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Reproduced with permission of 13 Vindobona Journal of International Commercial Law & Arbitration (1/2009) 229-240

When Recessions Create Windfalls: The Problems of Using
Domestic Law to Fix Interest Rates under Article 78 CISG

John Y. Gotanda [*]

  1. Introduction
  2. Discussion
  3. Conclusion

1. INTRODUCTION

I am deeply honoured to be included in this tribute to Peter Schlechtriem. Over the years, I, like many, benefited greatly not only from his wealth of knowledge and keen insights, but also from his unique ability to think creatively and openly about difficult legal questions. I know that Peter would have very much enjoyed a renewed examination of the awarding of interest under Art. 78, as it is one of the most contentious issues involving the United Nations Convention on the International Sale of Goods (CISG),[1] as well as one of the most complex because it involves the intersection of law, economics and finance.

Article 78 CISG provides an obligation to pay interest every time a payment is in arrears, without regard to fault and proof of loss; however, it does not specify a particular rate at which interest accrues or a method to determine such a rate. As a result, courts, arbitral tribunals, and legal scholars have offered various methods for determining the rate at which interest accrues.[2] [page 229]

To date, many courts and arbitral tribunals have looked to domestic law, primarily local interest rate statutes, to fix the rate at which interest accrues under Art. 78.[3] However, relying on domestic rules to provide the interest rate is problematic, both from economic and legal standpoints. In today's economic environment recessionary pressures have driven interest rates to historic lows. As a result, the domestic law approach significantly over-compensates the claimant and penalises the respondent. This result would violate a fundamental principle that the CISG remedial provisions should not place the claimant in a better position than it would have been in if the breach had not occurred. I believe that these problems can be avoided by properly interpreting Art. 78 CISG to provide for interest to accrue at a rate corresponding to that of a commonly used savings vehicle in the country of the currency in which payment is to be made.

2. DISCUSSION

Article 78 provides: '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.'[4] Article 78 came about because the attempts to agree upon a more detailed provision for the payment of interest failed. The problem arose because there were many conflicting views on the payment of interest. Delegates from some Islamic countries, where interest is prohibited, opposed awards of interest. But delegates from countries with western-influenced legal systems were unwilling to enter into contracts without the protection of interest. Additionally, many of these delegates wanted an interest remedy 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.'[5] Furthermore, delegates disagreed over when interest should be due and what interest rate to apply in those situations. In fact, the different political, economic and religious views of the drafters nearly derailed the Convention.[6] [page 230] Article 78 thus reflects a compromise among delegates simply to allow for interest when a buyer fails to pay the price or when a party fails to pay any other sum that is in arrears, even if applicable domestic law makes no provision for its payment. This approach is in accord with the accepted international legal principle that a claimant is entitled to an award of interest as compensation for the use or detention of money.[7] However, Art. 78 does not set forth detailed rules concerning the payment of interest. Consequently, it has been the subject of much litigation and controversy.[8]

Many courts and tribunals have ruled that the calculation of interest, and in particular, the rate at which interest accrues, is governed by domestic law either because it is a matter outside the scope of the Convention or because applying the interpretative analysis of Art. 7(2) ultimately leads to using domestic law.[9] This approach, however, may not properly compensate the claimant for its loss.

One major problem with the use of domestic law as a gap filler in this context is that local statutes often provide for interest to accrue at rates that do not reflect market conditions. Statutory rates can vary among countries and even within countries.[10] Furthermore, in many countries, they are not regularly amended to reflect current economic conditions. In addition, many do not provide for the payment of compound interest, which is the norm in today's international financial markets.[11]

To illustrate this point, in 1981, New York last amended its interest rate statute to provide for interest, including on damages for breach of contract, to accrue at a rate of [page 231] 9% per annum.[12] At that time, the 6-month Certificate of Deposit Rate was around 16%.[13] However, in 1990, that rate had dropped to 8.2% and, by 2000, it was approximately 6.6%. In January 2009, the Wall Street Journal listed the 6-month Certificate of Deposit Rate in the U.S. at 1.5% and the prime rate at 3.25%.[14]

Even in countries that periodically adjust their statutes providing for interest, the rate of interest may not truly reflect the time value of money. Some, for domestic policy reasons, may set the interest rate well above the market rate. For example, in Germany, interest on debt not involving a consumer accrues at the rate of 8% above the base rate, which is periodically adjusted.[15] As of January 2009, the rate was 9.62%.[16] However, during the same time period, the short term lending rate to prime borrowers was reported at 3.75% and the Euro 9-month CD rate was 2.63%.[17]

English law similarly provides for interest to accrue on the late payment of a commercial debt at the rate of 8% above the Bank of England base rate.[18] As of January 2009, that rate was 10%.[19] The short term lending rate to prime borrowers [page 232] during the same time period was reported to be 5%,[20] the 6-month LIBOR rate was 1.60%,[21] and the one year British Pound CD Rate was 3.29%.[22]

In short, many domestic laws on interest do not reflect current economic realities, resulting in under-compensation or over-compensation of the claimant and, correspondingly, a windfall or a penalty to the respondent. The situation where the statutory rate is below the market rate may not be of major concern, because a claimant could always seek interest as damages under Art. 74 CISG if it could prove the wrongful delay in payment caused further loss than the amount for which Art. 78 CISG would compensate. However, today interest rates are at near historic lows. In this situation, the application of domestic statutes may lead to over-compensation for the claimant. The domestic law approach to filling the gap in Art. 78 lacks a vehicle to correct this problem. And this problem is of significant concern, because overcompensating the claimant is contrary to one of the fundamental goals of the CISG damages provisions -- to place the claimant in the economic position it would have been in had the contract been performed and not to provide a windfall.[23]

The domestic law approach is also problematic from a legal standpoint. Its application is sometimes premised on the view that interest is a matter of procedural law, which is outside the scope of the CISG.[24] There are three major objections to this view.

First, whether a matter is considered substantive or procedural may vary from jurisdiction to jurisdiction and may depend on the circumstances of a particular case.[25] For example, England considers the rate of interest to be governed by procedural law, whereas [page 233] Germany considers it to be a matter of substantive law.[26] Consequently, relying on a substance/procedure distinction in cases where jurisdictions differ over the classification of a matter is counterproductive and can lead to conflicting results.

Second, the substance/procedure distinction is highly artificial. The United States Supreme Court has noted that, '[e]xcept at the extremes, the terms "substance" and "procedure" precisely describe very little except dichotomy, and what they mean in a particular context is largely determined by the purposes for which the dichotomy is drawn'.[27] Indeed, the United States Supreme Court long ago abandoned the distinction for determining the validity of a federal rule of civil procedure where it may conflict with a state law.[28] Similarly, in conflict of laws, the substance/procedure distinction has been criticised and cast aside in favour of more modern rules.[29] As one commentator remarked, 'we should feel encouraged at the fading abstract distinctions between substance and procedure, which have often favoured the prevalence of the lex fori'.[30]

Third, the substance/procedure distinction is also problematic because it is an easy way for a court or tribunal to apply laws or rules with which they are most familiar to resolve difficult issues. Relying on the distinction permits avoiding the Convention's interpretative analysis and ultimately undermining the purpose of the Convention 'to promote uniformity in its application.'[31] As Peter Schlechtriem adeptly pointed out, '[i]f national courts simply qualify [an issue] as a procedural matter to be decided under their own lex fori, thereby circumventing [ ... an analysis under the Convention], there will soon be more enclaves of domestic law, which for a deciding judge may seem to be self-evident and which conform to his or her convictions, formed by historic rules and precedents, but which will not be followed in other jurisdictions and, thereby, will cause an erosion of the uniformity achieved'.[32] [page 234]

To be sure, making the substance/procedure distinction is not the only way to justify applying domestic law. Many have argued that the interpretative analysis as set forth in Art. 7(2) CISG mandates applying domestic law to determine the interest rate under Art. 78 CISG. They argue that (1) the drafting history of Art. 78 shows that the delegates were unable to agree on more specific language and therefore left the issue to be resolved according to the rules of private international law, and (2) no general principles in the Convention fill the gap in Art. 78.[33] Both of these views are incorrect.

In circumstances where there is a gap in the CISG, the Convention calls for a court or tribunal to first determine whether it can decide the issue according to the literal text or the plain and natural reading of the applicable Article. If the relevant Article does not formally impose a result, the court or tribunal must determine whether the issue was one that was deliberately left to national laws. If the issue was not deliberately left to national laws, Art. 7(2) CISG provides that a court or tribunal must then attempt to resolve the issue 'in conformity with the general principles on which [the Convention] is based'.[34] Thus, the court or tribunal should try to resolve an unsettled question by liberally applying specific provisions of the CISG by analogy. Only in the event that this analysis fails to provide an answer, should the court or tribunal turn to domestic law to settle the matter.[35]

The first step of this methodology is to examine the text of Art. 78 CISG. Article 78 is silent on how interest should be calculated. It is true that the reason it is not more specific is because the drafters could not agree on more detailed language.[36] Under such circumstance, it may appear that the CISG deliberately rejects an extension of Art. 78. However, a closer examination indicates that that is not the case.

John Honnold writes that 'Article 78 was designed to establish a general rule that would be free from the vagaries of domestic law.'[37] Leaving the calculation of interest to domestic law would produce non-uniformity that the drafters sought to avoid. Perhaps the evidence is inconclusive on exclusion.[38] [page 235]

Professor Honnold adds that the gaps in Art. 78 CISG can be filled though 'Article 7(2)'s invitation to settle unresolved questions 'in conformity with the general principles' of the Convention."[39] He supports his argument by drawing an analogy to Art. 74 CISG, which he states provides a general measure of damages and may be supplemented by other provisions. Thus, even though the CISG drafters chose a general rule on the payment of interest, they did not intend for issues concerning the calculation of interest to be governed by domestic law.

With respect to determining the rate itself, there are a number of analogous provisions,[40] but two standout: Arts. 74 and 76 CISG. The object of Art. 74 is to provide for the recovery of 'damages [ ... ] equal to the loss suffered as a consequence of the other party's breach'. This object is similar to the function of Art. 78 and the goal of an award of interest generally: to compensate a claimant for the loss resulting from being deprived of the use and disposition of the sum that it was supposed to have received.[41] In other words, both embody a compensation principle. However, Art. 78 achieves it in a different way from Art. 74. Article 78 recognises that interest pursuant to Art. 78 alone may not enable a party receive full compensation for its loss; thus, it explicitly states that a claimant may also pursue a 'claim for damages under Article 74'.[42] In this way, Art. 78 is also analogous to Art. 76 CISG.

Article 76 CISG allows the recovery of damages based on the difference between the contract price and the current price of goods when the claimant has avoided the contract without entering into a resale or cover purchase.[43] Its purpose is similar to Art. 74 CISG in that it enables the claimant to obtain the benefit of the bargain of an avoided contract. Article 76 achieves this goal, however, through an abstract calculation, eliminating the need to show a concrete measure of actual loss and allows [page 236] for recovering any further damages under Art. 74.[44] In this regard, it is similar to Art. 78. Both provide for a form of 'rough justice,'[45] but allow for parties to seek full compensation through Art. 74 CISG.

In addition, both Arts. 74 and 76 CISG are compensatory in nature and are not meant to provide the claimant with a windfall. They thus seek to prevent placing the claimant in a better position than it would have been in had the contract been performed.[46] This goal underlies the CISG damages provisions and could be said to be a general principle.[47]

It also bears mentioning that, in setting an interest rate, one could also look to the 'reasonableness' standard which underlies the Convention as a whole. As Joachim Bonell points out, there are over two dozen provisions in the CISG that provide for reasonableness, and that '[t]hese references demonstrate that under the Convention the "reasonableness" test constitutes a general criterion for evaluating the parties' behaviour to which one may resort in the absence of any specific regulation'.[48]

The CISG therefore does contain analogous provisions that set forth general principles that can be used to determine the interest rate under Art. 78. As Arts. 74 and 76 CISG indicate, the rate should compensate a party for the loss of the use of money but not provide a windfall. And it would be consistent with the Convention as a whole for the rate of interest to be reasonable.

To best achieve the goals of the CISG, courts should adopt a uniform approach for awarding interest at a reasonable rate that both compensates the claimant for its loss of the use of money and prevents a windfall. Based on these principles, I believe that interest should accrue at a savings rate commonly used in the country of the currency in which payment is to be made.[49] This approach would place the claimant in the same [page 237] position as if it had invested the money. It would also align the function of Art. 78 with that of Art. 76. Like Art. 76, Art. 78 would provide an alternate means for compensating a party for the loss of the use of money. In other words, a party could always seek, if it chose to do so, interest as damages under Art. 74. But it may prefer to seek interest under Art. 78 to avoid proving its loss under Art. 74. And similar to the calculation of damages under Art. 76, Art. 78 would provide 'rough justice' -- a reasonable rate of interest without proof of loss.

I recognise that, under this approach, the interest award may not fully compensate a party for the loss of the use of money but, correspondingly, it also will not provide a windfall. It would reasonably compensate the claimant for the opportunity lost by not being able to earn a return on the sum in default. In addition, it prevents the defaulting respondent from being unjustly enriched. Moreover, it provides a uniform, easily applied rule to create certainty in international contracts.

I should note that the UNIDROIT Principles, the Principles of European Contract Law, and some commentators advocate the use of a lending rate instead.[50] I am not strongly averse to such approach. I am less enthusiastic about using a lending rate because where the delay in payment has caused greater loss than provided for in Art. 78, claimants may seek interest as damages under Art. 74 CISG Thus, where the respondent's default causes the claimant to borrow money to continue operations, the claimant should be able to recover the interest paid as damages under Art. 74.[51] Article 78 is more akin to a default rule on interest. It presupposes that as a result of the respondent's non-payment, the claimant was deprived of the opportunity to make an investment, using some savings instrument, instead of incurring borrowing costs to cover the shortfall since this loss can always be recovered as damages. Accordingly, a savings as opposed to a lending rate seems more appropriate in this context.[52] [page 238]

There is one other point that I wish to address. Some commentators have made the argument: because it appears that the majority of courts and tribunals have determined the interest rate issue according to domestic law, that approach is correct and should be followed going forward.[53] I disagree. The fact that many tribunals have followed the domestic law approach does not mean that it is correct from a legal and economic standpoint. Nor is it set in stone. In the not too distant past, it was believed to be well settled in international law that simple interest was the norm and compound interest was prohibited.[54] Today, however, international tribunals are increasingly awarding compound interest, recognising that the traditional practice was out of step with modern finance and often did not adequately compensate the claimant for the loss of the use of money.[55] After surveying international investment tribunal awards, commentators note that 'there has been a reversal of the presumption of simple interest' and that 'compound interest has become to be treated as the default solution'.[56] Like the traditional simple interest rule, the domestic law approach is out step with economic realities. It may not always adequately compensate a party for the loss of the use of money, and, in a number of cases today, it may provide a windfall to the claimant.

3. CONCLUSION

In the not too distant past, application of domestic interest rate statutes often under compensated claimants for the loss of the use of monies owed. Today, recessionary pressures have created windfalls. This phenomenon has exposed a major problem with the domestic law method of fixing the rate of interest under the CISG, and has, in my [page 239] view, illustrated the need for a solution that does not rely on local law. My proposal would permit the rate of interest to accrue at a rate corresponding to that of a commonly used savings vehicle in the country of the currency in which payment is to be made. Not only is it based on a proper interpretation of Art. 78 CISG, it avoids the pitfalls of under-compensation and over-compensation caused by the application of fixed interest rate statutes in fluctuating markets. [page 240]


FOOTNOTES

* Professor of Law, Associate Dean for Faculty Research and Director of the JD/MBA Program, Villanova University School of Law.

1. Refer e.g., Mazzotta, F., "CISG Article 78: Endless Disagreement among Commentators, Much Less among the Courts" (2004), available at: <http://www.cisg.law.pace.edu/cisg/biblio/mazzotta78.html>; Refer also Chicago Prime Packers v. Northam Food Trading Co., 320 F. Supp. 2d 702, 715 (N.D. Ill. 2004), aff'd, 408 F.3d 894 (7th Cir. 2005) (noting 'the interest issue, while relatively mundane sounding,' 'has been the subject of great controversy' and has arisen in approximately '30 percent of total CISG cases worldwide').

2. Refer Bacher, K., "Interest: Article 78" in P. Schlechtriem & I. Schwenzer, (eds.), Commentary on the UN Convention on the International Sale of Goods, 2005, Oxford University Press, 2 (English) ed., at pp. 799-803 (discussing approaches and citing cases and commentary). For a general discussion of the awarding of interest in the international context, Refer Giardina, A., "Issues of Applicable Law and Uniform Law on Interest: Basic Distinctions in National and International Practice" in F. De Ly & L. Levy (eds.), Interest, Auxiliary and Alternative Remedies in International Arbitration, 2008, Dossier V of the ICC Institute of World Business Law, at pp. 131-160.

3. Refer P. Huber & A. Mullis, The CISG, 2007, Sellier European Law Publishers, at p. 358. Interestingly, one commentator, after surveying the cases, concluded that 'the vast majority of courts clearly prefers [the domestic law] approach.' Mazzotta, F., supra fn 1. However, another who conducted a similar study concluded that there indeed are numerous German and Swiss decisions following the domestic law approach, but that there are 'arbitral awards and courts decisions from more than one jurisdiction not applying this approach' and that 'calling one approach "unanimous" is at least incorrect, if not wilfully misleading.' Liu, C, "Recovery of Interest" (2003) Nordic J. Com. L. 1.

4. Article 78 CISG.

5. Zoccolillo, Jr., A., "Determination of the Interest Rate Under the 1980 United Nations Convention on Contracts for the International sale of Goods: General Principles v. National Law" (1997) 1 Vindobona Journal 3.

6. Refer Ferrari, F., "Uniform Application and Interest Rates under the 1980 Vienna Sales Convention, Cornell Review on the Convention on Contracts for the International Sale of Goods" (1995) Cornell Review on the Convention on Contracts for the Intl Sale of Goods 3, Koneru, P., "The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles" (1997) 6 Minn. J. Global Trade 105.

7. Refer generally Gotanda, J., "Awarding Interest in International Arbitration" (1996) 90 American Journal of International Law 50. In fact, even some countries whose religious beliefs generally prohibit the payment of interest have allowed it in certain commercial transactions. Refer ibid, at pp. 47-50.

8. Refer Corterier, A., "A New Approach to Solving the Interest Rate Problem of Art 78 CISG" (2000) 5 International Trade & Business Law Annotated 33; Thiele, C, "Interest on Damages and Rate of Interest under Article 78 of the U.N. Convention on Contracts for the International Sale of Goods" (1998) 2 Vindobona Journal 3; Sutton, J., "Measuring Damages Under the United Nations Convention on the International Sale of Goods" (1989) 50 Ohio State Law Journal 737; Refer also Bacher, K., supra fn 2, at pp. 799-803 (citing numerous cases and commentary).

9. Refer, e.g., ICC International Court of Arbitration, Award No. 7153 (1992), available at: <http://cisgw3.law.pace.edu/cases/927153il.html>=; Oberlandesgericht [OLG] [Provincial Court of Appeal] Koblenz 2 U 31/96, 31, Jan. 1997 (Ger.), available at: <http://cisgw3.law.pace.edu/cases/970131gl.html>; CLOUT case No. 132 available at: <http://cisgw3.law.pace.edu/cases/950208g3.html>; CLOUT case No. 97, available at: <http://cisgw3.law.pace.edu/cases/930909s1.html>; Refer also Judgment 5 0 543/88, Landgericht Hamburg, 26 Sept. 1990 (Ger.), abstract in (1995) 14 J.L. & Com. 228; Arbitration Award 7565/94, ICC 1994 (available in Unilex).

10. For a comparative study of interest, Refer Gotanda, J., "Damages in Private International Law" (2007) 326 Recueil des cours 187.

11. Gotanda, J., "Compound Interest in International Disputes," 2004 Oxford University Comparative Law Forum 1. Whether a tribunal awards compound interest could be significant, from a monetary standpoint, in cases where there exists a lengthy period of time between the origin of the dispute and the final award. Refer Gotanda, J. & Senechal, T., "Interest as Damages," (forthcoming 2009) Columbia Journal of Transnational Law.

12. New York CPLR 5001(a).

13. Refer Certificate of Deposit Historical Data, available at: <http://www.economagic.com/emcgi/data.exe/fedstl/cd6m+2>. By contrast, the U.S. prime rate was around 20%. Refer Board of Governors of the Federal Reserve System Bank Prime Loan Rate, available at: <http://research.stlouisfed.org/fred2/data/MPRIME.txt>.

14. Refer Wall Street Journal market data center, 12 January 2009, available at: <http://online.wsj.com/mdc/public/page/2_3020-moneyrate.html>.

15. Refer BGB 288(2). This provision implements Directive 2000/35/EC of the European Parliament and of the Council, June 29, 2000 on combating late payment in commercial transactions, available at: <http://europa.eu.int/smartapi/cgi/sga_doc?smartapi!celexapi!prod!CELEXnumdoc&lg=en&numdoc=32000L0035&model=guichett>. For a discussion of this directive Refer Gotanda, J., "A Study of Interest" in F. De Ly & L. Levy (eds.), Interest, Auxiliary and Alternative Remedies in International Arbitration, 2008, Dossier V of the ICC Institute of World Business Law, at p. 169; Viscasillas, P., "Late Payment Directive 2000/35 and the CISG" (2007) 19 Pace International Law Review 125. For transactions involving a consumer, the interest rate is 5% above the base rate. Refer BGB 288(1). The base rate is set twice a year. Historical interest rates in Germany, available at: <http://basiszinssatz.info/>.

16. Deutsche Bunderbank, Base Rate Pursuant to Section 247 of the German Civil Code, 1 January 2009 (1.62%).

17. Foreign Prime Rates, Germany, 14 January 2009, available at: <http://moneyrates.com/keyrates.htm>; Euro 9-month CD rate, 14 January 2009, available at: <http://www.moneyrates.com/intsavings.htm>. Publications differ on foreign prime rates. For example, Barron's listed the German prime rate at 2.5% for the same period, available at: <http://online.barrons.com/public/page/9_0210-moneyrates.html>.

18. Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002, Statutory Instrument 2002 No. 1675 (Eng.), available at: <http://www.legislation.hmso.gov.uk/si/si2002/20021675.htm>.

19. United Kingdom interest rate, 14 January 2009, available at: <http://www.payontime.co.uk/legislation/legislation_main.html>. Even if one takes into account that the lending rate of interest varies according to the creditworthiness of the borrower and the objectives of financing, the IMF's International Financial Statistics indicates that banks in Germany will often lend money to businesses, on a short term basis, at a rate of between 1 to 2 percentage points above the prime rate. Refer International Financial Statistics (Germany), International Monetary Fund, January 2009.

20. Refer Foreign Prime Rates, Britain, 14 January 2009, available at: <http://moneyrates.com/keyrates.htm>. Interestingly, Barrons listed the prime rate over the same time period in Britain to be 1.5%, which would be lower than the 6-month LIBOR rate. Rates available at: <http://online.barrons.com/public/page/9_0210-moneyrates.html>. Perhaps this low rate may be attributed to the reporting banks lending at the 1.5% but for a very short term, as the 3-month LIBOR was 1.26% and the 1-month LIBOR was .37%. Ibid.

21. Barron's, Money Rates, LIBOR-6 Months, 12 January 2009, available at: <http://online.barrons.com/public/page/9_0210-moneyrates.html>.

22. British Pound 1-year CD Rate, 14 January 2009, available at: <http://www.moneyrates.com/intsavings.htm>.

23. Refer CISG-AC Opinion No. 6, "Calculation of Damages under CISG Article 74"; CISG-AC Opinion No. 8, "Calculation of Damages under CISG Article 75 and 76". Refer also Mazzotta, F., supra fn 1. ('[W]hile interest must be paid, excessive interest (windfall) must not.'). Indeed, in one case, the Commercial Court of Hasselt refused to apply the interest rate determined by Directive 2000/35/EC noting: 'the interest rate, determined by the Directive, does not only have the intention to reimburse the creditor for the loss of funds, but is also intended as a sanction for late payment and an incentive to pay in a timely manner. The latter [is] contradictory to the international context in which the CISG must be considered. In these matters, article 78 of the CISG is applicable.' Belgium 10 May 2006 Commercial Court Hasselt (Scanlift Nederland BV v. Belgium Coach Service BVBA), available at: <http://cisgw3.law.pace.edu/cases/060510b1.html>.

24. Refer generally Gotanda, J., "Awarding Damages under the United Nations Convention on the International Sale of Goods: A Matter of Interpretation" (2005) 37 Georgetown Journal of International Law 95; Ferrari, F., supra fn 6.

25. Refer Orlandi, C.G., "Procedural Law Issues and Law Conventions" (2000) 5 Uniform Law Review 23; refer also Sun Oil Co. v. Wortman, (1998) 486 U.S. 717; Hanna v. Plumer, (1965) 380 U.S. 460.

26. Refer Hunter, M. & Triebel, V., "Awarding Interest in International Arbitration: Some Observations Based on a Comparative Study of the Laws of England and Germany" (1989) 6 Journal of International Arbitration 7.

27. Sun Oil Co., supra fn 25.

28. Hanna, supra fn 25.

29. Refer, e.g., (1998) Restatement (Second) Conflicts of Laws, 1988, 142 (discarding substance/procedure distinction for statutes of limitations in favour of uniform choice of law analysis based on interests and contacts); Refer also Carruthers, J., "Substance and Procedure in Conflict of laws: A Continuing Debate in Relation to Damages" (2004) 53 International & Comparative Law Quarterly 691 (pointing out problems with substance/procedure distinction in tort and delict and advocating a new perspective).

30. Orlandi, C.G., supra fn 25, at p. 40.

31. Refer Zeller, B., Damages Under the Convention on Contracts for the International Sale of Goods, 2005, Oceana Publications Inc., New York, at pp. 158-59 (noting 'procedural law may aptly be described as the last bastion of forum shopping' and noting that in cases 'the application of domestic procedural law disported the process of what could have been a uniform application of substantive law' (citation omitted)).

32. Schlechtriem, P., "Introduction," in Schlechtriem, P. & Schwenzer, I. (eds.), supra fn 2, at p. 7.

33. Refer, e.g., Mazzotta, F., supra fn 1; Zeller, B., supra fn 31, at pp. 133-42; Behr, V., "The Sales Convention in Europe: From Problems in Drafting to Problems in Practice" (1998) 17 Journal of Law & Commerce 263.

34. Article 7(2) CISG.

35. Gotanda, J., supra fn 24.

36. Refer Mazzotta, F., supra fn 1 (detailing the history of Article 78).

37. Honnold, J., Uniform Law for International Sales Under the 1980 United Nations Convention, 1999, Kluwer, 3rd ed., at p. 466.

38. Indeed, some proponents of the domestic law approach concede that the drafters intended for interest to be paid even when its payment is not provided for by local law. In such case, they would discard the application of domestic law and instead would allow 'a court [to] resort to general principles of reasonableness' and set the rate according to 'what is reasonable in international transactions'. Mazzotta, F., supra fn 1.

39. Ibid.

40. Refer Zoccolillo Jr., A., supra fn 5 (identifying as analogous provisions to Art. 78, Arts. 55, 74, 75, 76, and 84 CISG).

41. Refer Gotanda, J., supra fn 15. Some have argued that 'interest is a 'punishment' for withholding payment.' Magnus, U., "The damages rules in the acquis communautaire, in the Acquis Principles and the DCFR" in Schulze, R. (ed), Common Frame of Reference and Existing EC Contract Law, 2008, Sellier European Law Publishers, at p. 223. To be sure, there may exist some statutes where interest rate is set to be a penalty for the delaying payment. However, it is well established today that the primary function of interest is to compensate successful claimants for the loss of the use of money. Refer Gotanda, J., supra fn 10; Decision of the UNCC Governing Council, "Awards of Interest," 4 January 1993, S/AC.26/1992/16/, para. 1; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, at 9.2.8, available at: <http://www.investmentclaims.com/decisions/Vivendi_II_Award.pdf>; Case No. A19 (Iran v. USA), Decision of 30 September 1987, 16 Iran-US CTR 285. In fact, if interest were indeed a penalty, it would be unclear in many jurisdictions whether it could be awarded by arbitral tribunals and its award could jeopardise enforcement in other jurisdictions. Refer generally Redfern, A., Hunter, M., Blackaby, N. and Partasides, C, Law and Practice of International Commercial Arbitration, 2004, Sweet & Maxwell, London; Platto, C. and Horton, W.G., Enforcement of Foreign Judgments Worldwide, 1993, Kluwer Academic Publishers.

42. Article 78 CISG.

43. Refer Art. 76 CISG.

44. Refer Kantonsgericht Zug (Switzerland) 21 October 1999, CISG-Online No. 491; Refer also Stoll, H. and Gruber, G., "Damages: Article 76" in Schlechtriem, P. and Schwenzer, I., supra fn 2.

45. Saidov, D., The Law of Damages in International Sales, 2008, Hart Publishing, Oxford, at p. 191 (explaining that Article 76 provides for rough justice rather than perfect compensation).

46. Refer Schlechtriem, P., "Calculation of damages in the event of anticipatory breach under the CISG," I, III, available at: <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem20.html> (stating 'the 'abstract calculation of damages under the market price rule may initially produce odd results if current prices for the goods are decisive' and that 'windfall profits could be controlled and avoided to a certain extent under the duty to mitigate damages contained in Art. 77 CISG').

47. Refer CISG-AC Opinion No. 6, "Calculation of Damages under CISG Article 74"; CISG-AC Opinion No. 8, "Calculation of Damages under CISG Article 75 and 76".

48. Bianca, C. and Bonell, M., Commentary on the International Sales Law, The 1980 Vienna Sales Convention, 1987, Giuffre Milan, at pp. 80-81.

49. The saving vehicle could be a certificate of deposit, a money market account or commercial saving account. This would essentially mimic in a rough way what a company would have earned if it placed the monies owed in a cash account. Certificate of deposit rates are often readily available and can be found in many financial publications, such as the Wall Street Journal. Certificates of deposit, however, typically restrict one's access to the funds deposited during the relevant time period. Thus, in practice, they may be less attractive to businesses than money market accounts, which offer slightly less interest, but easier access to deposited funds. However, money market rates tend to vary more than certificate of deposit rates and their publication are not as readily available. In the end, it Referms reasonable to use either.

50. Refer Art. 7.4.9 UNIDROIT Principles; Art. 9:508 PECL; Corterier, A., "Interest in Uniform Application -- How to Solve the UN Sales Law's Interest Rate Problem under Article 78 CISG and Article 84 CISG" (2002-03) Review on the Convention on Contracts on the International Sale Goods 1; Bacher, K., supra fn 2.

51. Refer Art. 78 CISG. Refer also Sylvania Technical Systems v. Iran, Award of 27 June 1985, 8 Iran-U.S. C.T.R. 298, 321 (concluding that 'awards on the prime rate would not often be realistic' because (1) 'borrowing rates vary depending on the credit rating of each particular party, not all of whom are able to borrow at the prime rate, and some of whose credit standings may change during the relevant time period'; and (2) 'not all parties who suffer from delayed payment actually borrow').

52. Refer Ripinsky, S. and Williams, K., Damages in International Investment Law, 2008, British Institute of International Comparative Law, at p. 373; cf. Siemens A.G. v. Argentine Republic, ICSID Case No. ARB/02/8, 6 February 2007, available at: <http://www.worldbank.org/icsid/cases/awards.htm> ('The Tribunal considers that the rate of interest to be taken into account is not the rate associated with corporate borrowing but the interest rate the amount of compensation would have earned had it been paid after the [internationally wrongful act]'.).

53. Refer Mazzotta, F., supra fn 1.

54. 3 M. Whiteman, Damages in International Law, 1953, United States Government Printing Office, at p. 1997 (stating 'there are few rules within the scope of the subject of damages in international law that are better settled than the one that compound interest is not allowable'); Droit International Public V, 1983, Paris, at 242 (stating that arbitral tribunals generally do not award compound interest unless its payment has been agreed to by the parties).

55. Compania del Desarrollo de Santa Elena v. Costa Rica, ICSID Case No. ARB/96/1, 17 February 2000, available at: <http://icsid.worldbank.org/ICSID/FrontServlet>; Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7 (Argentina/Spain BIT), available at: <http://icsid.worldbank.org/ICSID/FrontServlet>; Wena Hotels v. Egypt, (2002) 41 I.L.M. 933, 945; Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, 14 July 2006, available at: <http://icsid.worldbank.org/ICSID/FrontServlet>; Siemens A.G. v. Argentine Republic, ICSID Case No. ARB/02/8, 6 Feb. 2007, available at: <http://icsid.worldbank.org/ICSID/FrontServlet>; ADC Affilliate Limited v. Hungary, ICSID Case No. ARB/03/16, 2 October 2006, available at: <http://icsid.worldbank.org/ICSID/FrontServlet>; Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, at 9.2.8, available at: <http://www.investmentclaims.com/decisions/Vivendi_II_Award.pdf>; LG&E Energy Corp. et al. v. The Argentine Republic, ICSID Case No. ARB/02/1, available at: <http://www.investmentclaims.com/decisions/LG&E-ArgentinaDamages_Award.pdf>; Refer also Ripinsky, S. and Williams, K., supra fn 52, at pp. 379-87 (noting that tribunals in Middle East Cement v. Egypt, Enron v. Argentine, British Gas v. Argentina, Sempra Energy v. Argentina, MTD v. Chile, PSEG v. Turkey, among others, awarded compound interest and because of 'strong theoretical support for granting compound interest').

56. Ripinsky, S. and Williams, K., supra fn 52, at p. 387.


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