROIT Principle 7.4.9[179] and Article 4.507 of the Principles of European Contract Law[180] as the general principles on which the CISG is based in setting the interest rate in accordance with the two principles at the average bank short-term lending rate.[181] Such an approach, however, creates possible distortions in the application of the Convention by resorting to the UNIDROIT Principles as a component of the general principles referenced in Article 7(2).[182] Thus, care should be taken when the Principles are embraced as general principles on which the CISG is based.

It is worth noting at this point, however, that a person might see the application of the UNIDROIT Principles as contrary to the intent of the framers of the Convention. Why should the rate contained in the UNIDROIT Principles now be applied when the creation of a single rule on fixing the rate of interest could not be agreed upon at the Convention? Careful examination of UNIDROIT Principle 7.4.9, however shows that the wording of the text remedies most concerns that were voiced at the Convention. Paragraph 1 of 7.4.9 entitles an aggrieved party to interest on a sum of money when payment of the sum is due to the time of payment whether or not the non-payment is excused. This text clearly conforms with the current text of Article 78, in that, it expresses a right to interest regardless of whether the duty to pay the some was a result of something beyond the debtor’s control. This is consistent with the interpretation of Article 79 that only excuses the payment of damages in a force majeure situation, but not the payment of interest.[183]

Paragraph two of 7.4.9 stipulates that the rate of interest shall be the average bank short-term lending rate for prime borrowers prevailing for the currency of payment at the place of payment, or where no such rate exists, at that place, then the same rate in the State of the currency of payment.[184] This formula, although similar to the "joint proposal" raised at the Diplomatic Conference,[185] is distinctly different. The main concern of the socialist and developing nation delegations was that by fixing the rate of interest in the seller’s country, socialist and developing nations who used their foreign export earnings to pay for their imports would be disadvantaged.[186] This occurred since they would normally have to resort to credit on foreign markets well above what they would be compensated for under their own interest rates.[187] UNIDROIT Principle 7.4.9 remedies this concern by fixing the applicable interest at a rate equal to the lending rate prevailing for the currency of payment at the place of payment.[188] Thus, socialist and developing nations, that maintain foreign accounts to pay for their imports and must resort to credit on those markets if a party defaults on the payment of the purchase price, are assured that they will receive adequate protection and an equal return of interest.

However, one problem could arise for nations that do not maintain foreign accounts for imports and require payment in their own States. These States would undoubtedly be duly compensated by a rate of interest fixed at the place of payment, i.e., their own State, but 7.4.9 does not guard against a debtor’s purposeful delay in payment so as to obtain cheap credit or accrue extra sums. Thus, if the UNIDROIT Principles are to be applied to fix an interest rate, judges and arbitrators must prevent buyers from taking advantage of such situations. By applying the general principle of "unjust enrichment" in Article 84 in conjunction with 7.4.9, the aggrieved party would be made whole and the party in bad faith disgorged of all unduly received benefits.

C. National Law

As previously noted, a majority of scholars, as well as national courts and tribunals, have thus far concluded that the rate of interest is one gap in the Convention that is lacuna intra legem, i.e., that the matter is outside the scope of the Convention, and that the domestic law applicable to the contract, viz. Article 7(2),[189] should fix the rate of interest.[190] However, an analysis of the Convention in its entirety, as well as decisions and arbitral awards applying such a doctrine, reinforces the notion that application of domestic law in determining the interest rate should be regarded as inappropriate. Such a practice causes problems in regard to countries which prohibit or limit interest as a matter of law, and detracts from the Convention’s desire to promote uniformity.

In filling the interest rate gap, it can be said that recourse to the law applicable by virtue of the rules of private international law, which ordinarily leads to the application of a national substantive law,[191] was rejected at the 1980 Diplomatic Conference. The UK proposal,[192] which called for the question of interest to be dealt with outside of the Convention by the applicable national law, was put aside in favor of adopting a provision on that kept the matter of interest within the Convention. Many delegates did not want to leave the interest question to the national legislatures since political, economic, and religious differences detracted from the central purpose of uniformity. Thus, by applying national law to fill the interest rate gap, national courts and arbitral tribunals may contravene the intent of the Convention and further promote discontinuity.

As has been mentioned above, recourse to national law promotes uncertainty, but in dealing with national laws that strictly prohibit or limit the rate of interest for religious purposes, more severe consequences could result. Some authors suggest that if an answer is sought in the applicable national law of various Muslim countries, Article 78 would have no force and interest would not be allowed.[193] Furthermore, it is suggested that the mere mention of interest in such countries could render the entire agreement invalid.[194] Others however, assert that this should not result since Article 4 states that "except as otherwise expressly provided in this Convention, it is not concerned with the validity of the contract or any of its provisions and Article 78 expressly provides that an aggrieved party is entitled to interest."[195] The current absence of judicial decisions from Islamic regimes in which the CISG was involved prohibits the discovery of how their tribunals will react to the interest question. However, as previously noted, the availability of interest in Islamic law countries varies on a State by State basis.[196]

The lack of uniformity stemming from the application of national law to fill the Article 78 gap is most evident in the contradictory decisions of numerous national courts and arbitral tribunals. Overwhelmingly, the German Courts, as well as some other national courts and tribunals, have determined the amount of interest by reference to national law applicable according to the rules of conflict of laws.[197] Other courts and tribunals have held the applicable rate of interest to be the one fixed by the creditor’s national law.[198] Argentine Courts have applied usages of trade in determining applicable interest rates.[199] One U.S. Federal Court has held that the rate to be applied is a matter for the court’s discretion.[200] Still others have held that the rate of interest is to be fixed by the currency in which the contract is to be paid.[201] Thus, it is apparent that if there is any uniformity in the application of national law as the interest rate gap filler, it is that there is uniform incongruity. Therefore, if one of the primary goals of the Convention is to promote uniformity, and there is good logic present for relying solely on the Convention, judges and arbitrators should hesitate to resort to national law to determine the applicable rate of interest.

IV. CONCLUSION

Article 78 of the CISG, although facially simplistic, has proven to be one of the most complex and enigmatic provisions of the Convention. Religious, political, and economic disparity among the nations whose delegates participated in the creation of the CISG created friction as to what interests would be reflected in the Convention’s explicit references to interest. Although the general principles these parties devised can speak volumes, the parties did not devise specific language on rate of interest. This has left the international commercial community with a significant "pothole" on the road to uniformity. In repairing potholes, it is desirable that the material used to fill the pothole match the material used to construct the road. Disparities between the two will result in a rockier, rather than, smooth ride. To fill the "rate" gap of Article 78 with national laws is equivalent to filling this pothole with different material. The varying laws, codes, and procedures create a bump in the road that impedes the path to uniformity. On the other hand, the general principles of the CISG itself are a material that is of the same fabric. In filling the pothole with the general principles, a smoother path to uniformity is ensured. Where, as here, the Convention contains applicable general principles, judges and arbitrators should pave the way to uniform application of the CISG by resorting to these principles in determining applicable interest rates.

In conclusion, attitudes of those who have ruled on interest under the CISG generally fall in either of two camps: rate of interest should be set in accordance with applicable domestic law; or rate of interest should be set in accordance with general principles on which the Convention is based. This author subscribes to the latter view for the aforementioned reasons.

For aggrieved persons claiming interest before a tribunal that belongs to the former camp, the recommended approach is:

Two strings to your bow: ride the twin horses of Article 78 and Article 74. Where a person claims interest at, for example, 13% before a tribunal that, pursuant to Article 78, is likely to grant say only 8% in accordance with the domestic law it deems applicable to Article 78 rate determinations and the claimant is able to explicitly or implicitly document a foreseeable interest related loss of 13%, the recommended path is either:

The latter approach is consistent with the premise that recovery of interest pursuant to Article 78 is "without prejudice to any claim for damages recoverable under Article 74", and the principle of full recovery of foreseeable consequential damages that underlies Article 74.[202] Courts adopting this approach to awarding interest have required the injured party to present proof of such additional damage in order to recover.[203]


FOOTNOTES

1. United Nations Convention on Contacts for the International Sale of Goods, UNdoc A/Conf.97/18 Annex I.

2. Id. at Article 78.

3. Library of Congress v. Shaw, 478 U.S. 310, 315 n.2 (1986) (citing Leedham, Interest and Usury, in 2 Palgrave’s Dictionary of Political Economy 432 (H. Higgs ed. 1925)).

4. Id. (citing W. Ashley, An Introduction to English Economic History and Theory, 196 (1966); C. McCormick, Law of Damages § 51, at 207-208 (1935)).

5. Dan B. Dobbs, Handbook on the Law of Remedies § 3.5, at 164 (1973); See also McCormick, supra note 4, at 205.

6. See, e.g., American Bell Int’l Inc. v. Islamic Republic of Iran, 12 Iran-U.S. Cl. Trib. Rep. 170, 229-31 (1986) (in which the Claims Tribunal’s award of 78 million dollars included 28 million in interest); KCA Drilling Ltd. v. Sonatrach, International Chamber of Commerce [ICC] No. 5651 (where the Arbitral Tribunal awarded 23 million in damages and 26 million in interest), summarized in David J. Branson & Richard E. Wallace, Jr., Awarding Interest in International Commercial Arbitration: Establishing a Uniform Approach, 28 Va. J. Int’l L. 919, 920 (1988); Kuwait and American Independent Oil Co., 21 ILM 976, 1042 (1982) (awarding $96 million in interest on $83 million in damages); Telecommunications Co. of Iran v. United States, 23 Iran-U.S. Cl. Trib. Rep. 320, 337 (1989)(awarding 10% interest for 10 years on a damages award of 1.2 million).

7. See Doc. A(1) I UNCITRAL Yearbook (hereinafter "YB") 177 A/CN.9/35; see also John O. Honnold, Documentary History of the Uniform Law for International Sales, 15 (Kluwer International Law) (2nd ed. 1989).

8. The working group concerning interest was comprised of representatives from Austria, Brazil, France, Ghana, Hungary, India, Japan, Kenya, Mexico, Norway, the Union of Soviet Socialist Republics, United Kingdom of Great Britain and Northern Ireland and the United States. see Doc. A(9) V YB 29 A/CN.9/87; see also Honnold, supra note 7, at 175.

9. ULIS Article 83.

10. See Doc. A(9) V YB 44 A/CN.9/87; see also Honnold, supra note 7, at 190.

11. See Doc. A(10)(b) VI YB 107 A/CN.9/100, Annex III; see also Honnold, supra note 7, at 232.

12. Id.; Article 4(b), which became CISG Article 10(b), stated that "where a party does not have a place of business reference should be made to his habitual residence." See Doc. A(5) III YB 79 A/CN.9/62; see also Honnold, supra note 7, at 96.

13. See Doc. A(11) VI YB 62 A/CN.9/100; see also Honnold, supra note 7, at 253.

14. Id.

15. See Doc. B(1) VIII YB 60 A/32/117, Annex I; see also Honnold, supra note 7, at 353.

16. Id. at 25; see also Honnold, supra note 7, at 318.

17. The Drafting Group concerned with interest was comprised of representatives from Colombia, Czechoslovakia, France, Mexico, Nigeria, Singapore, the Union of Soviet Socialist Republics, the United Kingdom of Great Britain and Northern Ireland, and the United States. Id.

18. Id.

19. In the Working Group "Sales" Draft, the article on interest was Article 83. However, the Committee of the Whole, at the beginning of the session, authorized the Secretary-General to renumber the articles of the "Sales" Draft. Therefore, the article on interest appeared as Article 58 in the 1977 "Sales" Draft. Id. at 26; see also Honnold, supra note 7, at 319.

20. Id. at 60; see also Honnold, supra note 7, at 353.

21. Id.

22. Id.

23. Id.

24. Id

25. Id.

26. Id.

27. Id. Some Middle East countries, such as Egypt, permit the charging of interest in certain circumstances or allow for a similar fee considered a "service" or an "administrative" cost. See John Y. Gotanda, Awarding Interest in International Arbitration, 90 Am. J. Int’l L. 40, 47 (1996). Article 226 of the Egyptian Civil Code stipulates that "[w]hen the object of an obligation is the payment of a sum of money of which the amount is known at the time when the claim is made, the debtor shall be bound, in case of delay in payment, to pay the claimant, as damages, for the delay, interest….." This interest runs from the date the claim is filed, unless the parties agree otherwise or commercial usage fixes another date. Id. at 48. Interest accrues incrementally at a rate of 4% in civil actions, 5% in commercial matters, or as agreed upon by the parties. Id. However, a rate set by the parties may not exceed 7% and the total sum of accrued interest may not amount to more than the principal of the debt. Id. Thus, under Egyptian law, a party may not be prohibited from receiving interest, but may be severely undercompensated by the religious constraints.

Yet other Middle East countries, such as Saudi Arabia, Qatar, Oman and North Yemen, strictly forbid the awarding of any interest whatsoever. See Samir Saleh, The Recognition and Enforcement of Foreign Arbitral Awards in States of the Arab Middle East, in Contemporary Problems in International Arbitration, 340, 348-49 (Julian D.M. Lew ed., 1987). These prohibitions are based on Shari’a or Islamic law. See G. Gregory Letterman, Letterman’s Law of Private International Business, 43, 46-48 (1990). Under Islamic law, the charging of interest, or riba, is proscribed since it is considered an "[u]nlawful gain derived from the quantitative inequality of the counter-values in any transaction purporting to effect the exchange of two or more species which belong to the same genus and are governed by the same efficient cause." Nabil A. Saleh, Unlawful Gain and Legitimate Profit in Islamic Law 16 (2 ed. 1992).

A notable exception in this area is the Islamic Republic of Iran’s treatment of interest. Although its Islamic law based legal system strictly prohibits interest, Iran has not restricted the charging of interest in transactions between Iranian nationals and foreigners whose laws permit the charging of interest. Gotanda, supra, at 49. This exception was dictated by Iran’s Guardian Council which stipulated that:

Receiving interest and damages for delay in payment from foreign governments, institutions, companies, and persons, who, according to their own principles of faith, do not consider [interest] as being prohibited, is permitted under religious [Islamic] standards; therefore claiming [and] receiving such funds is not against the Constitution, and Principles 43 and 49 of the Constitution do not apply in this instance. Id.

Thus, it appears that Iranian courts, in dealing with parties from foreign legal systems which permit the charging of interest, would provide for such a charge in cases involving Iranian nationals. However, whether or not a foreign creditor could collect interest from an Iranian national is uncertain. Id.

28. See Doc. B(1) VIII YB 60 A/32/17, Annex I; see also Honnold, supra note 7, at 353.

29. Id.

30. Id. Article 55 of the 1977 "Sales" Draft, which became CISG Article 74, stated that "Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. . . ." Id at 59; see also Honnold, supra note 7, at 352.

31. Id.

32. Id. at 60; see also Honnold, supra note 7, at 353.

33. Id.

34. Hereinafter, all reference to Article 69 is a reference corresponding to Article 84 of the current text. CISG, supra note 1, at Article 84.

35. See Doc. C(1) Official Records (hereinafter "O.R.") 13; see also Honnold, supra note 7, at 390.

36. See Secretariat’s Commentary on the 1978 Draft at Doc. C(3) O.R. 58; see also Honnold, supra note 7, at 448.

37. Id.

38. Since Article 58 had been eliminated by the authors of the 1977 "Sales" Draft, there was no mention of interest in the 1978 Draft aside from that contained in Article 69(1) (which was adopted as CISG Article 84(1)).

39. Honnold, supra note 7, at 381.

40. Id.

41. The 29th meeting discussions on Article 69 of the 1978 Draft and other provisions on interest was comprised of representatives from Argentina, Australia, Canada, China, Czechoslovakia, Denmark, the Federal Republic of Germany, Finland, France, the German Democratic Republic, Ghana, Greece, India, Iraq, Italy, Japan, Norway, Pakistan, the Union of Soviet Socialist Republics, Spain, Sweden, United Kingdom of Great Britain and Northern Ireland, and the United States of America. See Doc. C(4) O.R. 388-392; see also Honnold, supra note 7, at 609-613.

42. Id. at 388; see also Honnold, supra note 7, at 609.

43. See Doc. C(5) O.R. 137; see also Honnold, supra note 7, at 709.

44. Mr. Inaamullah, the Pakistani Delegate, stated that his delegation’s proposal related only to the specific point at which interest should be payable under Article 69, paragraph (1). See Doc. C(4) O.R. 390; see also Honnold, supra note 7, at 611.

45. There is no mention of the German proposal in Honnold’s Documentary History of the Uniform Law for International Sales. supra note 7. To find the text of the German proposal, see Summary Record of the Considerations of the German Delegation, reprinted in United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March – 11 April 1980, Official Records 137 (United Nations, ed. 1980).

46. Hereinafter, all reference to Article 73 bis is a reference corresponding to Article 78 of the current text. CISG, supra note 1, at Article 78.

47. See Doc. C(5) O.R. 137; see also Honnold, supra note 7, at 709.

48. Mr. Sono, the Japanese delegate, stated that his delegation’s proposal was concerned only with the calculation of damages rather than the payment of interest. See Doc. C(4) O.R. 389; see also Honnold, supra note 7, at 610.

49. See Doc. C(5) O.R. 137; see also Honnold, supra note 7, at 709.

50. Mr. Shafik, the Egyptian delegate, stated that certain countries and legal systems, whose religions forbade the payment of interest, attached special importance to the question under discussion. It might therefore be desirable to omit any reference to interest in the Convention, but since such a solution was not a realistic one, it would be advisable to provide for reservations. See Doc. C(4) O.R. 416; see also Honnold, supra note 7, at 637.

51. Id.

52. Fritz Enderlein & Dietrich Maskow, International Sales Law 310 (Oceana Publications, New York) (1992).

53. Infra page 14.

54. Mr. Kopac, the Czechoslovakian delegate, stipulated that the one per cent increase was intended as a penalty. See Doc. C(4) O.R. 388; see also Honnold, supra note 7, at 609.

55. Supra, page 9.

56. Mr. Vinding Kruse, the Danish delegate, stated that the Czechoslovakian proposal was very close to the ULIS rule in its reference to the official discount rate. He drew attention to Article 58 of the Draft Convention prepared by UNCITRAL in 1977, which gave a choice between the official discount rate and the rate for short-term commercial credits. See Doc. C(4) O.R. 389; see also Honnold, supra note 7, at 610.

57. Mrs. Ferraro, the Italian delegate, stated that she could not accept the Czechoslovakian proposal as to the rate of interest, since it would be too difficult to define or to foresee. Furthermore, the Italian delegation could not accept the proposal because, while it was clear in regard to the availability of interest, it was not clear in regard to damages. Id.

58. Id.

59. The proposal was drafted by a joint delegation comprised of representatives from Denmark, Finland, Greece, and Sweden. See Doc. C(5) O.R. 137; see also Honnold, supra note 7, at 709.

60. Id..

61. Id.

62. Mr. Hjerner, the Swedish delegate, stated that the joint proposal covered much of the same ground as the Czechoslovakian proposal, but it was much simpler; See Doc. C(4) O.R. 389; see also Honnold, supra note 7, at 610; Mr. Vinding Kruse, the Danish delegate, favored the joint proposal over the Czechoslovakian proposal since it had a broader application that encompassed interest on all sums that might be in arrears and not just delay in payment of the price; Id.; Mr. Krispis, the Greek delegate, concurred with the Swedish and Danish delegates; Id.; Mr. Sono, the Japanese delegate, stated that he supported the joint proposal and would withdraw his own delegations proposal; Id.; Mrs. Ferraro, the Italian delegate, favored the joint proposal since it expressly made a distinction between interest, which should be payable whenever payment of sums due was in delayed, and damages which were associated with other problems and breaches of contract; Id.; Mr. Farnsworth, the United States delegate, supported the joint proposal and stated that as he saw it the purpose of the interest requirement was to compensate a party concerned for the loss of the use of the money which he should have been paid. It did not seem likely that a party would have made use of that money in the other party’s place of business, and would more probably have done so in his own place of business. See Doc. C(4) O.R. 391; see also Honnold, supra note 7, at 612.

63. Enderlein & Maskow, supra note 52, at 310.

64. Mr. Lebedev, the USSR delegate, stated that the joint proposal was based on the same principle as ULIS Article 83, which UNCITRAL, while preparing its draft, found was impossible to adopt for a number of reasons. See Doc. C(4) O.R. 390; see also Honnold, supra note 7, at 611.

65. See Doc. C(5) O.R. 138; see also Honnold, supra note 7, at 710.

66. Id.

67. Mr. Nicholas, the British delegate, stated that the present text was unsatisfactory in that it required the seller to pay interest on refunds, but there was no corresponding obligation laid on the buyer who was late in paying the price. He noted that a solution would be to include a general provision for the recovery of interest on all sums in arrears, however previous experience convinced him that it would be unrealistic to hope to reach a generally acceptable text within the ambit of the Diplomatic Conference. Therefore, the only practical solution was to leave it to the applicable national law. see Doc. C(4) O.R. 390; see also Honnold, supra note 7, at 611; Mr. Date-Bah, the Ghana delegate, stated that interest should be paid, but the subject was too complicated to be encompassed by a single uniform rule. Not only did national policies and structures of interest differ, but commercial interest usually operated at several levels. Id. at 389; see also Honnold, supra note 7, at 610; Mr. Wagner, the German Democratic Republic delegate, stated that interest was a matter on which differences between economic systems were involved and it would be impossible to find an equitable solution. Id. at 390; see also Honnold, supra note 7, at 611.

68. Mr. Hjerner, the Swedish delegate, stated that the main difficulty with the United Kingdom proposal was that it would tend to lead to difficulties in regard to conflicting legislations. Id.

69. Id. at 391; see also Honnold, supra note 7, at 612.

70. The working group on consolidation of the interest proposals consisted of delegates from Argentina, Czechoslovakia, the German Democratic Republic, Ghana, Greece, India, Italy, and Sweden. Id.

71. Id. at 416; see also Honnold, supra note 7, at 636.

72. See Doc. C(5) O.R. 138; see also Honnold, supra note 7, at 710.

73. Id.

74. Id.

75. See Doc. C(4) O.R. 390; see also Honnold, supra note 7, at 636.

76. Id.

77. Id.

78. Id.

79. Id.

80. Id.

81. Mr. Hjerner, the Swedish delegate, stated that Alternative I offered the simplest solution and that it seemed most natural to calculate the rate of interest on the basis of the rate prevailing in the country of the creditor’s place of business, since the creditor was the injured party who had to take steps to remedy that injury. Id. at 415; see also Honnold, supra note 7, at 636; Mr. Reishoffer, the Austrian delegate, stated that he preferred Alternative I over Alternative II, since it seemed logical and more simply drafted. Id. at 416; see also Honnold, supra note 7, at 638; Mr. Ziegel, the Canadian delegate, stated that, in principle, he favored Alternative I, since it was in line with the approach adopted in the case of damages. The basic principle underlying Articles 70 et seq Article 74 et seq was that the injured party might receive damages for loss, including loss of profit. Id. at 418; see also Honnold, supra note 7, at 639.

82. Supra page 15.

83. Mr. Date-Bah, the Ghana delegate, stated that Alternative I, in particular, might lead the debtor to fail to pay the price or any other sum in arrears in order to have cheap credit. Id. at 417; see also Honnold, supra note 7, at 638.

84. Id. at 416; see also Honnold, supra note 7, at 637.

85. Mr. Wagner, the German Democratic Republic delegate, stated that the first Alternative was quite unacceptable. The argument put forward during the earlier discussion, according to which the party claiming interest would not primarily utilize sums that were due to him in the debtor’s country, might be valid as far as certain countries were concerned; but it was certainly not so for socialist countries or a majority of developing countries, which relied on their foreign trade earnings to pay for imports from the countries where those earnings were made. If there was a delay in payment, they were obliged to seek credit in international markets. The rate of interest prevailing in the country of the party claiming payment was thus of no concern whatever. Id.

86. Id.

87. Id.

88. Mr. Inaamullah, the Pakistani delegate, stated that Alternative II was best suited to the developing countries. Id. at 418; see also Honnold, supra note 7, at 639; Mrs. Vilus, the Yugoslavian delegate, stated that she preferred Alternative II since it seemed the most objective choice. Id. at 416; see also Honnold, supra note 7, at 636.

89. Supra page 13.

90. Mr. Kopac, the Czechoslovakian delegate, stated that it seemed preferable in calculating interest to apply the rate in the debtor’s country so as to prevent the debtor from deliberately attempting to avoid paying the price and taking advantage of a lower rate in the seller’s country. See Doc. C(4) O.R. 417; see also Honnold, supra note 7, at 638.

91. Supra page 13.

92. Supra page 17.

93. Mr. Ziegel, the Canadian delegate, stated that Alternative II favored the injured party too much. It was obvious that the injured party would try to obtain compensation for the loss, including loss of profit. However, Alternative II entitled a party to receive more than he had lost if the rate of interest in the debtor’s country proved to be more favorable. See Doc. C(4) O.R. 418; see also Honnold, supra note 7, at 639.

94. Id.

95. Id.

96. Id. at 416; see also Honnold, supra note 7, at 637.

97. Mr. Wagner, the German Democratic Republic delegate, stated that his delegation preferred Alternative III since it was more flexible and took greater account of the conditions of international trade. Id.

98. Id.

99. Mr. Kopac, the Czechoslovakian delegate, stated that Alternative III, as a compromise text, seemed to give sufficient protection to the creditor for any credit costs incurred. Id. at 418; see also Honnold, supra note 7, at 639.

100. Mr. Vinding Kruse, the Danish delegate, stated that his delegation would be able to support Alternative III since the text would make the rule more acceptable in a greater number of countries. Id. at 417; see also Honnold, supra note 7, at 638.

101. Id. at 418; see also Honnold, supra note 7, at 639.

102. Id.

103. The amendments would change the text so that it would end with the words "party in default". Id.

104. Id.

105. Id.

106. Id.

107. The amendment submitted by the ad hoc working group added at the end of paragraph 1 of Article 69 (now 84 (1)) that the rate of interest due was to be calculated in the same way as Article 73 bis. Id. at 419; see also Honnold, supra note 7, at 640.

108. See C(5) O.R. 163; see also Honnold, supra note 7, at 722.

109. Mr. Mantilla-Molina, the Mexican delegate, stated that he considered the text of Article 73 bis particularly obscure and that businessmen, as well as lawyers, would have difficulty in understanding it. He therefore desired the adaptation of a clearer formula. See C(4) O.R. 429; see also Honnold, supra note 7, at 650; Mr. Lebedev, the USSR delegate, stated that the members of the Drafting Committee had turned out to have very different ideas on paragraph 1 of Article 73 bis and had not been able to produce a more satisfactory text. As it was worded, he felt that it was incomprehensible. Id. at 430; see also Honnold, supra note 7, at 651. Mr. Hjerner, the Swedish delegate, felt that the Drafting Committee had made an effort to produce a clearer text of Article 73 bis, but that the proposed text differed on some minor points of substance. He proposed that paragraph 1 of Article 73 bis be modified slightly, so as to bring it back in line with Alternative II as adopted by the Committee. The modification to paragraph 1 read as follows:

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest thereon at the rate for a normal short-term commercial credit or at another similar appropriate rate prevailing in the main financial center of the State where the party in default has his place of business, or in case the other party’s actual credit costs are higher, at a rate corresponding thereto but not at a rate higher than the rate in the State where he has his place of business, as defined above. Id. at 429; see also Honnold, supra note 7, at 650.

110. Id. at 430; see also Honnold, supra note 7, at 651.

111. Now renumbered as CISG Article 84. See supra note 1, Article 84.

112. See C(5) O.R. 164; see also Honnold, supra note 7, at 723.

113. Mr. Nicholas, the British delegate, stated that the text was neither satisfactory nor applicable. Its authors had indicated that one of its main qualities was its great flexibility. As regarded flexibility, however, the text contained such ambiguities that it would inevitably give rise to controversies and disputes, and thus to divergent interpretations, depending on national legislations. See C(7) O.R. 223; see also Honnold, supra note 7, at 758; Mr. Lebedev, the Soviet delegate, stated that the existing text was incompatible with the objective sought, namely to develop, in clear and precise terms, a formula for the calculation of interest. The wording, instead of settling the situation in a uniform and clear manner, introduced uncertainties under the guise of flexibility. Id. Mr. Sam, the Ghana delegate, stated that some of the expressions used such as "main financial center" or "interest . . . at a rate corresponding [to the actual credit costs]" required clarification. Id.

114. Id.

115. Id. It is important to note the difference between the two alternatives. The original UK proposal called for (1) the inclusion of a new article in Part I, chapter I to read "This Convention is not concerned with the payment of interest", (Document A/CONF.97/L.16; see also Honnold, supra note 7, at 731); (2) Deletion of Article 69 (1), (Document A/CONF.97/L.17, Id).; and (3) Deletion of Article 73 bis, (Document A/CONF.97/L.18, Id.) At the Plenary Conference, Mr. Nicholas withdrew his proposal to delete Article 73 and stated that if it was not adopted, the other two amendments should be put to a vote. See C(7) O.R. 223; see also Honnold, supra note 7, at 758.

116. Mr. Monaco, the International Institute for the Unification of Private Law (UNIDROIT) delegate, stated that Article 73 (1) bis should be retained because the rate to be applied should be the one generally applied in commercial relations. Paragraph 2, on the other hand, was unclear and questions relating to the concept of actual costs , which was ambiguous and difficult to clarify, should be left aside. Id.

117. Id. at 224; see also Honnold, supra note 7, at 759.

118. Mr. Shafik, the Egyptian delegate, recalled his earlier proposal to the First Committee that the Convention should provide explicitly for the possibility of making reservations with regard to Article 73 bis. Id.

119. Mr. Mantilla-Molina, the Mexican delegate, stated that the article, in its very principle, raised difficulties for Islamic countries, and would therefore engender reservations, or even prevent some countries from acceding to the Convention. Thus, he would be in favor of deleting Article 73 bis. Id. at 223; see also Honnold, supra note 7, at 758.

120. Id. at 224; see also Honnold, supra note 7, at 759.

121. Id.

122. Comments of Mr. Garrigues, the Spanish delegate to the Convention. Id.

123. Id.

124. Comments of Mr. Mehdi, the Pakistani delegate to the Convention. Id.

125. Mr. Hjerner, the Swedish delegate, stated that even though Article 73 bis had not obtained the required two-thirds majority, a clear majority had pronounced its favor. It therefore appeared to him indispensable to set up a working group in an attempt to remove the outstanding uncertainties in the text of paragraph 2. Pointing out that the matter was essential to the satisfactory application of the Convention, he required that his proposal for the creation of a working group be put to a vote. Id.

126. Id. at 225; see also Honnold, supra note 7, at 760.

127. Id.

128. Mr. Stalev, the Bulgarian delegate, stated that if -- as had not always been the case so far -- all delegations exercised moderation, the Conference should be able to complete its work by the original deadline. Id.; Mr. Shore, the Canadian delegate, urged delegations to exercise moderation in order to ensure the success of the Conference; he feared that a prolonged debate on Article 73 bis might widen the gap between the different points of view. Id.

129. The working group on interest was comprised of the following countries: Canada, Singapore, Sweden, United Kingdom, and the Union of Soviet Socialist Republics. Id. Egypt had originally been appointed to the working group, but took no part in the discussions. Id. at 226; see also Honnold, supra note 7, at 761.

130. Id. at 225; see also Honnold, supra note 7, at 760.

131. Id.

132. Id.

133. Id. at 226; see also Honnold, supra note 7, at 761.

134. Id.

135. Id.

136. Mr. Blagojevic, the Yugoslavian delegate, stated that he had voted against Article 73 bis and against the title of the new section II bis because there was no point in having an Article on interest which failed to indicate the appropriate interest rate. Id.

137. Franco Ferrari, Uniform Application and Interest Rates Under the Vienna Sales Convention, 24 GA. J. Int’l & Comp. L. 467, 472; Alejandro Garro, The Gap Filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay between the Principles and the CISG, 69 Tul. L. Rev. 1149, 1156; Joseph Lookofsky, Understanding the CISG in the USA, 95 (Kluwer Law International 1995); Pilar Perales Viscasillas, UNIDROIT Principles of International Commercial Contracts, 13 Ariz. J. Int’l & Comp. L. 381, 405.

138. Ferrari, supra note 137, at 471.

139. Enderlein & Maskow, supra note 52 , 312 (stating "when the parties have agreed to nothing, the amount of interest will be calculated on the basis of the applicable domestic law."); Rolf Herber & Beate Czerwenka, Internationales Kaufrecht: Kommentar zu dem UN-Überein kommen Über VertrÄge Über den Internationalen Warenkauf , 347 (stating "the rate of interest is to be determined by the law chosen by the rule of private international law."; Ulrich Magnus, Währungsfragen im Einheitlichen Kaufrecht Zugleich ein Beitrag zu Seiner Lückenüllung und Auslegung, Rabels Zeitschrift für AuslÄndisches und Internationales Privatrecht 116, 140-141 (1989) (stating "the law applicable to the rate of interest should be the domestic law referred to by the rules of private international law."); Barry Nicholas, Article 78 : Interest, contained in Commentary on the International Sales Law: The 1980 Vienna Sales Convention 570 (C.M. Bianca & Michael J. Bonell eds., 1987) (stating "[the] rate to be applied is, however, a matter, in the first place, for the domestic law."); Burghard Piltz, Internationales Kaufrecht: Das UN-Kaufrecht (Wiener Übereinkommen von 1980) in Praxisorientierter Darstellung 280 (1993) (stating "the rate of interest is governed by the domestic law chosen by the rules of private international law."); Leif Sevón, Obligations of the Buyer under the Vienna Convention on the International Sale of Goods, 106 Juridisk Tidskrift (Suoment Lainopillinen Yhdistys) 341 (1990) (stating "[The] Convention only establishes the right to interest, but deals neither with the rate of interest nor with the time for which interest may be calculated. Thus these matters must be decided according to the law applicable to the contract.") Peter Schlechtriem, Uniform Sales Law: The UN-Convention on Contracts for the International Sale of Goods, 100 (1986) (stating "[the] details of the obligation to pay interest - in particular, the amount - are governed by the applicable domestic law chosen by the conflict of law rules"); See also, Schlechtriem, Recent Developments in International Sales Law, 18 Israel L. Rev. 309, 324 (1983) ( "there is an obligation to pay interest, but the details of this obligation are left up to the domestic law called upon by the rules of private international law"); Jeffery S. Sutton, Damages Under the United Nations Convention, 50 Ohio St. L.J. 737, 750 (1989) (stating " [the] court may resort to conflicts of laws rules and determine the method for calculating interest with reference to the appropriate domestic law."); Denis Tallon, Article 84: Accounting for Benefits, in Commentary on the International Sales Law: The 1980 Vienna Sales Convention 570 (C.M. Bianca & Michael J. Bonell eds., 1987) 611 (stating "that how interests are to be calculated is governed by applicable domestic law.").

140. Phanesh Koneru, The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An approach based on General Principles, 6 Minn. J. Global Trade 105, 123 (1997).

141. CISG, supra note 1, Article 7(2).

142. Aurthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L.J. 265, 298 (1984); See also Koneru, supra note 140, at 105. See also Garro, supra note 137, at 1155 (stating "only as a last resort may a decision maker look to the domestic law indicated by the conflict of law rules").

143. Koneru, supra note 140, at 105.

144. The payment of interest is clearly stated and codified in the Convention in Article 78. CISG, supra note 1, Article 78. See also Koneru, supra note 140, at 123.

145. John O. Honnold, Uniform Law for International Sales, 525 (2d ed. 1991) [hereinafter Honnold, Uniform Law]; see also Koneru, supra note 140, at 143.

146. Sutton, supra note 139, at 299.

147. Honnold, supra note 145, at 523.

148. Giulio Ponzanelli, Article 78, in Convenzione di Vienna sui Contrati di Vendita Internazionale di Beni Mobili 308, 309 (Massimo C. Bianca ed., 1992); See also Koneru, supra note 140, at 123.

149. See Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft-Wien, 15 June 1994 (SCH-4366) and (SCH-4318) (Austria) (UNILEX, English translation) (an English translation of this text is also available online at www.cisg.law.pace.edu (hereinafter "Pace")).

150. CISG, supra note 1, at Article 74.

151. Supra note 149.

152. See Amtsgericht (hereinafter AG) Oldenburg, 24 April 1990 (5 C 73/89) (Germany); Landgericht (hereinafter LG) Hamburg, 26 September 1990 (5 O 543/88) (Germany), reprinted in Praxis des Internationales Privat- und Verfahrensrechts (IPRax) 400 (1991) (UNILEX) (in which a German court ordered the payment of 13% interest even though the statutory rate was 5%, because the statutory rate did not reflect the rate at which the creditor would pay on his loans.); Arbitral Award 7197 (Aus. v. Bulg), ICC Ct. Arb. (1993), reprinted in J. du Droit Int’l., 1028-37 (1993) (in which the Arbitral Tribunal awarded a rate of interest at 12% instead of the statutory 5% rate since the creditor would have customarily incurred interest at 12% on loans.)

153. See Enderlein & Maskow, supra note 52, at 313 (stating "that the interest claim" [if it adopted Article 74’s principle of "full compensation in determining an applicable interest rate] "would thereby move very near a claim for damages"); See also Nicholas, supra note 139, at 570 (stating " the text speaks of interest as something distinct from damages").

154. CISG, supra note 1, at Article 78.

155. Article 84 states "(1) if the seller is bound to refund the price, he must also pay interest on it, from the date which the price was paid; (2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them." CISG, supra note 1, Article 84.

156. See supra Section II.

157. Koneru, supra note 140, at 127.

158. Id.

159. Id.

160. Koneru, supra note 140, at 127.

161. Id.

162. Article 7(1) states that "in the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade." CISG, supra note 1, at Article 7(1).

163. Koneru, supra note 140, at 127.

164. The controversial nature of Article 55, which permits the filling of an open price term, rests with what has been said to be its opposition to Article 14, which suggests that an open price can prove fatal to an offer. See Lookofsky, supra note 137, at 28.

165. CISG, supra note 1, at Article 55.

166. Id.

167. CISG, supra note 1, at Article 57.

168. Pilar Perales Viscasillas, La determinación del tipo de interés en la compraventa internacional, 8 Cuadernos Jurídicos, julio-agosto (1996)

169. Id.; See Arrondissemenstrechtbank Almelo (4367), 9 August 1995 (The Netherlands); CISG Article 57.1 (a) has been understood to mean that the place of payment of the damages is the one specified by the place where the creditor has his place of business: Oberlandesgericht (hereinafter OLG) Düsseldorf, 2 July 1993 (17 U 73/93) (Germany); and Cour d’appel de Grenoble, 23 October 1996 (France).

170. Honnold, supra note 145, at 527.

171. Article 75 states that "If the contract is avoided and if, in a reasonable manner and within a reasonable time after the avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and price in the substitute transaction as well as any further damages recoverable under Article 74. CISG, supra note 1, at Article 75.

172. Honnold, supra note 145, at 527.

173. Id.

174. Article 76 states that "(1) If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under Article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under Article 74. . . ." CISG, supra note 1, at Article 76.

175. Honnold, supra note 145, at 526.

176. Id.

177. Id.

178. See ICC Arbitral Award 8128/1995 (UNILEX).

179. UNIDROIT Principle 7.4.9 states "(1) If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused. (2) The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place of payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by law of the State of the currency of payment. (3) The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm.

180. Ole Lando & Hugh Beale, The Principles of European Contract Law, 212 (Nijhoff, ed. 1995). Article 4.507: Delay in Payment of Money states:

(1) If payment of a sum of money is delayed, the aggrieved party is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short term lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due.

(2) The aggrieved party may in addition recover damages for any further loss, so far as these are recoverable under this section.

181. In this case, the London International Banking Offered Rate (LIBOR) plus two per cent corresponded to the average bank short-term lending rate to enterprises. The buyer was therefore awarded interest at that rate. Supra note 178.

182. Perales, supra note 137, at 405. Opposing this view see M.J. Bonell, International Restatement of Contract Law (1994); See also Garro, supra note 137, at 1156 –1157 (stating that "the UNIDROIT Principles should be applied instead of national law."); For further strong support for the proposition that the UNIDROIT Principles "to the extent that they formulate general principles that cannot be derived directly from the CISG, can be utilized for filling gaps in the Convention", see Ulrich Magnus, Die Allgemeinen Grundsätze im UN-Kaufrecht, 59 Rabels Zeitschift (1995) 492-493; (see Pace for an English translation of this text).

183. Nicholas, supra note 139, at 571.

184. Supra note 179.

185. Supra page 15.

186. Supra page 19.

187. Id.

188. Supra note 179.

189. Article 7(2) states that "questions concerning matters governed by this Convention which are not expressly settled in it are to settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law." CISG, supra note 1, Article 7(2).

190. Supra note 139.

191. Lookofsky, supra note 137, at note 299. Professor Lookofsky, however, points out that the rules of private international law may also point to other types of law, i.e., lex mercatoria.

192. Supra page 17.

193. Schlechtriem, supra note 139, at 100 n.414 (stating "to the extent applicable domestic law prohibits interest payments, Article 78 would, of course, be unenforceable.").

194. Lookofsky, The 1980 United Nations Convention on Contracts for the International Sale of Goods, in International Encyclopedia of Laws 1, 128 (Blanpain gen. Ed., 1993).

195. See Kritzer , Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, 621 vol. I (Kluwer Law International) (1994); See also Sutton, supra note 139, at 751 (stating "a court in a Moslem country that has joined the Convention, but which proscribes interest payments, could not eliminate the applicability of Article 78, although it could render invalid an interest clause in a contract."); See also Ferrari, supra note 137, at 478 (stating "on the contrary, there should be recourse to the level of interest generally applied in international commerce in the particular trade concerned.");. See also Enderlein & Maskow, supra note 52, at 312 (stating "Since the amount of interest is not determined, this shortcoming is to be compensated above all by agreement between parties. These cannot, because of the CISG, be countered anymore by national prohibitive rules for interest, which in many Islamic countries that prohibit interest have often been relaxed various ways in regard to the economic sector.").

196. Supra note 27.

197. Eva Diederichsen, Commentary to Journal of Law & Commerce Case I; Oberlandesgericht, Frankfurt Am Main, 14 Journal of Law & Commerce 177, 181. For cases applying national law as a result of the rules of conflict of laws, see LG Hamburg, 26 September 1990 (5 0 543/88) (Germany); Pretura della Giurisdizione di Locarno-Campagna, 16 December 1991 (n.15/91) (Switzerland); Municipal Tribunal of Budapest, 24 March 1992 (Az.12.G.41.471/1991) (Hungary); LG Heidelberg, 3 July 1992 (O 42/92) (Germany); OLG Hamm, 22 September 1992, (19 U 97/91) (Germany); AG Zweibrücken, 14 October 1992, (1 C 216/92) (Germany); LG Verden, 8 February 1993, (9 O 85/92) (Germany); Arrondissementsrechtbank Roermond, 6 May 1993; Commercial Tribunal of Zürich, 9 September 1993, (HG 930138. U/HG93) (Switzerland); OLG Koblenz, 17 September 1993, (2 U 1230/91) (Germany); Tribunal Cantonal Vaud, 6 December 1993 (Switzerland); Tribunal Cantonal Valais, 20 December 1994 (Switzerland); OLG Frankfurt am Main, 18 January 1994 (5 U 15/93); Kammergerich (hereinafter KG) Berlin, 24 January 1994 (2 U 7418/92) (Germany); OLG Düsseldorf, 10 February 1994 (6 U 32/93) (Germany); Rb Amsterdam, 15 June 1994 (H92.3572) (The Netherlands); AG Nordhorn, 14 June 1994 (3 C 75/94) (Germany); LG Giessen, 5 July 1994 (6 O 95/83) (Germany); LG Düsseldorf, 25 August 1994 (31 O 27/92) (Germany); LG Oldenburg, 9 November 1994 (12 0 674/93) (Germany); ICC 7565/94, 6 Bulletin de la Cour Internationale d’Arbitrage of the ICC (1995); ICC 7660/94 6 Bulletin de la Cour Internationale d’Arbitrage of the ICC (1995); OLG Hamm, 8 February 1995 (11 U 206/93) (Germany); LG Landshut, 5 April 1995, 54 O 644/94) (Germany); AG Alsfeld, 12 May 1995 (31 C 354/94) (Germany); LG Kassel, 22 June 1995 (8 O 2391/93) (Germany); LG Aachen, 20 July 1995 (41 O 111/95) (Germany); AG Kehl, 6 October 1995 (3 C 925/93) (Germany); Handelsgericht des Kantons Zürich, 21 September 1995 (HG 9304766) (Switzerland); ); Handelsgericht des Kantons St. Gallen, 5 December 1995 (HG 45/1995) (Switzerland); AG Augsburg, 29 January 1996 (11 C 4004/95) (Germany); LG Kassel, 15 February 1996 (11 O 4187/95) (Germany); Handelskammer Hamburg, 21 March 1996 (Germany); LG Aachen, 19 April 1996 (43 O 70/95) (Germany).

198. LG Stuttgart, 31 August 1989 (3 KfH O 97/89) (Germany); AG Oldenburg in Holstein, 24 April 1990 (5 C 79/83) (Germany); OLG Frankfurt, 13 June 1991 (5 U 261/90) (Germany); LG Frankfurt, 16 September 1991 (3/11 O 3/91) (Germany); AG Riedlingen, 21 October 1994 ( 2 C 395/93) (Germany); Bezirksgericht Arbon, 9 December 1994 (B G 9341/98) (Switzerland); ICC 7331/94, 6 Bulletin de la Cour Internationale d’Arbitrage of the ICC (1995); OLG München, 8 February 1995 (7 U 1720/94) (Germany); LG München, 20 March 1995 (10 HKO 23750/94) (Germany).

199. Juzgado Nacional de Primera Instancia en lo Comercial no 7 de Buenos Aires, Secretarico no 14, 20 May 1991; Juzgado Nacional de Primera Instancia en lo Comercial no 10 de Buenos Aires, 23 October 1991; Juzgado Nacional de Primera Instancia en lo Comercial no 10 de Buenos Aires, 6 October 1994. It is interesting to note, however, that the Argentine Court in the last case cited applied the trade usage to the matter of interest even though the parties had agreed to an interest rate in their contract.

200. Delchi Carrier, SpA. v. Rorotex, 71 F.3d 1024, 1030 (stating "Because Article 78 does not specify the rate of interest to be applied, the court in its discretion awards Delchi pre-judgment interest at the United States Treasury Bill rate as set fourth in 28 U.S.C. § 1961 (a).).

201. Arrondissementsrechtbank Arnhem, 30 December 1993 (1992/1251); ICC 7585/92, 6 Bulletin de la Cour Internationale d’Arbitrage of the ICC (1995) 59-63.

202. See AG Oldenburg, 24 April 1990, (5 C 73/89) (Germany) (where the court awarded additional interest as damages under Article 74) see also LG Krefeld, 24 November 1992 (12 O 153/92) (Germany) (where the court, in spite of a statutory interest rate of 5%, awarded additional damages to the seller in the amount of 13%, that being the Italian discount rate); ICC Arbitration Case No 7197/92 (stating that "the interest rate awarded may be higher than the legal rate since the entitlement to interest under Article 78 CISG was independent of any claim for damages under Article 74 CISG."); OLG Koblenz, 17 September 1993, (2 U 1230/91) (Germany) (in which the court awarded interest under the French statutory rate. Although the court did not do so, it indicated that additional damages could be recovered under Article 74.); LG Memmingen, 1 December 1993, (2 HO 1434/92) (Germany) (in which the court left open the question of interest, but awarded interest under Article 78 and additional damages under Article 74 by reference to an interest amount reported on a bank statement submitted by the claimant.); HG Zürich, 21 September 1995, (HG 930476) (Switzerland) (where the court stated that although the Austrian statutory rate of interest amounted to 5%, that the seller was entitled to the higher interest rate of 9.75% as further damages pursuant to Articles 74 & 78.); OLG Düsseldorf, 11 July 1996, (6 U 152/95) (Germany) ( where the court awarded interest as damages at the rate actually charged for bank loans and not the statutorily defined rate.)

203. See OLG Frankfurt, 18 January 1994, (5 U 15/93) (Germany) (where the seller was awarded interest at the statutory rate of 10%, but was not awarded the higher interest rate of 13.5% as further damages, since he had not given evidence of making recourse to bank loans.); LG München, 20 March 1995, (10 HKO 23750/94) (Germany) (in which the court only awarded interest at the statutory rate since the seller had not presented evidence of making recourse to bank loans.) AG Alsfeld, 12 May 1995, (31 C 534/94) (Germany) ( where the court permitted a claim of interest under Article 78, but a refused to award a higher interest rate as damages under art 74 since the seller did not provide sufficient evidence of recourse to bank loans.); HG Zürich, 21 September 1995, (HG 930476) (Switzerland) ( In this respect, the court observed that the seller had only to prove the recourse to bank loans since it can be assumed that companies normally resort to external sources of credit to finance their activities.); LG München, 25 January 1996, (12 HKO 2648/95) (Germany) (where the court ordered the buyer under Article 78 to pay the statutory rate of interest. A higher rate of interest as further damages under article 74 was not granted since the seller was not able to prove a causal connection between its recourse to bank loans and the buyer’s non-payment.).


Pace Law School Institute of International Commercial Law - Last updated September 30, 2008
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