Reproduced with the permission of the author. For pdf law journal text, go to the Nordic Journal of Commercial Law of the University of Turku, Finland, Issue 2003 # 1 <http://www.njcl.utu.fi>

1. INTRODUCTION

It is noted that the modern institution of interest is deeply rooted in Roman Law,[3] where it was a sum "due from a debtor who delayed or defaulted in repayment of a loan. The measure of the [amount] due for the default or delay was ... the difference between the [claimant's] current position and what it would have been had the loan been timely and fully repaid."[4] In other words, the measure of interest due for the delay or default was id quod interest.[5]

In the modern world, interest generally acts as compensation for the loss of use of money.[6] Interest is a sum paid or payable as compensation for the temporary withholding of money.[7] The rationale for this practice was articulated by the United States Supreme Court in 1896:[8]

The following discussion will focus on the topic of interest in the application of CISG. There is good reason for this approach. First, from an economic point of view, interest is far from minor. The importance of this loss must not be understated.[9] Second, a review of CISG decisions of the last decades clearly demonstrates that there are very few topics which have been of more than occasional practical importance, and among these, interest is one of the most important. Interest under CISG, is the issue most often treated by both courts and commentators.[10]

2. OVERVIEW OF CISG APPROACH ON INTEREST

Regulations on interest under CISG are at the same time very clear and very unsatisfactory.[11]

The provisions on interest were the subject of great controversy and differences of opinion at the 1980 Vienna Diplomatic Conference, where the text of the present CISG was developed. On the one hand, there were those who wanted to delete these provisions altogether, whereas, on the other hand, others favored detailed provisions regulating the legal consequences in cases where the buyer fails to fulfill his major obligation, i.e., to pay the price.[12] The interest question provoked extraordinary difficulties at the Conference. The proposals at the Conference reflected differing beliefs and divergent theoretical approaches to the duty to pay interest as well as to the conflicting practical needs.[13]

Consequently, at the Conference, it was difficult to agree on a solution that would satisfy the majority. The present version of Article 78 is the result of a compromise reached at the Plenary session and reads as: "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." Conflicting contradictory economical, political and religious views in the discussion of Article 78 CISG led to this provision.[14] It is said in this respect that:[15]

CISG Art. 78 clearly provides that if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it. As ruled by a Switzerland court [10 February 1999 Handelsgericht [Commercial Court] Zürich]: "Under Art. 78 CISG, interest is due on any sum in arrears based on a sales contract governed by the Convention."[16] But the text fails to stipulate how to determine what rate of interest to apply. In other words, Article 78 CISG grants the general right to interest but is silent on the question of the applicable rate. The purpose of this provision, therefore, as a result of its general language and the prior rejections of specific formulas for calculating damages, may be limited -- simply to authorizing interest damages and to leaving to the courts the task of formulating a method of determining the rate of interest.[17]

It is to be noted that, on the other hand, the text of the CISG contains two specific references to interest. Art. 78 deals with the right to interest on "the price or any other sum that is in arrears", with the exception of the instance where the seller has to refund the purchase price after the contract has been avoided, in which case Article 84 of the Convention applies. While Art. 78 refers to interest that can be collected by the seller or the buyer and to interest on the price or any other sum that is in arrears, Art. 84(1) refers solely to interest that can be collected by the buyer on the price (a liquidated amount).

In other words, Article 78 must be read in conjunction with Article 84(1) of the Convention, which contains a provision corresponding to Article 78 for the case of the seller's obligation to refund the purchase price after avoidance of the contract. The question of interest is important in view of Art. 84(1) which provides that "if the seller is bound to return the price, he must also pay the interest on it from the date on which the price was paid." This is the accepted practice, that has been applied in Muslim countries as well, and therefore it is indeed difficult to understand why the efforts to regulate this question met with such opposition.[18]

Nevertheless, the meaning of the general rule as stipulated either in Article 78 or in Article 84(1) of the CISG is at the same time unclear, except for a starting point of interest accrual is briefly indicated in the latter; their languages give few hints as to how interest is to be computed and under what circumstances it is appropriate. In other words, the interest issue in the CISG itself is very brief, and perhaps vague, because during the legislative history of the Convention, there was controversy over this issue.[19] Indeed, as to be demonstrated in the following discussion, the interest issue under the CISG has been deemed so vague that in fact it is seen as a gap in the Convention, whose filling is again causing controversy.

In any event, however, interest is a remedy under the CISG.[20] In this regard, Kritzer notes that several provisions provide a support for a creditors right to interest and he makes the following statement:[21]

• Under Article 74, a provision of the section entitled Damages. This article has to do with damages in general. It provides for recovery of the loss suffered as a consequence of a breach of contract.
• Under Article 78, the provision of the section entitled Interest. This article has to do with the situation in which a party fails to pay a 'sum that is in arrears'. In this situation,'the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under Article 74.'
• Under Article 84(1), a provision of the section on Effects of avoidance. This article has to do with a situation in which 'the seller is bound to return the price'. In this situation, 'he must also pay interest on it, from the date on which the price was paid.' "

These regulations make it clear that interest is to be paid. Moreover, as to be demonstrated below, the entitlement to interest is generally established in both domestic and international law, not only under the CISG.

3. IN CONTRAST WITH DAMAGES

3.1 Generally Granted under the Heading of Damages

Considering the commercial fact that the failure to receive funds is always a loss, for the very frequent case of delay in payment of money, most countries, either by statute or judicial decision, provide for the awarding of compensatory interest when a debtor has defaulted on a money payment. A few countries have laws that prohibit the payment of interest, primarily because it is inconsistent with their religious beliefs. Even in some of these countries, however, exceptions allow interest in certain commercial transactions.[22]

A statutory duty to pay interest exists also under several international instruments. As mentioned in Kritzer's remarks above, under the Convention, besides the general right to interest clearly granted under Arts. 78, 84(1), support for a creditor's right to interest is also encountered under Art. 74. As can be derived from the text of CISG Article 74, it is clear that Art. 74 grants damages for any breach of contract, including delay of payment. In this respect, Behr states that "from Article 74, it is clear that breach of contract damages cover the loss suffered by the party as a foreseen or foreseeable consequence of the breach, including lost profits. Thus, in general, there is no problem in awarding interest under the heading of damages."[23] Another commentator also states pertinently:

These arguments are confirmed in the case law. For instance, in [31 August 1989 Landgericht [District Court] Stuttgart] it is ruled pertinently:

In order to confirm that the claim for interest was part of the general claim for damages, an ICC Arbitral Tribunal also held in [October 1998 International Court of Arbitration, Case 9333] as follows:[26]

Indeed, as indicated by another ICC Arbitral Tribunal [1994 International Court of Arbitration, Case 7331], "[i]t is [ac]knowledged in international law that claimants prevailing on the merits are entitled to receive interest on the principal amount awarded."[27] For instance, it is said that PECL Art. 9:508(1) confers a general right to interest on primary contractual obligations to pay interest.[28] Particularly, there is no cogent reason for objecting to awarding interest in international law because of the absence of a settled rule as to the rate of interest or the date from which it begins to run. And it is usually the special reasons that are adduced by arbitrators in those cases in which interest is disallowed -- for instance, if the claimants are guilty of delay in the prosecution of their claim, or if the award of interest is expressly excluded by the arbitration convention.[29] However, the widely accepted rule is the one according to which the harm resulting from delay in the payment of a sum of money is subject to a special regime.[30]

3.2 Recoverable Independently without Proof of Actual Loss

As stated above, under the Convention, Arts. 78, 84(1) make it clear that interest is to be paid. It is also clear that interest can be recovered with or without demonstration of actual damages.[31] In other words, the entitlement to interest also does not depend on the creditor being able to prove to have suffered any loss. Therefore, interest can be claimed pursuant to Article 78 independently from the damage caused by the payment in arrears.[32] In this respect, it is observed in pertinent part by Behr as follows:[33]

Indeed, under the Convention, it takes the position of those countries in which interest is not necessarily a component of damages when Art. 78 states that interest is recoverable "without prejudice to any claim for damages recoverable under Article 74".[34] It is said in this respect:

As is upheld in an ICC case [1992 International Court of Arbitration, Case 7585] where it is stated:

It is even stated in another case [17 September 1993 Oberlandesgericht [Appellate Court] Koblenz]: "The claim of interest is legally based on Art. 78 CISG. If a party to a contract fails to pay a price when due, the other party has a right to interest on this according to that regulation, without regard to a claim of damages under Art. 74 CISG."[37] Thus, under the CISG, "neither the exemptions of Article 79 nor other requirements necessary to invoke the right to damages apply to Article 78"[38] Similar approaches are adopted under the two sets of Principles. In this context, the Official Comment on PECL Art. 9:508 even states: "Interest is not a species of ordinary damages. Therefore the general rules on damages do not apply. Interest is owed whether or not non-payment is excused under Article 8:108. Also, the aggrieved party is entitled to it without regard to any question whether it has taken reasonable steps to mitigate its loss."[39]

3.3 Entitled Absolutely Even in case of Impediments

It is recalled that at the Vienna Conference, the goal of the delegations that believed that a special interest provision was necessary was precisely to prevent interest from being considered as damages and thereby to maintain the obligation to pay interest in case of exemptions under Article 79.[40] In this regard, Enderlein & Maskow observe that the entitlement to interest under the CISG is characterized above all by two features: its normativity and its absoluteness; and the absoluteness, another characteristic clarifying the independence of interest from damages, is make clear by them as follows:[41]

Similar to the view of Enderlein & Maskow mentioned above, Flambouras holds with this regard:[42]

In Schlechtriem's view, it is even believed that:

With great reservation about this argument bearing in mind the practical problem of claiming interest by way of damages which seems to be limited to the proof, the present author does not disagree with Schlechtriem in his view that the entitlement to interest is not freed where the debtor can claim an exemption under Article 79 for his default.

In any event, CISG Art. 78 conceives the obligation to pay interest as a general rule, so that a debtor still remains liable for interest payments even if his default is due to an impediment beyond his control and he is, therefore, not liable for damages under Article 79. Indeed, Art. 7.4.9(1) of the UNIDROIT Principles expressly provides that "the aggrieved party is entitled to interest [...] whether or not the non-payment is excused". Moreover, on the other hand, the force majeure provision (Art. 7.1.7(4)) of the UNIDROIT Principles clearly sets out: "Nothing in this article prevents a party from exercising a right to [...] request interest on money due." However, it is to be noted that if the delay is the consequence of force majeure, interest will still be due not as damages but as compensation for the enrichment of the debtor as a result of the non-payment as the debtor continues to receive interest on the sum which it is prevented from paying.[44]

Thus, it may be concluded that the separation of interest from damages will allow a party to recover interest when there is no other evidence of damage suffered or when impediments under have excused the other party from being liable for damages.[45] Nevertheless, on the other hand, each of the three international instruments indicates that damage which exceeds interest can be claimed, hence interest can be counted towards the damages even when the two claims have different features.[46] The following discussion will focus on the recoverability of such additional damages.

3.4 Without Prejudice to Generally Recoverable Damages

As can be derived from concerned texts, the entitlement to interest on sums in arrears is without prejudice to any claim by the creditor for damages generally recoverable. For instance, Article 78 of the Convention clearly provides that the creditor is entitled to interest "without prejudice to any claim for damages recoverable under article 74".

Consequently, while the provisions of Art. 78 do not mean much to many, on the other hand, others consider them to be useful since they enable the creditor to claim not only interest but also compensation under Art. 74, which is not possible in some countries.[47] Furthermore, as the entitlement to interest and the claim for damages both exist, the claim for damages can compensate for the lack of an interest rate in the CISG, as proves the ruling in a case before the Landgericht Aachen (Judgment of Apri1 3, 1990 - 41 O 189/89, in: RIW, 1990/6, p. 491 fol).[48]

It is also noted that:

Thus, damage claims under CISG remain unaffected even if they exceed the relevant interest rate.[50] This approach is followed under the UNIDROIT Principles, where Art. 7.4.9(3) reads: "The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm." Similarly, PECL Art. 9:508(2) provides that: "The aggrieved party may in addition recover damages for any further loss so far as these are recoverable under this Section." These provisions make it clear that the aggrieved party's remedy for non-payment or delay in payment is not limited to interest. It extends to additional and other loss recoverable within the limits laid down by the general provisions on damages. This might include, for example, loss of profit on a transaction which the aggrieved party would have concluded with a third party had the money been paid when due; a fall in the internal value of the money, through inflation, between the due date and the actual date of payment, so far as this fall is not compensated by interest.[51]

Indeed, in CISG case law several courts correctly stated that Article 78 and 74 of CISG allow claims for damages when a claimant incurs additional interest costs and when losses are incurred because capital is tied up in the transaction at issue.[52]

For instance, in a case before a Switzerland court [21 September 1995 Handelsgericht [Commercial Court] Zürich], although the applicable Austrian statutory interest rate amounted to 5%, the Court held that the seller was entitled to the higher interest rate of 9.75% as further damages (Arts. 78 and 74 CISG). In this respect, the Court observed that the seller had only to prove the recourse to bank loans since it can be assumed that companies normally resort to external sources of credit to finance their activities.[53] In another Switzerland case [28 October 1998 Bundesgericht [Federal Supreme Court]], the Court finally held that the sellers were entitled to recover interests. Since CISG does not determine the interest rate (Art. 78 CISG), the Court applied the statutory interest rate provided by German law, as the law otherwise applicable to the contract. The sellers were also awarded a higher interest rate as further damages pursuant to Arts. 78 and 74 CISG, since they provided sufficient evidence of recourse to bank loans.[54]

This issue is also dealt with by several German courts. For instance, in [24 April 1990 Amtsgericht [Lower Court] Oldenburg][55] and in [14 January 1994 Oberlandesgericht [Appellate Court] Düsseldorf][56], the courts both granted additional interest as damages (Arts. 78 and 74 CISG). Similarly, the UNICITRAL Abstract on an ICC case [1992 International Court of Arbitration, Case 7197] states:

In a Russian case [4 April 1998 Arbitration award 387/1995], when the arbitration tribunal held the right of the seller to interest on the overdue sum, the ground is made on that interest could be regarded neither as penalties nor like damages according to Art. 78 CISG under which the creditor is entitled to interest, without prejudice to any claim for damages recoverable under Art. 74 CISG.[58]

Of course, in order for this claim for damages to be successful, all requirements set forth in Article 74 must be met.[59] Therefore, when the plaintiff has no shown evidence of any further loss, the court in [18 January 1994 Oberlandesgericht [Appellate Court] Frankfurt] did not award such additional damages:

Indeed, the reason most often given for not awarding further damages claimed by the plaintiffs is that they either were unable or unwilling to prove damages arising from reliance on bank credit at higher interest rates. Why plaintiffs failed to prove these damages is open to speculation.[61] As to be furthered below when examining the applied interest rate in CISG case law, the practical problem in this context seems to be limited to the proof.

In any event, on the other hand, that "[i]f the requirements of Article 74 are fulfilled, the creditor, thus, may claim the full interest under Article 74 CISG. Article 78 CISG, therefore, mainly becomes important if the requirements for a damage claim are not fulfilled."[62]

3.5 Conclusions

As indicated by the above discussions, on the one hand, in general, there is no problem in awarding interest under the heading of damages. It is a long-standing practice to consider the interest claim as part of the general claim for damages, which even is regarded as a usage of international trade echoed by, among others, the prevailing international instruments such as the CISG, UNIDROIT Principles and PECL.

However, on the other hand, the two claims have different features. Interest as part of damages must be distinguished from legal interest. The separation of interest from damages will allow a party to recover interest when there is no other evidence of damage suffered or when impediments under have excused the other party from being liable for damages. Indeed, the practical problem of claiming interest by way of damages in most cases seems to be limited to the proof. In other words, the aggrieved party may not prove that it could have invested the sum due at a higher rate of interest or the non-performing party that the aggrieved party would have obtained interest at a rate lower than the legally applicable rate. Thus, the harm is calculated as a lump sum.[63]

Consequently, the aggrieved party's remedy for non-payment or delay in payment is not limited to interest. It extends to additional and other loss recoverable within the limits laid down by the general provisions on damages.[64] In other words, interest is intended to compensate the harm normally sustained as a consequence of delay in payment of a sum of money. Such delay may however cause additional harm to the aggrieved party for which it may recover damages, always provided that it can prove the existence of such harm and that it meets the requirements of certainty and foreseeability.[65]

4. INTEREST ON DAMAGES

As stated above, one of the main ideas of CISG Art. 78 is the general entitlement to interest which is rather far-reaching in substance.[66] As to the sphere of application, Article 78 CISG undoubtedly applies to interest on the purchase price.[67] It is acknowledged in international law that claimants prevailing on the merits are entitled to receive interest on the principal amount awarded.[68]

Of greatest practical relevance is interest on price claims. It was, however, useful to go beyond ULIS and mention other claims, if only to avoid reverse conclusions.[69] Consequently, Article 78 grants the right to interest on the purchase price or "any other sum that is in arrears".[70] This reference intimates that parties may seek interest in a broad spectrum of situations. In this context, however, it is questionable whether this language also extends to claims for damages, that is to say whether interest on damages can be claimed. The question arose among authors from the Anglo-American legal family whether other sums were only meant to be such which are already liquidated, for which interest could be claimed under that legal system, or sums that have not yet been specified.[71] In this respect, legal scholars seem to agree that one has a right to interest on damage claims under Article 78 if the amount in question has been liquidated vis-à-vis the other party. Whether this right to interest also applies to unliquidated sums, is controversial, however. The pertinent question, thus, does not appear to be if Article 78 applies to damages at all, but rather when damages can be considered as being "in arrears" under Article 78.[72]

In Thiele's discussion on this issue,[73] it is firstly noted that whereas, for example, the lack of the applicable interest rate in the Convention clearly constitutes a gap, Article 78 CISG at least states that interest has to be paid on "any other sum in arrears". Since this expression is ambiguous, the issue whether Article 78 also applies to unliquidated damages, is a question of interpretation of the text of Article 78 CISG rather than a problem of gap-filling; therefore, Article 7(1) instead of Article 7(2) of the CISG should apply. Leave open whether it is impossible or appropriate to distinguish, as Thiele does, between questions of interpretation on the one hand and problems of gap-filling on the other, in applying CISG Art. 7(1), Thiele correctly points out that the primary method of interpretation remains the textual interpretation; in addition, the purpose of the Convention, the legislative history, and the drafters' intent may be taken into account.

Following these approaches, Thiele analyzes mainly as follows:

Finally, Thiele concludes that: "Damages under Article 78, therefore, become due at the moment the contract is breached and the initial loss occurs. Consequently, Article 78 applies not only to liquidated but also to unliquidated damages." This conclusion sounds persuasive when case law on this issue is examined.

Although most published decisions in which interest has been sought seem to deal with actions for the purchase price, in a dispute between a German seller and a Swiss buyer decided in Germany [5 April 1995 Landgericht [District Court] Landshut], the court held pertinently that: "The [buyer's] claim for interest is provided basically by Art. 78 CISG. According to the prevailing opinion, Art. 78 CISG also applies to claims for damages (cf. von Caemmerer / Schlechtriem - Eberstein/Bacher, Kommentar zum einheitlichen UN-Kaufrecht, Art. 78, Annotation 15). The claim comes into existence with the occurrence of the loss. [...]"[74] In another action decided in Switzerland [21 October 1999 Kantonsgericht [District Court] Zug], it is similarly held that: "According to Art. 78 CISG, 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, from the due date. Interest accrues from the due date for claims of damages as well, i.e., from the original date of breach."[75]

Thiele's conclusion mentioned above also seems persuasive when UPICC Art. 7.4.10 is taken into account, which clearly grants the right to interest on damages and gives further guidance by providing that: "Unless otherwise agreed, interest on damages for non-performance of non-monetary obligations accrues as from the time of non-performance." The Official Comment thereon states in pertinent part as:[76]

The present article fixes as the starting point for the accrual of interest the date of the occurrence of the harm. This solution is that best suited to international trade where it is not the practice for businesspersons to leave their money idle. In effect, the aggrieved party's assets are diminished as from the occurrence of the harm whereas the non-performing party, for as long as the damages are not paid, continues to enjoy the benefit of the interest on the sum which it will have to pay. It is only natural that this gain passes to the aggrieved party."

Unfortunately, however, under the PECL it is stated that while Art. 9:508(1) confers a general right to interest on primary contractual obligations to pay; the provision does not cover interest on secondary monetary obligations, such as damages or interest.[77] No further clarification is given concerning why interest on damages is not covered under PECL Art. 9:508(1). Nevertheless, it is to be made clear that the PECL's restriction on interest on interest, i.e. compound interest, in Art. 9:508(1) may not be questionable. Under the UNIDROIT Principles, Art. 7.4.10 also takes no stand on the question of compound interest, which in some national laws is subject to rules of public policy limiting compound interest with a view to protecting the non-performing party.[78]

Indeed, it is also said that Article 78 CISG does not apply to interest payments on interest and, thus, gives no right to compound interest. One reason for this restriction is that compound interest does not appear to be widely accepted in international business transactions.[79] In this respect, Enderlein & Maskow observe that:

Support for these scholars is also found in the CISG case law. For instance, in [November 1996 International Court of Arbitration, Case 8502], the Tribunal did not award the compound interest stating that the granting of compound interest is not a universally recognised principle in international trade.[81] In [December 1998 International Court of Arbitration, Case 8908], the Arbitral Tribunal did not award the capitalization of interest and held: "However, capitalization of interest is excluded, as from Respondent's arbitration answer, since this is not provided for in the Vienna Convention and does not appear to be in keeping with international trade usages. Revaluation is also included in the above mentioned rate."[82]

5. PREREQUISITE FOR ENTITLEMENT TO INTEREST

5.1 No Need for Culpable Default

Under the Convention, the claim for interest payment stems from Art. 78 CISG. It is held in [16 September 1991 Landtgericht [District Court] Frankfurt] pertinently:

Indeed, the Convention regulates the problem of interest very briefly in Art. 78, it is quoted in [16 December 1991 Pretore della giurisdizione [District Court] Locarno] that:

In [11 March 1996 Tribunal Cantonal [Appellate Court] Vaud [01 93 1061]], it is also ruled:

More clearly, it is said in [12 December 2002 Kantonsgericht [District Court] Zug] that the fact that a sum is in arrears is the only requirement for interest on arrears:

5.2 Not Subordinate to Formal Request

As indicated above, as to the requirements of Article 78 CISG, it is said "the only condition is that the amount in question is 'in arrears'"; there is no need for a culpable default in the meaning of many domestic systems, on the one hand. On the other hand, "[a]bsent any further requirements in the text of Article 78 CISG, it is important to note that Article 78 (unlike the legal systems of many other countries) does not require any formal notice of the claim in order to invoke the right to interest."[88] A look at the CISG case law will again provide a sound basis for this proposition.

Although there may be different voices,[89] the controlling voice as demonstrated by the case law is that, unlike under many national laws, the entitlement to interest under the Convention does not depend on any formal notice given to the debtor. Many courts have ruled that it does not require any formal notice of the claim in order to invoke the right to interest. For instance, in [14 October 1992 Amtsgericht [Lower Court] Zweibrücken], the Court awarded the seller interest (Art. 78 CISG) and observed that under CISG the duty to pay interest for the delay in payment for the price is not conditional upon a formal request.[90] In [24 January 1994 Kammergericht [Appellate Court] Berlin], the Court also held that the right to interest is not subordinate to a formal request:

Also, in [20 March 1995 Landgericht [District Court] München], it is held: "The [seller] is entitled to interest for the mature claims for payment of the purchase price without having to send a reminder of payment, Art. 78 CISG. [...]"[92] In [29 March 1995 Cour d'appel [Appellate Court] Grenoble], the Court observed:

In [26 April 1995 Cour d'appel [Appellate Court] Grenoble (Marques Roque v. Manin Riviére)], the court ruled:

Similarly, in [11 March 1996 Tribunal Cantonal [Appellate Court] Vaud [01 93 0661]] the court observed that according to Art. 78 CISG, the obligation to pay interest for the delay in payment of the price is not subject to a formal request by the seller.[95] In [30 November 1998 Handelsgericht [Commercial Court] Zürich], the seller was further awarded interest on the price (Art. 78 CISG), without the need of a formal request by the seller.[96] It is also ruled in [24 March 1999 Landgericht [District Court] Flensburg] that: "Under Art. 78 CISG the [seller] has a right to interest on the purchase price in arrears without sending a request for payment."[97]

In brief, no formal request for payment was considered necessary under CISG.[98]Interest is to be paid according to Art. 78 CISG, without the need to make any request or comply with any formality.[99] Also, in [6 April 1995 Cour d'appel [Appellate Court] Paris], the appellate Court held that the Arbitral Tribunal's decision to require the seller to pay interest on the refunded price even in the absence of a formal request by the buyer was supported by Art. 84 CISG, which states that if the seller is bound to refund the price, it "must" (and not "may") also pay interest on it from the date on which the price was paid.[100]

Thus, contrary to what is sometimes provided in several legal systems, the right to interest doesn't need a formal notice.[101] In sum, interest is payable whenever the delay in payment is attributable to the non-performing party, and this as from the time when payment was due, without any need for the aggrieved party to give notice of the default.[102]

5.3 Conclusion: The only prerequisite is a sum in arrears.

As indicated in the case law, "the fact that a sum is in arrears is the only requirement for interest on arrears".[103] As it is held in [12 November 1996 Amtsgericht [Lower Court] Koblenz]: "Contrary to [what is sometimes provided in several legal systems, for instance,] German law, the only prerequisite for a claim for interest under Art. 78 CISG is the maturity of the sum in arrears."[104] If a debtor does not pay an amount due, he, without a further demand being necessary, becomes obligated to pay interest according to Art. 78 CISG.[105]

In other words, as ruled in [24 April 1997 Oberlandesgericht [Appellate Court] Düsseldorf]:

Thus, the following conclusion may be drawn:

6. STARTING POINTS OF INTEREST ACCRUAL

6.1 For Interest on Purchase Price: Date of Payment

As indicated above, the interest issue in the CISG itself is very brief and perhaps vague. Art. 78 CISG only sets forth the obligation to pay interest as a general rule but it does not set forth a time starting from which interests may be calculated. Nevertheless, it is noted that the obligation to pay interest ends with the time of payment which is relatively uncomplicated.[108] Therefore, the following discussion will focus on the starting point of interest accrual.

The general principle of full compensation requires that the plaintiff be paid interest from the date that payment should have been made.[109] Indeed the case law mentioned above also followed this approach. However, it is to be emphasized that, this date from which the interest accrues should be first of all determined in accordance with an agreement of the parties.[110] This is noted, for instance, in [15 June 1994 Vienna Arbitration award SCH-4366] where the tribunal held:

Nevertheless, the court in [14 June 1994 Amtsgericht [Lower Court] Nordhorn] has pointed out that:

6.2 For Interest on Secondary Obligations: Date of Non-performance

The above discussion shows that the basic starting point for interest accrual is the date of payment, which has been fixed by or determinable from the contract or in the absence of an agreement between the parties, is to be determined by the applicable law. However, it is less clear when most of the other claims become due.

Without being able to enter into detail in respect of each concrete claim, Enderlein & Maskow believe that in regard to claims for damages, reimbursement of expenses and reduction of the price, hence secondary claims which emerge only when primary obligations under the contract are breached, from the aspect of interest, one should proceed on the assumption that they become due when they have been liquidated vis-à-vis the other party and in the amount in which later they turn out to be justified. Another aspect is that they should have accrued at the time when they were charged and were not just expected in the future. The principle developed here for secondary claims is, in their view, also applicable to primary claims whose becoming due is not determined otherwise, like claims for reimbursement of auxiliary/additional expenses which are not included in the price, hence expenses for packaging, transport and insurance, as well as customs duties and taxes. They would become due with the issuance of the invoice.[116]

Indeed, it is recalled that when discussing above whether interest on damages is granted, the pertinent question appears to be rather the accrual of interest on damages. In this respect, a court [21 October 1999 Kantonsgericht [District Court] Zug] ruled that

The CISG practice is codified in Art. 7.4.10 of the UNIDROIT Principles, where it is stated: "Unless otherwise agreed, interest on damages for non-performance of non-monetary obligations accrues as from the time of non-performance." The present Article fixes as the starting point for the accrual of interest the date of the occurrence of the harm. This solution is that best suited to international trade where it is not the practice for businesspersons to leave their money idle. In effect, the aggrieved party's assets are diminished as from the occurrence of the harm whereas the non-performing party, for as long as the damages are not paid, continues to enjoy the benefit of the interest on the sum which it will have to pay. However, when making the final assessment of the harm, regard is to be had to the fact that damages are awarded as from the date of the harm, so as to avoid double compensation, for instance when a currency depreciates in value.[118]

6.3 Dates Determined According to Relevant Circumstances

For the lack of a clear specification in CISG Art. 78, the time from which to award interest is an issue producing divergent results in the courts. The case law demonstrates that different tribunals produce variations on the time for accrual. Several courts have ruled that the interest accrued from the date determined according to relevant circumstances in the case.

For instance, in [20 December 1994 Tribunal Cantonal [Appellate Court]], the Court observed that since the seller had expressly claimed interest accruing from the date when he formally requested payment from the buyer, it could not award interest accruing from an earlier time.[119] Similarly, in [16 December 1996 Rechtbank van koophandel [District Court Kortrijk], the Court, though observing that CISG does not require a formal request for payment, decided that under the circumstances of the case interest accrued from the date of the seller's formal request for payment.[120] In [28 March 1997 Arbitration award 38/1996] it is held that:

Also, when a buyer sued for a refund of the purchase price [24 November 1989 Pretura circondariale [District Court] Parma], contrary to what is provided in Art. 84(1) CISG with regard to time of accrual of interest (from the date the buyer paid the purchase price to the seller), the Court held that interest was payable from the date of avoidance of the contract.[122] Similarly, in [1995 International Court of Arbitration, Case 8128], the tribunal ruled that interest related to the reimbursement of the cost of the sacks accrued from the time of partial avoidance of the contract, while interest related to the expenses due to the substitute purchase accrued from the time in which the bank of the buyer executed the payment for the replacement goods.[123]

Yet another court in [1994 International Court of Arbitration, Case 7565] ruled that interest should be awarded from the time when the aggrieved seller would "normally have resold" the goods after the buyer's breach: "Interest shall be computed from January 1, 1992, on the assumption that the cargo would normally have been resold to [buyer's] customers by the end of December 1991. It shall accrue and be paid until full payment of the awarded amount."[124] Still another variation was that interest should accrue from the expiration of the additional period of time fixed by the seller for performance.[125]

Finally, the ruling in another case, [20 May 1991 Juzgado Nacional de Primera Instancia en lo Comercial [National Commercial Court of First Instance]], deserves a separate attention. In the case, the Court found that Arts. 53, 54, 57 and 58 CISG do not set down an explicit rule as to whether interest should accrue during the contractual term for deferred payment. Nevertheless, accrual of interest during the agreed period in case of deferred payment constitutes a usage widely known and regularly observed in international trade (Art. 9(2) CISG).[126] The court ruled as follows:[127]

In all events, from the formulation of CISG Art. 78 that interest is to be paid on sums in arrears, we can draw the conclusion that interest is to be paid from the time when the respective sum is due.[128]

7. GENERAL REVIEW OF INTEREST RATE

7.1 Gap in the Convention

As stated above, CISG recognizes the duty to pay interest (Arts. 78, 84(1)), which exists under most legal systems and several international instruments such as the UPICC and the PECL.

The present Art. 78 CISG states only the principle obligation to pay interest and is silent on the details of the interest rate: it "only sets forth the obligation to pay interest as a general rule" but it does not, as discussed above, set forth a time starting from which interests may be calculated; nor does it, as to be discussed in this section, stipulate the rate of interest or how the rate is to be determined by a tribunal in the absence of explicit guidance from the Convention. The lack of a specific interest rate or method to determine such an interest rate is especially aggravating, because Article 78 CISG mandates an obligation to pay interest every time a payment is in arrears, without regard to fault. For this reason, a party will demand interest in addition to its demand for price, reduction of the price or damages almost every time a suit is brought under the CISG. It will be able to point to Article 78 CISG to legitimate its title to interest, but the legitimacy of the claimed rate of interest remains in doubt.[130]

It is also noted that since the CISG does not state a specific interest rate in other provisions either. This shortcoming is to be compensated above all by agreement between the parties.[131] It is said: "A contract clause that clearly spells out the method for calculating the rate of interest and those scenarios in which interest may be included in a damages award should eliminate much of the uncertainty surrounding this provision."[132] However, where the parties have agreed nothing, it is to some extent complex on what basis the amount of interest under the CISG will have to be calculated. As to be demonstrated below in the case law, some court decisions have deemed it so vague, that in fact, it is seen as a gap.

Accordingly, the question has been raised whether the drafters' omission of a specific interest rate in the CISG has to be dealt with as a "lacuna praeter legem" or as a "lacuna intra legem". While the former type of gap relates to issues that are governed by, but not expressly settled in the Convention, the latter type of gap refers to issues that fall completely outside the scope of the Convention. Thus, in filling this gap in the Convention, one must above all, technically, ascertain whether the gap is considered lacuna intra legem, as opposed to a lacuna praeter legem. In this respect, Thiele observes as:[133]

Undoubtedly, the setting forth of a criterion to be used to decide whether a gap must be considered a lacuna intra legem or praeter legem would have favored the uniform application of the Vienna Sales Convention. Indeed, the solutions to the same problem can widely differ from each other depending on whether they were perceived as gaps intra legem or praeter legem.[134] Legal scholars and courts of different nations are in dispute on the question whether the lack of an interest rate in the Convention has to be treated as a "lacuna praeter legem" or a "lacuna intra legem". This remains a controversial subject for at least the following reasons:

Above all, the Convention itself does not identify any clear criterion to determine when a matter has to be viewed as outside the scope of the Convention as opposed to when the Convention applies to the issue in question but does not expressly resolve it. Moreover, in order to determine whether the lack of a fixed interest rate in the Convention constitutes a gap praeter legem or a gap intra legem, the legislative history appears to be of not much avail. In any event, the legislative history appears to be unclear as to this matter.[135] In a case of such doubt as to the drafters' intent, one may conclude from the purpose of the CISG, like every international convention, is to provide uniformity in a specific area of law, that the drafters did not want to preclude courts from attempting to find a uniform solution under Article 7(2) CISG to the issue in question. However, even if one proceeds from the assumption that the issue of interest rates is governed by the CISG, and, thus, Article 7(2) CISG applies, it is not clear if there are any general principles in the Convention that may help to determine the applicable interest rate. Again, courts and legal scholars split on this point.[136]

In addition, as to be demonstrated below, there are a considerable number of decisions dealing with the issue of determining the appropriate interest rate under Article 78 CISG. However, only few of these decisions engage in a thorough discussion of the problem in question. Especially, very few decisions expressly state if they view the lack of a specific interest rate in Article 78 as a gap "intra legem" or a gap "praeter legem". Nevertheless, from these decisions' point of view, this question might not have great relevance.

7.2 Clear Specification under UNIDROIT Principles and PECL

In contrast with the gap in the Convention, the two sets of Principles provide clear guidance as to the rate of interest. UPICC Art. 7.4.9(2) provides that:

The Official Comment on this provision states:[137]

In this regard, Zoccolillo notes that careful examination of UNIDROIT Principle 7.4.9, shows that the wording of the text remedies most concerns that were voiced at the Convention. The author states pertinently:[138]

Also, PECL Art. 9:508(1) follows briefly the approach adopted under the UNIDROIT Principles and reads in pertinent part that the applicable rate is "the average commercial bank short-term lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due". It is stated in the Comment:

However, it remains questionable whether and how the rate contained in the two sets of Principles could now be applied when the creation of a single rule on fixing the rate of interest could not be agreed upon at the Vienna Conference. The absence under the Convention of a specific formula to calculate the rate of interest has led courts, as well as legal scholars, to argue for different approaches concerning the applicable rate under the Convention. This will be evidenced by the CISG case law with different solutions proposed by concerned tribunals.

8. RATES APPLIED IN CISG CASE LAW

8.1 Gap-filling in General

8.1.1 Overview

As indicated above, the rate issue under the Convention has been deemed so vague that it is often seen as a gap. In [20 July 1995 Landgericht [District Court] Aachen], the court noted that Art. 78 CISG provides only for an obligation to pay interest. This norm does not say anything about the interest rate to be paid. Thus there is a gap in the law; there is dispute about how to fill it.[140]

In filling this gap, Thiele believes that, technically, a three-prong approach should be applied. Following such a three-prong approach, the first step is to determine if the lack of a specific interest rate in Article 78 CISG constitutes a gap "intra legem" or a gap "praeter legem".[141] However, courts and legal scholars split on this question, which is generally observed in [15 June 1994 Vienna Arbitration award SCH-4366] as follows:[142]

Arguably, the lack of a specific formula to calculate the rate of interest has led some courts to consider this matter as one governed by, albeit not expressly settled in, the Convention. Other courts consider this matter one that is not governed at all by the Convention. This difference in qualifying this matter has led to diverging solutions as to the applicable interest rate, since under the Convention, the matters governed by, but not expressly settled in, the Convention have to be dealt with differently than those falling outside the Convention's scope.[143]

8.1.2 Gap intra legem

If, on the one hand, the issue of interest rate is not governed by the Convention at all, i.e., if a gap "intra legem" exists, it must be settled in conformity with the law applicable by virtue of the rules of private international law, without any recourse to the "general principles" of Article 7(2) CISG first.

Some courts consider the interest rate issue as one falling outside the Convention's scope and therefore tend to apply directly applicable domestic law by virtue of private international law. For instance, in [15 January 1998 Tribunale d'appello [Appellate Court] Lugano], the Court ruled: "The rate of the interest is not governed by the Convention, and must therefore be determined by internal law resulting from the application of the pertinent rules of conflict of laws (Honsell, op. cit., n. 10 to Art. 84 CISG), [...]"[144] In [July 1999 International Court of Arbitration, Case 9448], the court stated: "According to art. 78 CISG, 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. The rate to be applied is, however, a matter, in the first place, for the domestic law (Farnsworth, in Bianca-Bonell, Commentary an the International Sales Law, The 1980 Vienna Sales Convention, page 570). Therefore, the Swiss Code of Obligations (CO) is applicable, [...]"[145] Also, it is further stated in [29 December 1999 Tribunale [District Court] Pavia] as:[146]

8.1.3 Gap praeter legem

If, on the other hand, a gap praeter legem exists, i.e., interest rate is considered to be an issue that is governed by, albeit not expressly settled in, the Convention, then Article 7(2) CISG applies. Before determining the law applicable to the issue of interest rates by invoking the rules of private international law of the forum, Article 7(2) CISG requires the decision-maker to determine whether there are any general principles in the Convention providing guidance to the issue in question. Only if such principles cannot be found, the private international law of the forum may be invoked.[147]

There are decisions that hold that, under the Convention, this interest rate constitutes a gap praeter legem; and therefore Art. 7(2) applies. For instance, after indicating the divergent views concerning how to fill this gap, the court in [15 June 1994 Vienna Arbitration award SCH-4366] ruled:

However, 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. For instance, in [1994 International Court of Arbitration, Case 7565], although the court also noted that, on the one hand: "According to Article 7.2 of the Convention, questions not expressly settled by it shall be determined either in accordance with the general principles on which it is grounded or by the law which shall be elected according to private international law." On the other hand, the same court held that: "As the general principles do not settle the matter [...] and the parties have referred to the laws of Switzerland, it seems justified to refer to Article 73 of the Swiss Code of obligations whereby, in the absence of a determination of the rate of interest by agreement or law or usages, that rate shall be 5% per annum."[149]

Indeed, most courts considered, on the one hand, that interest rate is a gap covered under CISG Art. 7(2); on the other hand, that it is an issue to be determined by the law applicable by virtue of private international law instead of under so-called general principles. For instance, the court in [20 December 1994 Tribunal Cantonal [Appellate Court] Valais] considered the interest rate to be a question governed, but not expressly settled, by CISG (Art. 7(2) CISG), but directly, without first reference to general principles underlying the CISG, applied the statutory rate of the State whose law would have been the governing law of the contract in the absence of CISG (Italy).[150] In [21 March 1996 Hamburg Arbitration award], the Court held: "The claim to interest arises ex Art. 78 CISG. As to the interest rate, national law applies subsidiarily, in the absence of a more specific regulation in the CISG, according to its Art 7(2); here, it is the legal rate for bilateral commercial transactions."[151]

Similarly, in [29 June 1998 Tribunal Cantonal [Appellate Court] Valais], the Court observed that, pursuant to Art. 7(2) CISG, the interest rate should be determined in accordance with the law otherwise applicable to the contract. As the Swiss rules of private international law led to the application of Italian law, the Court applied the Italian statutory interest rate.[152] In [25 May 1999 Landgericht [District Court] Berlin], it is also held: "[...] Pursuant to Art. 7(2) alt. 2 CISG, the amount of interest payable according to the CISG is based upon the law applicable by virtue of the rules of private international law (Schlechtriem/Herber, Art. 7 CISG, n. 39). [...]"[153]

In any event, in the case of gap praeter legem, as it was summarized in [20 July 1995 Landgericht [District Court] Aachen]:[154]

8.1.4 Summary

In international legal writings and case law to date it is disputed whether the question of interest rate is outside the scope of the Convention or whether there is a true gap in the Convention within the meaning of Article 7(2). In other words, it is questionable whether the lack of a specific interest rate in Article 78 constitutes a gap "intra legem" or a gap "praeter legem". Nevertheless, from the CISG decisions' point of view, this question might not have great relevance. Particularly, it is noted that there is not one governing principle governing the rate of interest or the law applicable to the rate of interest. Consequently, even starting with the Article 7(2) approach, courts ultimately have to rely on the applicable domestic law by virtue of general private international law approach.

Indeed, the most significant difference, is not whether the issue at hand is a gap "intra legem" or a gap "praeter legem", rather, the one as noted in [5 November 2002 Handelsgericht [Commercial Court] des Kantons Aargau]:

8.2 Determined by the Applicable Domestic Law

8.2.1 Overview

A vast majority of national courts and arbitral tribunals have thus far concluded that the rate of interest is to be calculated on the basis of the applicable domestic law. To date, 73 of the 148 cases involving CISG interest issue collected and published on the UNILEX Database follow this approach.[156] In this context, the recourse, in filling the interest rate gap, is frequently made to "the law governing the contract in the absence of CISG", or with further guidance to "the law applicable by virtue of the rules of private international law".

As indicated above, some courts have expressly referred to Article 7(2) CISG but concluding that there is no uniform principle stated in the Convention regarding the amount of interest; and therefore resorted to the applicable law by virtue of rules of conflicts of law. Nevertheless, these courts are of the opinion that the issue of interest rates is governed by the Convention in the first place and, hence, a gap "praeter legem" exists. Other courts, however, consider the issue of interest rates to be a matter which should be, in the first place, calculated according to the domestic law. In so doing, they apply the forum's rule of private international law to determine the law applicable in absence of the CISG without reference to Article 7(2). Thus, these decisions seem to treat the question at hand as a matter not governed by the Convention at all, i.e., as a gap intra legem.

However, it is not always clear whether most decisions treat the issue as a gap "intra legem" or a gap "praeter legem". Nevertheless, it is noted: "In either case, if one has found that the appropriate interest rate should be determined by private international law rules, one must further choose a specific connecting factor, i.e., decide whether the issue of interest rates should follow the general law applicable to the sales contract or if a specific choice of law rule applies. This, however, is a question that may be only solved by national law since it concerns the non-uniform rules of the forum s private international law."[157]

This is confirmed by the case law. From some CISG decisions' point of view, this question at hand might not have great relevance. In either case, the ultimate recourse is frequently made to the applicable domestic law by virtue of rules of conflict of law. In this context, however, no special connecting points seem to have developed for the entitlement to interest.[158]

8.2.2 Recourse to the law otherwise applicable by virtue of private international law

The primary method which courts and literature use to arrive at an applicable law focuses on the law hypothetically applying to the contract in question if the CISG did not exist.[159]

As demonstrated by the case law, lots of courts held that the rate of interest be determined by the law governing the contract in the absence of CISG. For instance, in [16 December 1991 Pretore della giurisdizione [District Court] Locarno], it is held that "the interest rate to be applied is the rate prescribed by the law which would be applicable if the Vienna Convention were not applied."[160] In [6 October 1995 Amtsgericht Kehl 3 C 925/93], absent an express provision in CISG, the Court held that the interest rate was to be determined in accordance with the law otherwise applicable to the contract. In determining this the Court had first to establish whether there was a valid choice of law clause in the contract.[161] Similarly, in [12 February 1996 Tribunale d'appello [Appellate Court] Lugano], the court held:

As to the law otherwise governing the contract in the absence of the CISG, it is above all determined by the parties with a valid choice of law clause agreed in the contract; and where they did not choose the applicable law, however, the connection criterion must be applied. In other words, as indicated in many cases, it is a question that may be only solved by virtue of rules of the forum's private international law, which usually leads to the application of relevant domestic substantive law.

For instance, in [26 September 1990 Landgericht [District Court] Hamburg], the court ruled that "because the actually owed interest rate has not expressly been regulated within the CISG (v. Caemmerer/Schlechtriem/Enderlein, loc. cit., Art. 78, Note 2), so that the interest rate has to be determined in accordance with the relevant national law, being applicable pursuant to the general principles of conflicts of laws (see Art. 7(2) Alt. 2 CISG; v. Caemmerer/Schlechtriem/Enderlein, Art. 78, Note 3; Bianca/Bonell, loc. cit., Art. 78, Note 2.1)."[163] Similarly, in [24 April 1997 Oberlandesgericht [Appellate Court] Düsseldorf], the Court ruled:

In some decisions, it is deemed as an approach in conformity with the "prevailing opinion" or even so-called "unanimous opinion" as such. For instance, in [5 April 1995 Landgericht [District Court] Landshut], the court observed:

Furthermore, it is held in [5 November 1997 Oberlandesgericht [Appellate Court] Hamm]:

Similarly, in a Switzerland case [21 October 1999 Kantonsgericht [District Court] Zug], it is also stated:

8.2.3 Summary

Overwhelmingly, the vast majority of national courts and tribunals, especially those of Germany and Switzerland, have determined the amount of interest by reference to the law otherwise governing, by virtue of rules of conflict law of the forum, the contract in the absence of the CISG. There may be no sound basis, as long as this issue has not been settled either by the Convention or parties' agreement, to call, as some German and Swiss courts did, a "unanimous opinion" or "uniform opinion" on how to calculate interest under the Convention. Nonetheless, an established or prevailing opinion exists. Following such a prevailing opinion, the interest rate is determined by the applicable national law.

German courts until now have almost always determined the amount of interest by reference to the national law applicable according to the rules of conflict of laws.[168] To date, 33 of the 73 cases collected and published on the UNILEX Database, where interest rate is determined by the domestic law governing the contract in the absence of the CISG, are decided before German courts.[169] In this respect, it is noted: "According to German private international law, the applicable law is initially determined by choice of the parties. If there is neither express nor implied choice, the applicable law is ascertained according to the law of the country with which the contract is most closely connected. Such connections primarily are found in the country of residence or place of business of the party carrying the characteristic obligation, this being, in the case of a sale, the seller. The question of rate of interest is considered to be part of the contract itself, thus it must be settled according to the same law as that of the contract itself."[170]

Another country, from which we have a great number of the decisions determining the amount of interest by reference to the national law applicable by virtue of the rules of conflict of law, is Switzerland. Up until now, 25 cases of the 73 cases collected and published on the UNILEX Database following this approach are decided in Switzerland.[171] In this respect, it is noted in [20 December 1994 Tribunal Cantonal [Appellate Court] ]: according to art. 117 LPIL [LPIL = Swiss Federal Law on Private International Law], in case of a failure to choose the governing law, the contract is governed by the law of the State to which the contract is mostly related (art. 117(1) LPIL); the contract is deemed to be related to the State in which the party which has to fulfill the principal obligation under the contract has its place of residence, or -- if the contract forms part of professional or commercial activities -- its place of business (art. 117(2) LPIL); in contracts for the transfer of property, the duty of the owner is crucial for the determination of the governing law (art. 117(3) LPIL). According to art. 118 LPIL, sales of goods are governed by the Convention on the Law Applicable to International Sales of Goods, adopted in The Hague on 15 June 1955. Rules of conflict of laws stated in that Convention are applicable even if the law governing the contract is the law of a non-Contracting State. Art. 3(1) of the 1955 Hague Convention states that sales of goods are governed by the law of the State where the seller has its place of residence at the moment of the receipt of the offer, unless otherwise agreed by the parties.[172]

As evidenced by the decisions made by the vast majority of national courts and tribunals, there is a strong tendency, at least among German and Swiss courts, to fix the applicable law according to the private international law of the court.[173] This results in, on the other hand, different outcomes based on different regulations in non-unified private international law.[174] Needless to say, the CISG was adopted by the relevant countries precisely to prevent the application of national law.[175] Thus, by applying national law to fill the interest rate gap, national courts and arbitral tribunals may contravene the intent of the Convention and further promote discontinuity.[176] Nevertheless, it is believed: "While this might be considered deplorable, in no respect are these differences a violation of the principle of uniformity in application of the Convention. The lack of uniformity actually conforms to the standards of the Convention. Uniformity in the outcome of the case would obviously be preferable. This deficiency in the Convention must be accepted. This is preferable to rewriting the Convention without benefit of a new conference and a renewed Convention."[177]

In all events, in the vast majority of cases, the rate of interest is fixed according to the national law applicable by virtue of private international law of the court.[178] Despite some initial doubts as to which domestic law should be applied, currently there seems to be a tendency to apply the law which would be applicable to the sales contract if it were not subject to the Vienna Sales Convention.[179] However, while the question is open for further discussion, it would be shown below that there indeed are other justifications for deviating from the prevailing opinion. Up until recently, there have been arbitral awards and court decisions from more than one jurisdiction not applying this approach.[180]

8.3 Determined by Domestic Law of the Interest-creditor

8.3.1 Overview

As indicated above, some courts applied the domestic law of a specific country by virtue of the rules of private international law of the forum. On the other hand, as to be demonstrated in this section, others applied the domestic law of the creditor without it being necessarily the law made applicable by the rules of private international law.

Some courts and tribunals have held that the issue of interest rates is governed by the law of the interest-creditor's place of business. This approach is similar to the one claiming that interest is a form of damages.[181] In respect of this approach, the ruling made by the court in [7 May 1993 Richteramt [District Court] Laufen] deserves significant attention:[182]

Another point bearing significance is submitted by Thiele in commentating on a German case:

8.3.2 General recourse to the law of the creditor's place of business

Despite this approach in question is only of significance when the seller is in arrears with his obligation to pay damages or refund the paid price. It is clear that the courts have occasionally applied the law of the creditor.

For instance, in [16 September 1991 Landtgericht [District Court] Frankfurt], the court held that the rate was the statutory rate of the seller's place of business:

In [1992 International Court of Arbitration, Case 7197], as CISG does not expressly specify the rate of interest payable, the court referred to Austrian law as the law of the creditor's place of business.[185] In [24 January 1994 Kammergericht [Appellate Court] Berlin], the Court also granted the assignee the right to interest, at the interest rate of the creditor's country, Italy (Art. 78 CISG).[186] In [9 December 1994 Bezirksgericht [District Court] Arbon], the Court held that interest was payable on the sums due to the claimant. As CISG does not determine the interest rate (Art. 78 CISG), the Court stated that it was to be determined in accordance with the domestic law of the creditor's country (Austria).[187]

Most often, the law of the creditor's country is that of the seller's place of business. Thus, in [24 March 1992 Fovárosi Bíróság [Metropolitan Court]], the seller was awarded the purchase price plus interest at the rate fixed by the law of the country of the seller (creditor).[188] In [21 October 1994 Amtsgericht [Lower Court] Riedlingen], the Court held that the seller was entitled to interest (Art. 78 CISG). Since CISG does not determine the rate of interest, the Court stated that the rate was to be determined in accordance with the domestic law applicable in the seller's country.[189] Similarly, in [25 October 1994 Landgericht [District Court] Darmstadt], the court stated that the rate was to be determined in accordance with the domestic law applicable in the seller's country (Argentina).[190]

On the other hand, in case of the refunding of the paid price under CISG Art. 84, the interest-creditor is the buyer while the seller is the interest-debtor. Therefore, in [15 April 1994 Arbitration award 1/1993], the Tribunal, following the creditor-approach, decided in favor of the buyer [interest-creditor] and ordered the seller to refund the price paid for the goods and to pay interest on this sum at the rate established by the law of the buyer's country.[191] In this respect, it is to be noted that in [8 February 1995 Oberlandesgericht München], the Court determined that according to Art. 84 CISG the buyer (interest-creditor) was also entitled to interest on the sum to be refunded. The Court, however, in interpreting Art. 84 CISG, applied the statutory interest rate of the (interest-debtor) seller's place of business (Germany).[192] Also, in [5 February 1997 Handelsgericht [Commercial Court] Zürich], the court awarded the buyer the restitution of the advance payment plus interest (Art. 78 CISG). However, as to the applicable rate of interest, the court applied the interest rate of the sellers' place of business, reasoning that this is the place in which the sellers usually invest their money.[193] Indeed, the latter two courts followed a debtor-approach, which is to be given more details infra. 8.4.

8.3.3 Statutory rate vs. bank lending rate of interest

Among those decisions following the creditor-approach, there are some referring to the statutory rate of interest in accordance with the domestic law of the creditor's State. For instance, in [24 April 1990 Amtsgericht [Lower Court] Oldenburg], the court held that the seller was entitled to interest accruing from the date when payment was due (Arts. 59 and 78 CISG) at the statutory rate of interest in force in the seller's country (Italy).[194] Similarly, in [18 January 1994 Oberlandesgericht [Appellate Court] Frankfurt], the court granted the seller the right to payment of the balance of the price as well as interest at the rate of 10% (statutory rate of the country of the creditor-seller).[195]

On the other hand, some other decisions have referred to bank lending rate, average or actual, of interest in accordance with the domestic law of the creditor's State. Several courts have awarded interest at the average bank lending rate of creditor's State. For instance, in [3 April 1990 Landgericht [District Court] Aachen], the court awarded interest at a rate of 12% for the period of delayed payment as the average bank lending rate at seller's place of business (Arts. 61(1)(b), 74 and 78 CISG).[196] In [8 November 1995 Rechtbank van Koophandel [District Court] Hasselt], as CISG does not determine the interest rate, the Court applied the average bank lending rate in the creditor's country (the seller's), because the creditor would have received interest on the sums due in that country had the debtor paid on time.[197] Similarly, in [9 October 1996 Rechtbank van Koophandel [District Court] Hasselt], the Court applied the average bank lending rate in the creditor's country (the seller's), because the creditor would have received interest on the sums due in that country had the debtor paid on time.[198]

In respect of the bank lending rate awarded, it is to be noted that some Russian courts have calculated interest, according to Article 395 of the Civil Code of the Russian Federation in conjunction with CISG Art. 78, at the actual credit rate of interest offered by banking institutions at the place of location of the creditor. For instance, in [28 March 1997 Arbitration award 38/1996], the court held: "[...] Since the interest rate is not set forth in the Convention and since it cannot be determined in conformity with general principles pursuant to Article 7(2) CISG, the provisions of the Russian laws shall apply. Under Article 395 of the Civil Code of the Russian Federation, in case of delay of performance of money obligations, annual interest shall be recovered in the amount of the bank discount interest rate at the place of creditor's location. The [seller]'s claim of 12% annual interest does not exceed the interest rate used for short-term hard currency loans in Russia."[199] In another case decided in Russia [22 October 1998 Arbitration award 196/1997], it is similarly held: "[...] The interest, though not specified in the CISG, is to be calculated in conformity with subsidiary applicable law, that is the Russian Federation Civil Code Article 395, which provides that the interest for the use by the [buyer] of the unlawfully kept money is to be calculated on the basis of the bank interest rate at the [seller]'s place of business. The Tribunal, thus, admits the Certificate of 21 November 1997, issued by the Cypriot Central Bank, presented by the [seller], which certifies that on the day of bringing the action before the Tribunal the interest rate amounted to 8%. The [buyer] did not contest this certificate."[200]

Also, in [27 July 1999 Arbitration award 302/1996], it is ruled: "The Tribunal granted the claim of the [buyer] to recover annual interest on the granted sum of lost profit at the LIBOR rate plus 2% per annum, on the basis of Article 78 CISG and Article 395 of the Russian Federation Civil Code that refers to the rate of bank loan at the place of creditor. The Tribunal found that the mentioned rate of interest accorded to the rate which prevailed in Switzerland (place of [buyer]'s (interest-creditor's) company) respectively. The Tribunal has also taken into account that [seller] raised no objections regarding the issue of rate of interest."[201] In [10 February 2000 Arbitration Award No. 340/1999], the tribunal stated: "[...] Considering that the CISG does not provide the rate of interest, the amount of interest should be calculated in accordance with the rules of subsidiary applicable Russian law. Under Article 395(1) of the Russian Federation Civil Code, the amount of interest for failure to perform a monetary obligation is calculated according to the actual credit rate of interest offered by banking institutions at the place of location of the creditor. From the calculation provided by [seller], it follows that he had calculated the interest in the amount of 22% per annum based on the reports of three banks. The Tribunal has granted the seller's claim as to recovery of the interest in the mentioned amount on the sums granted by the Tribunal in favor of the [seller] for the relevant periods of time."[202]

8.3.4 Summary

Some courts and tribunals have held that the issue of interest rates is governed by the law of the interest-creditor's place of business, which finally refers to statutory rate or (commercially average or actual) bank lending rate. Data available on the UNILEX Database indicates that the creditor-approach is the secondly p