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Reproduced with permission from 6 Minnesota Journal of Global Trade (1997) 105-152

excerpt from

The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles

Phanesh Koneru [*]

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[A General Review of Interest Issues Under the CISG Citing the Interest Ruling in this Case and Other CISG Cases]

A. Rate of Interest Payments

Some of the thorny issues that confront judges are those that have been specifically debated at the Convention but could not be agreed upon. A specific example is the issue of interest payments. The Convention expressly provides in Article 78 that interest is due on payments in arrears. As the legislative history nevertheless shows, the delegates could not agree on the rate of interest or the time for accrual of the interest payment.[83] Should a court deciding these issues consider the matter as having been deliberately rejected at the Convention and resort to the appropriate domestic law? The answer should be no because the issue of interest payment is not excluded from the Convention (matter governed by the Convention), but rather the mechanics of accomplishing it is not expressly settled. Accordingly, Article 7(2) requires resort to general principles in resolving the issue.[84]

Interest payment is considered to be part of the damages in some countries, whereas it is completely excluded in other countries.[85] The Convention expressly provides in Article 78 that the creditor is to be paid interest on any payments in arrears.[86] The Convention, however, is silent on the rate of interest that should be calculated. Consequently, as indicated by the growing case law, Article 78 has become the focus of substantial controversy under the Convention.[87] The controversy has its origins in the legislative history of the CISG itself.[88]

Some commentators argue that, because the interest rate is not fixed by the Convention, it is outside the scope of the Convention and thus it should be determined by the appropriate domestic law.[89] This interpretation results from a misunderstanding of the overall scheme of the Convention, as well as the express provisions of Article 7(2) and the general principles on which the Convention is based . The Convention provides in Article 7(2) that matters governed by the Convention but which are not expressly settled in it should be settled in conformity with the general principles on which it is based. It is beyond dispute that payment of interest is a matter governed by the Convention: the principle is codified in Article 78. But the matter of how the rate should be determined is not expressly settled in the Convention. The determination of interest rate seems to be an ideal example for the application of Article 7(2) methodology.

The general principle that is abundantly clear in relation to the payment of price and a failure to comply is to compensate the aggrieved party fully in order to restore the benefit of the bargain.[90] In addition, the aggrieved party can recover additional expenses incurred such as transportation costs, among others, because the aggrieved party's "loss" includes not only the lost profits and other damages but also any interest it could have earned had the defaulting party paid promptly.[91] While in some countries interest is not considered part of damages,[92] the Convention obviates any such discussion by expressly providing for it in Article 78, emphasized by the phrase "without prejudice to any claim for damages recoverable under Article 74."[93] Thus, it is irrelevant whether interest is considered part of damages because the general principle of full compensation compels that interest should be paid on all amounts due.[94]

If the mandate of Article 7(2) is followed, it also becomes apparent that the various formulations of calculating the interest rate may be unnecessary. By focusing on the full-compensation objective of the Convention, the inquiry should be which interest rate will fully compensate the aggrieved party. It has been argued that the aggrieved party should be awarded interest payments at the rate based on the aggrieved party's credit costs.[95] Such a solution is "best suited to international trade where it is not the practice for the business person to leave their money idle."[96]

This solution, however, has been criticized as reintroducing through interpretation an approach that was suggested by Western nations and rejected at the diplomatic conference.[97]The concern is that through this approach "[o]ther countries would then be inclined to interpret into the Convention their own rejected proposals."[98] Further analysis reveals that such criticism is invalid. The issue is not whose law or view prevails ultimately, but rather which interpretation promotes international trade by bringing uniformity and certainty to the legal rules. The express purpose for the delegates at the Convention was not to debate who had the better law, but rather how best to accommodate national and international interests, without undermining domestic sovereignty and legal order. In the process, many nations made "sacrifices" so that a workable solution could be found.[99] If an interpretation promises to bring certainty to international trade, such interpretation should be encouraged and followed, even if such interpretation was not adopted at the Convention. This approach is not only appropriate but particularly essential in the case of CISG, where there is no editorial body to amend the Convention periodically to discard principles that no longer serve the goals of the Convention. Thus, it is entirely inappropriate to look only to national laws to determine the applicable interest rate.

It has been argued that the sole purpose of requiring interest payments is to prevent the debtor from taking advantage of the funds withheld [OLG Frankfurt 13 June 1991 (Germany)].[100] The Convention addresses the issue of unjust enrichment separately under Article 84. Article 84(1) requires the seller to pay interest when the seller has to refund the purchase price or any down payment.[101] An analysis of the interplay between the general principle of preventing unjust enrichment and the earlier-stated general principle of full compensation suggests that the principle of preventing unjust enrichment has a limited role in the Convention. For example, imagine two scenarios. In both cases the interest rates at buyer's place and seller's place are ten percent and five percent, respectively. In the first scenario, the buyer breaches and does not pay. What should the seller get by way of interest rate? Should he be compensated for his actual loss, which is five percent at his place of business, in which case he is fully compensated, or should he get buyer's unjust enrichment of ten percent rate. If he gets the ten percent 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, the seller defaults and does not return the price or down payment. If the aim is to prevent unjust enrichment, seller needs to pay only five percent interest (which is the prevailing rate at seller's place of business). If the objective is full compensation of the aggrieved party, the seller needs to pay a ten percent 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 to the breaching party (seller, by not refunding the buyer's money) and no unjust enrichment to either party.

To continue the analysis, assume the converse position that preventing unjust enrichment, rather than full compensation, is the goal to be pursued. Assume the same two scenarios as to interest rates that are described above. When the seller breaches and withholds the buyer's payment, the seller is required to pay five percent 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 the buyer pay a ten percent interest rate. While there is no penalty to the buyer, this leads to a curious result of conferring unjust enrichment on the seller because he is compensated at a ten percent interest rate while his loss is only at five percent. Thus the goal of preventing unjust enrichment eliminates the penalty to the breaching party, but leaves the aggrieved party either under- or overcompensated.

A judge faced with these two scenarios is in a difficult position. Accordingly, further analysis of the underlying general principles should be undertaken. The broader and primary goal of the Convention is to compensate the aggrieved party fully. Once this goal is accomplished, if there is still unjust enrichment on the part of the breacher, such unjust enrichment should be disgorged depending on the facts. Assume that the seller withheld the refund money to the buyer due to some circumstances beyond his control (but not a force majeure situation), as in the case of a governmental exchange control. In contrast, if the seller was simply "riding" the high interest rate in his country, the seller stands to gain even if he fully compensates the buyer at the lower interest rate in buyer's country. By applying the broader general principle of good faith and reasonable behavior, the seller in the second instance should be made to disgorge all the interest gain because, even though such behavior may be economically efficient to both parties, the seller may not be acting in good faith. This analysis not only satisfies the operative general principles of full compensation and unjust enrichment, but also promotes good faith and reasonable behavior between the parties in international trade, thereby fulfilling the mandates of Article 7. Thus, the formulation based on the breaching party's gain by withholding payment should be rejected. Consequently, the prevailing interest rate in the breaching party's country should be irrelevant. Similarly, the interest rate of a third country where the payment was supposed to have taken place should also be irrelevant, unless the plaintiff can demonstrate that such interest rate somehow would have been material to him.[102]

A review of the recent international case law indicates that many tribunals have missed the mark and have contributed to inconsistent results. A German tribunal rejected outright the approach based on general principles and argued that even when CISG was still only in the preparatory stages the delegates could not agree on a uniform solution [LG Aachen 20 July 1995].[103] Some courts display the intent to follow Article 7 but do not pay sufficient attention to the general principles. They simply state that the Convention has no general principles that are applicable to the interest rate problem [ICC Arbitration No. 7565 of 1994].[104] By following domestic law, the interest rates being paid lacked uniformity. For example, in Delchi Carrier S.p.A. v. Rotorex Corp, [105] the United States district court stated that because Article 78 of CISG does not specify the interest rate, the rate should be fixed in its "discretion" and granted the rate of the United States Treasury Bill. One court determined that the interest rate is the average bank lending rate at the creditor's place of business [LG Aachen 3 April 1990 (Germany)].[106] Another variation was that the rate awarded was an international trade rate known as LIBOR (London International Bank Offered Rate) that is commonly used with Eurodollars, the currency in which payment was to be made [ICC Arbitration No. 6653 of 1993 ].[107] While this approach may have the virtue of creating uniformity in its application, it may fail to fulfill the Convention's general principle of full compensation.[108]

These cases also illustrate another issue in interest rate calculations, namely, the role of a statutory rate and the burden of proof. Because the payment of interest is stated as a positive obligation on the part of the debtor, it may be a fair presumption that the creditor is owed at least the statutory interest rate or the commercial lending rate, whichever is lower. If the creditor incurred higher costs, he has the burden of proving the actual loss. When a contract between a German seller and an Egyptian buyer was avoided, the seller was required to return the buyer's money [OLG Celle 24 May 1995 (Germany)].[109] Private international law rules led to the application of German law and the interest rate awarded was the German statutory rate of four percent.[110] The plaintiff, however, asked for 13%, even though the facts were unclear whether thirteen percent was the prevailing rate in Egypt, statutory or otherwise, or whether the rate reflected the buyer's otherwise provable loss.[111] Assuming that the Egyptian creditor could not meet his burden of proving his actual losses, the court's denial of the thirteen percent rate is correct. But even in that case, granting the German statutory rate is incorrect because it does not focus on the creditor's loss.

In case there is no actual loss, the creditor could still prove his future probable losses by showing his habitual investment practices. A German court ordered the seller to pay a thirteen percent interest rate when the statutory rate was only five percent, because the statutory rate did not reflect the rate that a business would get on its loans [LG Hamburg 26 September 1990].[112] Even awarding actual loss, if it is higher than what the plaintiff could have received under its regular course of business, it is subject to the plaintiff's duty under Article 77 to mitigate.[113] This sensible approach was reflected in the opinion when the court denied the plaintiff's claim for sixteeen and a half percent interest rate, which was higher than he should have paid [AG Wangen 8 March 1995 (Germany)].[114] In another case the court awarded twelve percent interest when the statutory rate was five percent [ICC Arbitration No. 7197 of 1992].[115] These rules, while supported by the general principles of full compensation and fair dealing, also represent a fair allocation of the burden of proof and a fair distribution of risk for the debtor for his delay in payment. In addition, these rules take into account the realities of the market place.

Many courts seem to have determined the interest rates by simply following domestic rules, or in some cases, without indicating any clear rationale. For example, a German court of appeal in Munich awarded the statutory interest rate of Sweden (the creditor's place of business), which was higher than the discount rate of the Swedish Central Bank [OLG München 2 March 1994].[116] Similarly, a Swiss court awarded a Swiss buyer the Italian statutory interest rate when the buyer avoided the contract for the Italian seller's failure to perform [Foliopack AG v. Daniplast S.A. 24 November 1989].[117] The court should have focused on the buyer's loss, which was in Switzerland, and ordered payment of interest at the Swiss rate. The facts did not indicate that the seller was acting in bad faith, thus requiring disgorgement of the higher interest he earned in Italy.[118]

In yet another case, an arbitrator granted an interest rate based on the currency in which the contract price was to be paid [ICC Arbitration No. 7585 of 199 2].[119] The Italian seller demanded the high inflationary Italian rate of interest when the contract price was to be paid in German marks. The arbitrator denied the demand, stating that when the contract price is to be paid in strong currency, it would be "illogical" to base the interest rate according to the seller's place of business which has a high interest rate.[120] This is a sensible decision. The seller was expecting payment in German marks and, absent evidence to show that he would have converted the payment into Italian lira immediately upon receipt (in which case he would have lost the high interest rate but would have also suffered high inflation), it would have been simply unfair to pay at the Italian rate.

While many courts have misunderstood or have misapplied the Article 7 mandates, a few courts have recognized the general principle of full compensation and applied it properly.[121] In Arbitral Award SCH-4318 [15 June 1994 (Austria)], the arbitrator stated that merchants resort to bank credit when payment from the other party is delayed. Thus the party (the buyer in this case) should be compensated for the interest rate in his place of business with respect to the currency of payment, which was agreed upon as U.S. dollars. The arbitrator also noted that the UNIDROIT Principles of International Commercial Contracts suggest the same solution.[122] This reasoning was also followed in another arbitral award from Austria [[Arbitral Award SCH-4366 of 15 June 1994].[123]

Disagreement also exists as to whether interest payments are mandatory, even in force majeure situations. It has been suggested that because interest payment is a general obligation, if the seller is able to claim payment after the force majeure situation has been overcome (as in the case of a temporary ban in the buyer's country on payment in foreign currency), he can claim interest on it.[124] The counter-argument is that because interest is part of damages, the payment of interest should be exempted in force majeure situations.[125] Because the Convention makes the payment of interest a separate obligation, the argument based on the premise that interest is part of damages should be rejected. On the other hand, because interest payment is a general obligation, the argument that interest can be claimed even under force majeure situations should also be rejected. This argument misinter prets the relationship between Articles 78 and 79. Article 79(1) exempts a party from any of his obligations, including the obligation under Article 78, in cases of force majeure. Thus, after the temporary ban ends, the buyer is only liable to pay interest from the date the banends, i.e., from the date the obligation to pay resumes.

Another argument is that Article 78 is not enforceable if any clause containing interest payments is invalid under domestic law.[126] This argument is not convincing because it does not recognize the special status of the text of the Convention. The language of the Convention reflects the binding compromise the national delegates made on behalf of those nations that have ratified the Convention. Thus, if an issue is specifically addressed by the text of the Convention, it overrules domestic law.[127] The issue of interest payment was specifically addressed, debated, and resolved in the Convention. The text of the Convention stands for the proposition that the domestic law is overruled on that issue, unless the objecting nation made a reservation to derogate from the Convention. Therefore, it becomes unnecessary to consult domestic law on the validity of the issue. In the same vein, it is incorrect for an American party to argue that an oral contract is not valid if the goods exceed $500 in value, as provided by the UCC. When the United States ratified the Convention, it agreed to subordinate its domestic law to the Convention on that provision. Thus, arguments based on the validity exception of Article 4(a) misunderstand the provision, nullify the express provisions of the Convention, and apply domestic law inappropriately.[128]

B. Point of Accrual

Another issue that is producing divergent results in the courts is the time from which to award interest. The general principle of full compensation requires that the plaintiff be paid interest from the date that payment should have been made. Many courts seem to have followed this approach.[129] However, by ignoring the general principle and relying instead on domestic law, some tribunals produce variations on the time for accrual. When a buyer sued for a refund of the purchase price, one court held that the interest should accrue from the date of avoidance of the contract, not from the date the buyer paid the purchase price to the seller [Foliopack AG v. Daniplast S.p.A. 24 November 1989 (Switzerland)].[130] In another case the court measured the interest rate from the date of giving notice to the defendant of a possible claim [ICC Arbitration No. 7331 of 1994].[131] Yet another court ruled that interest should be awarded from the time when the aggrieved seller would "normally have resold" the goods after the buyer's breach [ICC Arbitration No. 7565 of 1994].[132] Still another variation was that interest should accrue from a date that is determined by "a usage widely known and regularly observed in international trade"[Elastar Sacifia v. Bettcher Industries Inc. 20 May 1991 (Argentina)].[133] The abstract did not define usage, and did not specify what time frame was used in that particular case. By referring to international trade usage, the court seemingly pointed to a general principle of the Convention, rather than to a domestic law.[134]

The method discussed thus far for measuring the time for accrual of interest assumes that the seller has made a conforming delivery. If there is no conforming delivery, obviously the seller cannot be entitled to accrual of interest from the date of delivery. This fairness was recognized when one court awarded interest from the date the seller cured the defects in the goods [Marques Roque Joachim v. La Sarl Holding Manin Riviere 26 April 1995 (France)].[135] This is an appropriate decision because it properly balanced the principle of fairness to the seller against the principle of fairness to the buyer.

C. The Currency for Payment

The Convention is silent on the currency in which the price is to be paid. This problem does not usually arise, because if the price is agreed upon by the parties, they will have negotiated the price with reference to a certain currency. The problem does arise, however, when the price term is left open and the court fills the gap using Article 55. The delegates at the Diplomatic Conference deliberated on the issue of currency and voted against a proposal to fix a specific currency for payment.[136] The general rule based on trade usage seems to be that the currency will be that of the place of payment (the seller's place of business, under Article 57(1)(a)) [KG Berlin 24 January 1994 (Germany); see also OLG Koblenz 17 September 1993 (Germany)].[137]

If the seller's place of business changes (either because the seller moved or because he assigned the contract to another from a different country) and the currency of the seller's new place is a hard currency, should the buyer pay in that hard currency? The answer should be no, because a change of seller's place of business is not a risk that the buyer contemplated (unless there was an agreement to the contrary) upon entering the contract. In fact, the Convention explicitly states that a rise in costs associated with the seller's change of place of business should not be borne by the buyer.[138] This result also flows from recognition of the general principle that the distribution of risk is fixed "at the conclusion of the contract."[139]

D. Place of Payment

The Convention provides that the buyer is required to pay at the seller's place of business unless a specific place of payment is agreed upon.[140] If payment is due against handing over the goods or the documents, the payment is due at the place where such handing over takes place.[141] If the buyer defaults, the discussion above on fixing of interest rate [142] indicates that the seller can sue for interest at the rate prevailing in the seller's place of business. But if the place of exchange is a third country and the buyer defaults, to what interest rate should the seller be entitled?

An Austrian seller and a Croatian buyer agreed that the payment was to be made against handing over the goods in Prague, in the Czech Republic [ICC Arbitration No. 7153 of 1992],[143] and no choice of law was agreed upon in the contract. When the buyer failed to pay, the seller sued for the price and the interest payment at the rate prevailing in Prague, because interest rates were higher in Prague than in Austria. The court ruled that, under the rules of private international law, Prague was the place of performance and thus its interest rate controlled.

Under the general principle of full compensation, the seller should have been awarded the credit costs suffered as a result of the buyer's default. The seller's costs in the usual case are the costs in the seller's own country, unless the seller typically borrows money in Prague for business needs or deposits money in Prague to earn interest. Thus, unless the seller could have demonstrated that the interest rate in Prague was material to its business, the Prague interest rate should not have been allowed. If the payment were to be made in Czech currency, the interest rate arguably should be tied to that currency.[144] The facts were not clear as to currency in this case.[145]

Applying the Czech interest rate was also incorrect because, by expressly providing in Article 57(1)(b) for choosing a third country as the place of performance, the Convention requires that it be the controlling law. When the parties chose Prague as the place of performance, it was not derogating from the Convention under Article 6, but following the Convention. Neither Czech law nor the law of the parties should control, but rather the Convention should control. Under the general principles of the Convention, the seller's full compensation should have been the guiding principle. Thus, unless the seller could demonstrate that the Czech interest rate would have been applicable to its business, the seller should not have been allowed to claim that rate.

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Go to entire text of Koneru commentary


FOOTNOTES

* J.D., University of San Diego School of Law, 1996; Ph.D., University of Southern California, 1992. The author is grateful to Professor William H. Lawrence, University of San Diego School of Law, for his helpful discussions and encouragement during preparation of this manuscript. However, any errors, omissions, or misstatements should be attributed to the author alone. This work is dedicated to Professor Friedhelm Thiedig and his family (Norderstedt, Germany), Helma and Maximillian R. Meyer (Hamburg, Germany), and Michel Van der Ginst and his family (Dorp-Zevergem, Belgium).

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83. The delegates "wished to free judges from having to look to national law for [solving interpretational questions and gaps], an avenue that would lead to disunity." Working Group 1, supra note 44, ¶ 59, reprinted in Honnold, Documentary History, supra note 3, at 20.

84. The importance of the general principles in the success of the Convention cannot be overstated. One needs to recognize that the text of the Convention is incapable of adapting to various fact patterns that may emerge in the future and may threaten the success of the Convention. The concept of general principles is a flexible concept that can address the future needs of the Convention.

85. Even though the Convention clearly provides for interest in an Article separate from the description of general damages, some courts still consider the interest to be part of the damages. See, e.g., Arbitral Award 7531 (Aus. V. P.R.C.), ICC Ct. Arb. (1994), 6 ICC Int'l Ct. Arb. Bull. 67 (1995), available in UNILEX, supra note 3 (explaining that interest is an element of damages under Article 74). In some Moslem countries it is forbidden to charge interest. See Deliberations of the First Committee of the Convention on Contracts for International Sale of Goods, 34th mtg., ¶ 10, U.N. Doc. A/CONF.97/C.1/SR.34 (1980) [hereinafter U.N. Meeting 34], reprinted in Honnold, Documentary History, supra note 3, at 647; Franco Ferrari, Uniform Application and Interest Rates Under The 1980 Vienna Sales Convention, 24 Ga. J. Int'l & Comp. L. 467, 478 n.63 (1995).

86. "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, supra note 1, art. 78.

87. Approximately more than 70% of the cases compiled by UNILEX discuss the issue of interest rate. UNILEX, supra note 3. "More than any other provision in the Convention, article 78 was affected by the diverse tr aditions of its drafters. Interest is treated differently in countries with different economic systems -- the distinction is greatest between capitalist and socialist countries -- and is barred by religious rules existing in some countries." Jeffrey S. Sutton, Measuring Damages Under the United Nations Convention on the International Sale of Goods, 50 Ohio St. L.J. 737, 749 (1989) (citation omitted).

88. The origins of Article 78 can be traced at least to Article 83 of ULIS, which provided that the seller shall be allowed an interest rate equal to the official discount rate in his place of business plus 1 per cent. Report of the Working Group on the International Sale of Goods, 5th Sess. ¶ 166, U.N. Doc. A/CN.9/87 (1984), reprinted in Honnold, Documentary History, supra note 3, at 190; Convention Relating to a Uniform Law on the International Sale of Goods, July 1, 1964, with Annex, Uniform Law on the International Sale of Goods, 1972, 834 U.N.T.S. 109 (entered into force Aug. 18, 1972), reprinted in 13 Am. J. Comp. L. 453 (1964). This provision was then amended to state that the seller is entitled to a rate of interest that is no lower than the rate charged for unsecured short-term commercial loans in seller's place of business. Report of the Working Group on the International Sale of Goods, 6th Sess., ¶ 115, U.N. Doc. A/CN.9/100 (1975), reprinted in Honnold, Documentary History, supra note 3, at 253. The objective was to prevent buyers from holding off on payments if the statutory interest rate is lower than what the seller actually pays. Id.

Additional proposals included first, tying the interest rate to that prevailing at the buyer's place of business, and second, outright deletion of the provision, on the grounds that some countries disallow any charging of interest. Report of Committee of the Whole I Relating to the Draft Convention on the International Sale of Goods, ¶¶ 492-500, U.N. Doc. A/32/17, Annex I (1977), reprinted in Honnold, Documentary History, supra note 3, at 353. But later, a Swedish representative pointed out that interest on arrears was acceptable even in countries that prohibited charging interest outright. Deliberations of the First Committee of the Convention on Contracts for International Sale of Goods, 29th mtg., ¶ 5, U.N. Doc. A/CONF.97/C.1/SR.29 (1980) [hereinafter U.N. Meeting 29], reprinted in Honnold, Documentary History, supra note 3, at 610. Some delegations also preferred that a clear statement be adopted in the Convention rather than leaving the issue to the national laws. Id. ¶¶ 1-43, reprinted in Honnold, Documentary History, supra note 3, at 609-13. The U.S. delegation commented that since the purpose of the provision was to compensate the plaintiff and he would more likely have lost the use of his money in his own place of business, the interest rate should be the rate prevailing in his place of business. Id. ¶ 30, reprinted in Honnold, Documentary History, supra note 3, at 612. The Indian delegation suggested that the rate should be the higher of the rates at the buyer's and seller's place of business, and that it be due from the date payment should have been made and tied to the currency in which the payment is due. Id. ¶ 18, reprinted in Honnold, Documentary History, supra note 3, at 611. The East German delegation argued that the interest rate should be that prevailing in the international markets. U.N. Meeting 34, supra note 85, ¶ 6, reprinted in Honnold, Documentary History, supra note 3, at 637. At some point the Article even was split into two parts. Draft Articles of the Convention Submitted to the Plenary Conference by the First Committee of the Draft Convention on Contracts for the International Sale of Goods, pt. III, ch. V, sec. II, art. 73 bis, U.N. Doc. A/CONF.97/11/Add. 1 and 2 (1980), reprinted in Honnold, Documentary History, supra note 3, at 722. But later, at the 11th plenary meeting, the Article was adopted in its present form. Report of the First Committee to the Plenary Conference, 11th plen. mtg., ¶ 4, U.N. Doc. A/CONF.97/SR.11 (1980), reprinted in Honnold, Documentary History, supra note 3, at 761.

89. See generally Ferrari, supra note 85, at 475-76 (citing many authorities that argue that the rate of interest is to be determined by applicable domestic law); see also Eva Diederichsen, Commentary to Journal of Law & Commerce Case I: Oberlandesgericht, Frankfurt am Main, 14 J.L. & Com. 177, 180-81 (1995) (arguing that the common German practice of relying on domestic law to determine the interest rate is "the only possibility in practice").

90. "The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies." CISG, supra note 1, art. 61(2). Also, even if interest is not defined as part of damages, Article 78 specifically provides for interest "without prejudice to any claim for damages recoverable under article 74." Id. art. 78.

91. Some commentators criticize this view for the reason that it leads to blurring the line between damages and interests, which Article 78 was intended to draw. Ferrari, supra note 85, at 476 n.55. But the issue of whether the interest is part of the damages or separate from the damages is irrelevant, because the Convention expressly provides that the interest should be awarded regardless of how it is classified. CISG, supra note 1, art. 78.

92. See U.N. Meeting 34, supra note 85, ¶ 9, reprinted in Honnold, Documentary History, supra note 3, at 637 (remarks of Mr. Klingsporn, Delegate from Federal Republic of Germany).

93. CISG, supra note 1, art. 78.

94. In one European case construing the CISG, "the arbitrator found that full compensation is one of the general principles underlying CISG." Arbitral Award, Case SCH-4366, (Aus. v. F.R.G.), Internationales Schiedsgericht der Bundeskammer der Gewerblichen Wirtschaft (June 15, 1994) (abstract), Recht der Internationalen Wirtschaft (RIW) 590-91 (1995), available in UNILEX, supra note 3.

95. U.N. Meeting 29, supra note 88, ¶ 30, reprinted in Honnold, Documentary History, supra note 3, at 612 (remarks of Mr. Farnsworth, Delegate from the United States).

96. Joseph M. Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review, 63 Fordham L. Rev. 281, 312 (1994) (quoting Principles of International commercial Contracts (International Institute for the Unification of Private Law (UNIDROIT) (1994), art. 7.4.10 cmt). The comment to Article 7.4.10 of the UNIDROIT Principles supports the general principle of full compensation and interest payment measured to fulfill the objective of that general principle. Id.

97. Ferrari, supra note 85, at 478 n.64.

98. Id. (quoting Fritz Enderlein & Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods: Convention on the limitation Period in the International Sale of Goods 313 (1992)).

99. For example, the United States sacrificed the principle of the statute of frauds (U.C.C. 2-201) by ratifying the Convention without a statute of frauds. See CISG, supra note 1, art. 11. Similarly, the Islamic nations that prohibit charging any interest seem to have yielded to the Convention by agreeing to be bound by Article 78 that expressly awards interest payment. See id., art 78.

100. Case 5 U 261/90 (Fr. v. F.R.G.), Oberlandesgericht Frankfurt am Main, (June 13, 1991), Recht der Internationalen Wirtschaft (RIW) 591 (1991), available in UNILEX, supra note 3, translated in 14 J.L. &. Com. 229 (1995).

101. "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." CISG, supra note 1, art. 84(1). Article 84(1)'s insistence that the interest payment should be made from the date on which the price was paid, rather than from the time of notice to the seller or some other later time, clearly shows that the seller should not be unjustly enriched. While Article 84(1) focuses on the seller, Article 84(2) focuses on the disgorgement of the buyer's unjust enrichment. Id. art. 84(2).

102. In other words, the plaintiff may demonstrate that it was his business practice to deposit the funds he receives from sale in a country with a higher interest rate, whichever country that might happen to be.

103. Case 41 O 111/95 (Italy v. F.R.G.) Landgericht Aachen (July 20, 1995) (abstract) (unpublished), available in UNILEX, supra note 3.

The Court rejected the opinion according to which the interest rate, in order to achieve a uniform international regulation, shall be determined in accordance with the general principles on which CISG is based: as a matter of fact even when CISG was still only in the preparatory stage it had not been possible to reach a uniform solution to this problem.

Id.

104. Courts often remark that "the general principles do not settle the matter." E.g., Arbitral Award 7565 (Neth. v. U.S.), ICC Ct. Arb. (1994), 6 ICC Ct. Arb. Bull. 64, available in UNILEX, supra note 3.

105. Delchi Carrier S.p.A. v. Rotorex Corp., No. 88-CV-1078, 1994 U.S. Dist. LEXIS 12820, at *16 (N.D.N.Y Sept. 7, 1994) (mem. and order).

106. Case 41 O 198/89, (Italy v. F.R.G.) Landgericht Aachen (Apr. 3, 1990) Recht der Internationalen Wirtschaft (RIW) 491 (1990), available in UNILEX, supra note 3.

107. Arbitral Award, 6653, supra note 68.

108. It should be remembered however, that had the currency of payment not been Eurodollars, this approach might not be desirable. Such an approach of tying the interest rate to an international index may be inapplicable to the plaintiff's actual loss. This solution was rejected by the delegates. Honnold, Documentary History, supra note 3, at 759 (remarks of Mr. Dabin, Belgium).

109. Case 20 U 76/94 (Egypt v. F.R.G.) Oberlandesgericht Celle, (May 24, 1995) (abstract) (unpublished), available in UNILEX, supra note 3.

110. Id.

111. "Der Kläger hat beantragt, die Beklagte zu verurteilen, an ihn 70.000 DM nebst 13% Zinsen seit dem 13.02. 1993 zu zahlen." Id. (textual meaning as translated by the author).

112. Case 5 O 543/88 (Italy v. F.R.G.), Landgericht Hamburg (Sept. 26, 1990), reprinted in Praxis des Internationales Privat- und Verfahrensrechts (IPRax) 400 (1991), available in UNILEX, supra note 3.

113. The Convention states:

A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.

CISG, supra note 1, art. 77.

114. Case 2 C 600/94 (Italy v. F.R.G.), Amtsgericht Wangen (Mar. 8, 1995) (abstract) (unpublished), available in UNILEX, supra note 3.

115. Arbitral Award, 7197 (Aus. v. Bulg.), ICC Ct. Arb. (1993), reprinted in J. du Droit Int'l, 1028-37 (1993), available in UNILEX, supra note 3.

116. Case 7 U 4419/93 (Swed. v. F.R.G.), Oberlandesgericht München (Mar. 2, 1994), reprinted in Recht der Internationalen Wirtschaft (RIW) 595-97 (1994), available in UNILEX, supra note 3. The dispute was between a Swedish seller and a German buyer for the sale of coal. As discussed supra, the determination of interest rate as per the seller's "loss" in Sweden is appropriate. But the award of the statutory rate, which is higher than the bank discount rate, is questionable. It is simply not reasonable for the seller to have borrowed at the higher statutory rate when the bank offers a lower rate. In this case, the awarding of higher interest rate shows a failure on the court's part to recognize the general principle of the Convention and has violated the Article 7 mandates of good faith in interpretation. Id.

117. Case 77/89 (Foliopack AG v. Daniplast S.p.A.), Pretura di Parma-Fidenza (Nov. 24, 1989) (unpublished), available in UNILEX, supra note 3.

118. See supra notes 100-102 and accompanying text (discussing payment of interest as a means of preventing unjust enrichment).

119. Arbitral Award, 7585 (Italy v. Fin.), ICC Ct. Arb. (1992), 6 ICC Int'l Ct. Arb. Bull. 60 (Nov. 1995), available in UNILEX, supra note 3.

120. Id.

121. See generally Arbitral Award SCH-4318 (F.R.G. v Aus.), Internationales Schiedsgericht der Bundeskammer der Gewerblichen Wirtschaft, Wien (June 15, 1994), reprinted in Recht der Internationalen Wirtschaft (RIW) 591-92 (1994), available in UNILEX, supra note 3.

122. Id.

123. Arbitral Award SCH-4366 (Aus. v. F.R.G.), Internationales Schiedsgericht der Bundeskammer der Gewerblichen Wirtschaft, Wien (June 15, 1994), reprinted in Recht der Internationalen Wirtschaft (RIW) 590-91 (1994), available in UNILEX, supra note 3.

124. Ferrari, supra note 85, at 475 n.46 (quoting Barry Nicholas, Article 78: Interest, in Commentary on the International Sales Law: The 1980 Vienna Sales Convention 568, 571 (C.M. Bianca & Michael J. Bonell eds., 1987).

125. Id. (citing F.J.A. van der Velden, Het Weense Koopvedrag 1980 en zijn Rechtsmiddelen 405 (1988)).

126. Id. at 478 n.63.

127. It is recognized, however, that the Convention has provided, at least in case of Article 28 on specific performance, that it is only available if the domestic law provides the remedy.

128. See infra notes 179-202 and accompanying text (discussing validity issues).

129. See the following cases for the rule that interest accrues from the date payment was due. Available in UNILEX, supra note 3 (translations are by the author):

Case 3 C 75/94 (Italy v. F.R.G.), Amtsgericht Nordhorn (June 14, 1994) (unpublished) ("Der Zinsanspruch ist gemäß Artikel 78 CISG gerechtfertigt. Nach dieser Vorschrift sind Zinsen ab Fälligkeit zu zahlen." (interest is due from the date of failure to pay)); Case 156 (Fr. v. Spain), Cour d'Appel de Grenoble Chambre Commerciale (Mar. 29, 1995) (unpublished) ("[T]he duty to pay interest for the delay in payment is not conditional on a formal request by the seller."). Compare Arbitral Award 7331/1994, supra note 12 (such notice being a prerequisite to claim interest from the date of notice). Case 920159 (Italy v. Neth.), Gruppo IMAR S.p.A. v. Protech Horst, Arrondissementsrechtsbank Roermond, (May 6, 1993) (abstract) (unpublished) (interest accrues from the date when payment was due); Arbitral Award 6653, supra note 68 ("In accordance with Arts. 78 and 84 CISG the buyer was awarded interest on the price to be refunded, accruing from the date of payment"); Case 1 C 216/92 (Italy v. F.R.G.), Amtsgericht Zweibrücken (Oct. 14, 1992) (unpublished) (no formal notice required for the interest to accrue); Case 15/91 (Fr. v. Switz.), Pretura di Locarno-Campagna (Dec. 16, 1991), published in Revue suisse de droit international et de droit europ, en (RSDIE) 663 (1993) (no formal notice required for accrual of interest from the date payment due); Case 20 U 76/94, supra note 109 ("Der Zinsanspruch des Klägers ergibt sich aus Art. 84 Abs. 1 CISG, wonach der Verkäufer, wenn er den Kaufpreis zurückzuzahlen hat, außerdem von Tag der Zahlung an auf den Betrag Zinzen zahlen muß." (The interest is due from the date of payment)).

130. Case 77/89, supra note 117.

131. See Arbitral Award 7331, supra note 12. If no notice is given, then the accrual point is from the time of arbitration. "It is also generally acknowledged that interest does not begin to accrue until proper notice of the claim has been given." Id.

132. Arbitral Award 7565, supra note 104. "Interest shall be computed from January 1, 1992, on the assumption that the cargo would normally have been resold to Claimant's customers by the end of December 1991." Id. The Claimant asked for the accrual date starting August 14, 1991, presumably the date the buyer defaulted. Id. This is a poor application of Article 7, which mandates uniformity in interpretation. How could one know when the cargo "would normally have been resold" in international trade? Why is it necessary to resort to such an empirical rule when the general principles of the Convention clearly establish that the seller be fully compensated for all losses and it is the practical experience of any business person that she would incur interest payments for money she had to borrow from the date of borrowing?

133. Case 7 (Arg. v. U.S.), Elastar Sacifia v. Bettcher Industries Inc., Jugzado Nacional de Primer a Instancia en lo Comercial (May 20, 1991) (abstract) (unpublished) (citing CISG, art. 9(2)), available in UNILEX, supra note 3.

134. Id. However, the court did indeed resort to a domestic law without searching for any general principles when it stated that Ohio law should be used as per the Argentinian rules of private international law. Id.

135. Case RG 93/4879, Marques Roque Joachim v. La Sarl Holding Manin Riviere, Cour d'Appel de Grenoble Chambre Commerciale (Apr. 26, 1995) (unpublished), available in UNILEX, supra note 3.

136. The proposal was introduced by the Spanish delegation and provided that the seller could require the buyer to pay the price in the buyer's currency, even if the buyer's domestic exchange controls prevented him from paying in another currency. Honnold, Documentary History, supra note 3, at 583. "The problems connected with the currency of payment were related to those concerning the validity of the contract, which, under article 4(a) of the draft Convention, were excluded from its sphere of application." Id. at 584 (Remarks of Mr. Krispis, Greece).

137. Case 2 U 7418/92 (Italy v. F.R.G.), Kammergericht Berlin (Jan. 24, 1994) Recht der Internationalen Wirtschaft (RIW) 683 (1994), available in UNILEX, supra note 3; see also Case 2 U 1230/91 (Fr. v. F.R.G.), Oberlandesgericht Koblenz, (Sept. 17, 1993) Recht der Internationalen Wirtschaft (RIW) 934-38 (1993), available in UNILEX, supra note 3.

138. "The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract." CISG, supra note 1, art. 57(2).

139. See supra note 62 and accompanying text (discussing the general principle of the Convention that the distribution of risk should be determined at the conclusion of the contract).

140. CISG, supra note 1, art. 57(1)(a).

141. Id. art. 57(1)(b).

142. See supra notes 85-128 and accompanying text (discussing interest rates).

143. Case 7153 (Aus. v. Yugo.), ICC Ct. Arb. (1992), translated by Vivian Curran 14 J.L. & Com. 217 (1995).

144. See supra notes 119-20 and accompanying text (discussing interest rates).

145. Even if the interest rate is tied to a particular currency, the interest rate still would not be the rate in Prague, because the interest rate should be based on the currency in the seller's place of business.

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Pace Law School Institute of International Commercial Law - Last updated June 15, 1999
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