1. Mr. HJERNER (Sweden), introducing the document prepared by the ad hoc working group on Interest (A/CONF.97/C.1/L.247), said that Japan had been omitted from the list of countries participating in the working group's deliberations, in which the German Democratic Republic and a number of other countries had also taken part. The proposals formulated by the working group constituted neither a package deal nor a compromise, but offered three possible solutions to the problem of interest. The working group had not, in fact, succeeded in putting forward a single alternative to the United Kingdom proposal (A/CONF.97/C.1/L.226), but the differences between the suggested alternatives were not perhaps as great as might appear. The question of interest involved two major problems -- the first concerning the price or any sum which had not been paid by the buyer on the stipulated date of payment; and the second concerning the restitution of the price. Each of the proposed alternatives for article 73 bis [became CISG article 78 ] was in two parts: an introductory phrase which defined the rate of interest, and a provision dealing with the place where that rate should be calculated.
2. As far as the drafting was concerned, he pointed out that the words "the country of" should be inserted after the words "financial centre of" in the fourth line of the English text of alternative I; and that the French text of alternative II should be aligned with the English original, the phrase "pour la première solution sus-indiquée" being replaced by "pour le premier taux sus-indiqué", or words to that effect.
3. The first part of the text was identical in each of the alternatives. In view of the considerable differences involved, it was important, when determining interest rates, to establish a realistic scale of rates that were neither excessive nor artificial. For that reason, the working group had decided to take short-term commercial credit as a point of reference. The possibility of applying another similar appropriate rate was envisaged for countries where short-term commercial credit did not exist.
4. The working group had based the introductory phrase in each alternative on what it considered to be the satisfactory formulation adopted by the UNCITRAL Working Group on International Negotiable Instruments. There could obviously be different interest rates for different currencies; what was important, however, was to fix a realistic rate. 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.
5. With respect to the second part of the proposed article, most members of the working group had favoured alternative I, which offered the simplest solution. For many reasons it seemed 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. Nevertheless, other members of the working group, and Czechoslovakia in particular, had encountered difficulties in that connection. It was true that, as far as State trading countries were concerned, it might be inappropriate to mention the place of business of the creditor; and interest rates could vary according to the type of business involved. With regard to alternative II, all the members of the working group had agreed that, if the rate of interest prevailing in the country of the party in default was lower than that prevailing in the creditor's country, the latter would suffer injury; he should consequently be enabled to obtain the rate which he would have to pay for the credit which he required. On the other hand, he should not be permitted to demand an excessive rate of interest. The final part of alternative II took account of those considerations. Alternative III, which comprised a simplification of alternative II, incorporating a slight difference of substance, had obtained no preferential support in the working group, and might therefore be left aside. Lastly, as far as article 69 [became CISG article 84 ] was concerned, the working group was of the opinion that the rate of the interest mentioned therein should be defined in the same manner as in article 73 bis [became CISG article 78 ], by a simple reference to the rate prevailing in the country where the seller had his place of business. The texts prepared by the working group could be the subject of drafting changes, and the new provisions which they contained might be incorporated in a section entitled "Damages and interest", or in a separate chapter dealing with the matter of interest.
6. Mr. WAGNER (German Democratic Republic) found the first alternative 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 the socialist countries or for the majority of the 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 on the international financial markets. The rate of interest prevailing in the country of the party claiming payment was thus of no concern whatever.
7. Another problem arose in connection with inflation rates. If the party in default had his place of business in a 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; compensation could to a certain extent be effected by applying the rate of interest in the country where the defaulting party had his place of business. The solution of alternative I would thus be particularly attractive to delegations from countries where the rate of inflation was high, but not to the others.
8. Alternatives II and III offered a compromise solution. His delegation would prefer alternative III, which appeared more flexible and which took greater account of the conditions of international trade. If it proved impossible to reach a compromise, his delegation would deem it preferable to leave any reference to the question of interest out of the Convention.
9. Mr. KLINGSPORN (Federal Republic of Germany) found it difficult to support any of the alternatives proposed by the working group, since none of them took account of the principle that, where a party was in arrears, the payment of interest constituted an element of the obligation to pay damages. At 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. It should, however, be left to the innocent party to prove actual injury arising from non-payment was more substantial than the damage fixed by law. Article 73 bis [became CISG article 78 ]should make it clear that the injured party must be paid any further damages recoverable under article 70 [became CISG article 74 ]; the corresponding provisions of articles 71 and 72 [became CISG article 75 and CISG article 76 ] made such a clarification essential.
10. Mr. SHAFIK (Egypt) said that certain countries and legal systems, whose religions forbade the payment of interest, attached special importance to the question under discussion. Those countries were often wealthy; some of them were oil-exporting countries; others consumed great quantities of goods from the developed countries. If they -- and the major consumers among them in particular -- were to be encouraged to adhere to the Convention, that instrument should not deal with the matter of interest in a manner unacceptable to them. Although it might be desirable to omit any reference to interest from the Convention, such a solution was hardly a realistic one, when what was involved was a well-established practice, but it would be advisable to provide for reservations which would permit any country, particularly those where the concept of interest was incompatible with their religion, to apply the relevant clauses in a different manner.
11. Mrs. VILUS (Yugoslavia) stressed the complexity of the issues related to interest, especially in the case of the developing countries, which were mainly purchasers of goods, which lacked financial resources, and which consequently found themselves frequently in arrears. She readily understood the position of those delegations which would prefer the Convention not to deal with interest. Nevertheless, her own delegation, having consulted business circles in Yugoslavia, had come to the conclusion that it would be preferable for the Convention to contain certain provisions on the subject, since the absence of any regulatory mechanisms could make the problems even more intractable. She would prefer alternative III or -- because it was perhaps more objective -- alternative II.
12. Mr. RElSHOFER (Austria) said he concluded from the discussion that it would be difficult for the members of the Committee to agree on a generally acceptable solution. He himself was inclined to favour alternative I as being logical and more simply drafted than alternative II. Nevertheless, many countries would consider that there was no reason to select the country of the party claiming payment as the place where the rate of interest should be calculated. On the other hand, many countries would consider that the provisions of alternative II would prove difficult to apply in the courts. Nevertheless, in the light of the discussions on articles 69 and 73 bis [became CISG article 84 and CISG article 78 ], it seemed to him that there would be unanimity on the point that the Convention should indeed take the question of interest into account. In those circumstances, lest the Committee should find itself in a blind alley if it tried to spell out what the method of calculating interests should be, it might perhaps be better simply to state: "If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest thereon", or to retain the text that the United Kingdom representative had proposed for insertion in chapter I (A/CONF.97/C.1/L.226/Rev.l): "This Convention does not affect any right of the seller or buyer to recover interest on money".
13. Mr. ROGNLIEN (Norway) congratulated the working group on the three alternatives it had submitted, all of which seemed to him to be acceptable. He would prefer alternative I, but could support alternative II, or even accept alternative III. The solution put forward by the Austrian representative should be adopted only as a last resort, in the event that none of the alternatives proposed by the working group were adopted, since such a solution would amount to a failure to standardize international trade law and would leave the door open to disputes that would be difficult to settle. The representative of the Federal Republic of Germany felt that the provisions on damages contained in the Convention were sufficient but he himself could not share that opinion. The party should automatically have the right to interest on sums in arrears, without having to prove that specific damage had been suffered.
14. The representative of Egypt had pointed out a special difficulty encountered by Arab countries, where interest was not permitted. He, the speaker, was unaware of any refusal on the part of such countries to charge interest on loans or credit offered in international relations. It might be that another term was used, in which case it would be easy to add after the word "interests" in the proposed provisions a phrase such as "or any other corresponding fee".
15. DATE-BAH (Ghana) said that, although he had been a member of the working group which proposed the different alternatives on the question of interest, he did not recommend any of them for the Committee approval. 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. The solution put forward by the representative of the United Kingdom (A/CONF.97/C.1/L.226/Rev. 1) should be adopted and no specific provision on the matter of interest included in the Convention.
16. Mr. OLIVENCIA RUIZ (Spain) said that, as a result of article 69 [became CISG article 84 ], the question of interest was already an integral part of the Convention since that article mentioned the obligation to pay interest. It would therefore be useful, in order to encourage uniformity in international trade law, to include in the Convention a specific provision governing the matter of interest.
17. Of the three alternatives proposed he preferred alternative II. It would, however, be appropriate to clarify the rate of interest charged and to add, in the three texts proposed -- the first three lines of which were identical -- the word "normal" before the word "rate" in the second line since short-term commercial credit was affected by variable conditions and it was therefore important that the "normal" rate of interest should be applied. In addition, the words "financial centre" should be replaced by "credit organization" because there was a difference between the two terms which was presumably not exclusive to the Spanish legal system. It would also be advisable to retain the terminology adopted once and for all in the Convention and to speak not of the "country" of the party claiming payment or of the defaulting party, thus bringing in the question of nationality which was excluded from the sphere of application of the Convention, but either of the State concerned or of the country where the party concerned had his place of business. Even after making those three corrections -- the last two of which were of a drafting nature -- to the provision to be adopted, the Committee would still leave certain gaps, which he thought regrettable, concerning in particular the currency of interest payment and the moment from which the interest would run. Nonetheless, it would be the most satisfactory solution to adopt.
18. Mr. VINDING KRUSE (Denmark) said he was firmly convinced that a provision concerning the question of interest should be included in the Convention, since otherwise the courts would have to fall back on domestic law, and that would entail some extremely complex problems. Doubtless the proposed provisions (A/CONF.97/C.1/L.247) would not resolve all the problems, but they would at least settle the essentials. He preferred alternative I, but alternatives II and even III were compromise texts which would make the rule more acceptable to a greater number of countries, and his delegation would be able to support them.
19. Mr. KOPAC (Czechoslovakia) said that he too was of the opinion that a rule on the question of interest would be extremely useful for the unification of international trade law. The question of interest was of undeniable economic importance. He had been a member of the ad hoc working group on Interest and within the group had expressed his support for either alternative II or alternative III. It seemed to him to be 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 creditor's country. However, alternatives II and III were compromise texts which, it seemed to him, gave sufficient protection to the creditor. Some members of the working group feared that the rule proposed in alternative II might be difficult to apply because it would be difficult to prove that the rate in the creditor's country was higher. Such delegations would, no doubt, be able to support alternative III, which did not require that proof be provided.
20. Mr. SAMI (Iraq) said that, for the benefit of the representative of Norway, he wished to point out, as the representative of Egypt had done, that certain Arab countries did not charge interest. His delegation would have preferred that there were no reference at all to interest in the Convention. If, however, a provision concerning that question had to be included it would be desirable, in order to make it possible for the countries which did not charge interest to accede to the Convention, to allow them expressly to enter a reservation to such a provision. Once that was done, the developing countries could all support either alternative II or alternative III, on the understanding that damages might be higher than interest, as the representative of the Federal Republic of Germany had pointed out, which understanding might be stated in articles 70 and 71 [became CISG article 74 and CISG article 75 ] on damages. His delegation supported alternative III with the reservation that the last sentence, "However, in case the party claiming interest . . .", should be deleted, since he did not think that such a flexible provision was essential.
21. Mr. INAAMULLAH (Pakistan) said he reserved the right to present his amendment (A/CONF.97/C.1/L.225) once again if none of the alternatives was adopted. In his opinion, alternative II was best suited to the developing countries. However, in a spirit of conciliation, he was prepared to support alternative III on condition that the last sentence was deleted.
22. Mr. ZIEGEL (Canada) said he was, in principle, in favour of alternative I. He felt that the question of interest should not give rise to so much discussion that the Committee should decide not to include any provision on the subject. He thought that alternative I was in line with the approach adopted in the case of damages. The basic principle underlying articles 70 [became CISG article 74 ] et seq was that the injured party might receive damages for loss, including loss of profit. Alternative II favoured the injured party too much. It was obvious that the injured party would try to obtain compensation for his loss. However, alternative II entitled that party to receive more than he had lost if the rate of interest in the debtor's country proved to be more favourable. Such a provision would be quite contrary to the principle adopted in the case of damages. It was not very clear how that provision might protect the interests of the developing and planned-economy countries. Moreover, the expression "the other party's actual credit costs" was a dubious one. In many cases, the actual credit costs would be higher than the rate of interest for short-term commercial credits, since the latter were calculated on the basis of the rates applied for the most solvent borrower. Such was not the position of many traders who had to pay credit costs well above the interest rates for short-term commercial credits. The same applied to alternative III.
23. Referring to the comments of the representative of Iraq, he thought that two solutions might be envisaged: Arab countries concluding a contract with other countries not belonging to the same system might omit all references to interest; or else, application of the article relating to interest might be optional; countries would be free to accept or reject the provisions concerned at the time of accession to the Convention. He also thought that it would be necessary to change alternative I, in the event of its adoption, so as to specify from what moment interest began to run. He proposed that "calculated from the date when the sum is due until the actual payment thereof" be added to the end of alternative I.
24. Mr. HJERNER (Sweden) said that he was in favour of alternative I but, in the interest of compromise, could support alternatives II and III. He suggested that the Drafting Committee should improve the wording.
25. Mr. STALEV (Bulgaria) said he thought the matter had been discussed sufficiently and proposed the closure of the debate.
26. Mr. KLINGSPORN (Federal Republic of Germany) opposed the closure of the debate on the grounds that further discussion would no doubt make it possible to find other solutions.
27. Mr. POPESCU (Romania) said he shared the view of the representative of the Federal Republic of Germany.
28. The CHAIRMAN put to the vote the proposal to close the debate.
29. The proposal was adopted.
The meeting was suspended at 4.30 p.m. and resumed at 4.50 p.m.
30. The CHAIRMAN put to the vote alternative I proposed by the ad hoc working group on Interest (A/CONF.97/C.1/L.247).
31. Alternative I was rejected by 22 votes to 17.
32. The CHAIRMAN put to the vote the amendment to alternative II, whereby the last part of the sentence would be deleted and the text would end at the words "party in default".
33. The amendment was rejected by 16 votes to 9.
34. The CHAIRMAN put to the vote the amendment to alternative III proposing the deletion of the last sentence.
35. The amendment was rejected by 15 votes to 8.
36. The CHAIRMAN put to the vote alternative II as reproduced in document A/CONF.97/C.1/L.247.
37. Alternative II was adopted by 20 votes to 14.
38. The CHAIRMAN said that the members of the Committee still had to vote on the amendments submitted orally by the representatives of Spain and Canada. He put to the vote the proposal by the representative of Spain to add the word "normal" before the word "rate" in the second line of the text of alternative II.
39. The amendment was adopted by 9 votes to 6.
40. Mr. OLIVlINCIA RUIZ (Spain) said that he would not press for a vote on the other two amendments proposed by his delegation and suggested that they should be sent to the Drafting Committee.
41. Mr. ZIEGEL (Canada) said that the Canadian amendment was also of a drafting nature and could be sent to the Drafting Committee. In reply to a comment by the Chairman, who had wondered whether the use of the term "thereon" in the second line of alternative II did not remove the object of the Canadian proposal, he said that, if other delegations felt there was no ambiguity in the text regarding the appropriate starting date for the calculation of interest, he would not insist on it.
42. Mr. KRISPIS (Greece) said that the question was one of substance and not merely of form. The Canadian amendment could in fact be interpreted as meaning that the interest rate due from the party in default was constant. On the other hand, if alternative II was maintained as it stood, the interest rate should be understood as fluctuating. His delegation felt strongly that the second position was the correct one.
43. Mr. PLANTARD (France) said that it was obvious that, whether reference was made to the discount rate or, as in alternative II, to the prevailing rate for short-term commercial credit to determine the rate of interest, both of those rates would fluctuate considerably over time. It was essential therefore to fix the date that was to be used as the starting point for calculating the interest rate. As the French delegation had already had occasion to specify during the discussion, the date should be that of the date of effective payment. The Canadian amendment thus raised a problem of substance which the Committee must settle.
44. The CHAIRMAN asked the Canadian representative whether he wished to maintain his amendment in its original form.
45. Mr. ZIEGEL (Canada) said that the draft amendment had been intended only to clarify the text of alternative II and that his delegation had not intended to adopt any particular position with regard to the interest rate that should be applied, which was a separate matter. However, if the intention of the ad hoc working group on Interest had been to adopt the solution of a fluctuating interest rate, that should be stated more explicity in the text since it was a very important point.
46. As a number of delegations seemed to feel that the Canadian amendment raised a matter of substance, he could prefer to withdraw it.
47. The CHAIRMAN said that alternative II proposed by the ad hoc working group, as orally amended by the representative of Spain, had been adopted, and would be sent to the Drafting Committee.
48. Mr. HONNOLD (United States of America), speaking on behalf of the members of the ad hoc working group, said he took it that there was a clear understanding that the First Committee had not given the Drafting Committee a mandate to alter the text of alternative II in so far as the substantive question raised by the Canadian proposal was concerned.
49. The CHAIRMAN invited the Committee to consider the proposal by the ad hoc working group concerning article 69 [became CISG article 84 ] (A/CONF.97/C.1/L.247), that, at the end of paragraph I of the article it should be specified that the rate of interest due was calculated in the same way as in article 73 bis [became CISG article 78 ].
50. Mr. KRISPIS (Greece) said that he could not support the position of the ad hoc working group.
51. The CHAIRMAN put to the vote the amendment to article 69 [became CISG article 84 ] submitted by the ad hoc working group (A/CONF.97/C.1/L.247).
52. The amendment was adopted by 26 votes to 8.
(A/CONF.97/C.1/L.249 and 250)
53. The CHAIRMAN said that the Committee had before it two proposals by the representative of Egypt in connection with articles 62 and 63 [became CISG article 71 and CISG article 72 ] (A/CONF.97/C.1/L.249 and 250). To enable them to be considered, it would be necessary, according to the rules of procedure, for the Committee to decide by a two-thirds majority to reopen the discussion.
54. Mr. SHAFIK (Egypt) said that articles 62 and 63 [became CISG article 71 and CISG article 72 ] were of vital importance to the developing countries.
55. Paragraph 1 of article 62 [became CISG article 71 ], as it stood, authorized a party to suspend the performance of his obligations when he had good grounds to conclude that the other party would not perform a substantial part of his obligations. In the view of the Egyptian delegation, it was extremely dangerous to empower the parties to withdraw from their obligations solely on the basis of such a purely subjective assessment of the situation and without any supervision by the courts.
56. While he agreed that article 63 [became CISG article 72 ] was based on a more reasonable criterion, in that it was necessary for it to be "clear" that one of the parties was about to commit a fundamental breach of contract for the other party to be able to declare the contract avoided, he could not accept that the only penalty provided for in such a case should be avoidance of the contract. It would be greatly preferable to provide an opportunity for the party in default to re-establish himself. Moreover, the extreme solution provided for in article 63 [became CISG article 72 ] was far from being justified in all cases, even in the event of bankruptcy. If a party was obliged to declare a suspension of payment, the court very often appointed a receiver and it was quite possible that the receiver would be in a position to perform the contract. He must therefore be left the opportunity to do so.
57. The Egyptian delegation did not propose that articles 62 and 63 [became CISG article 71 and CISG article 72 ] should be deleted, since they had a raison d'être and could be useful. The proposed amendment was intended to combine the existing articles 62 and 63 [became CISG article 71 and CISG article 72 ], while applying to article 62 [became CISG article 71 ] the criterion set forth in article 63 [became CISG article 72 ], namely that it should be clear that one party was about to commit a fundamental breach of the contract. The proposal, which had been submitted in the form of two separate articles so as not to alter the current order of articles in the Convention, was intended as a compromise between the interests of the developed countries and those of the developing countries.
58. The CHAIRMAN said that there was an error in the French text of the Egyptian amendment to article 62 [became CISG article 71 ]. In the fourth line of the French text of paragraph 1 of the proposed new article 62 [became CISG article 71 ], the words "autre partie" should refer to the party to which the notification was addressed or, in other words, the party who it was clear would commit a fundamental breach of contract.
59. The CHAIRMAN put to the vote the Egyptian proposal to reopen the debate on articles 62 and 63 [became CISG article 71 and CISG article 72 ].
60. There were 27 votes in favour and 6 against. Having obtained the required two-thirds majority, the proposal was adopted.
61. The CHAIRMAN suggested that the consideration of articles 62 and 63 [became CISG article 71 and CISG article 72 ] should be postponed until the next meeting.
62. It was so decided.