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Cite as Nicholas, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 568-571. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.

Article 78

Barry Nicholas

1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision

ARTICLE 78

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74.

1. History of the provision

     1.1. - The question of what provision, if any, should be made regarding the payment of interest was the subject of much controversy, at first in the Working Group and at the Commission (see Yearbook, VII (1976), 95, 136; Yearbook, VIII (1977), 60) and finally, at great length, spread over three sessions of the First Commitee and two plenary sessions, assisted by the efforts of two Working Groups and the Drafting Committee, at the Vienna Conference (see Official Records, I, 138; II, 223-226; 388-392, 415-419, 429-430). The problem proved too intractable to yield more than the very limited solution contained in Article 78.

     1.2. - There are three main questions to which a provision on interest may address itself. (a) On what debts is interest payable? For example, is it only on liquidated debts (i.e., those which are already quantified, as in the case of the buyer's obligation to pay the price) or more widely? And if it is payable only on liquidated debts, is it payable on all such debts? (b) At what rate is interest payable? (c) Over what period of time is it payable?

All the discussion centred on question (b), although the formula adopted at different stages gave somewhat differing answers to (a). Question (c) was not considered. [page 568]

ULIS (Article 83) provided for payment of interest (a) in case of delay in the payment of the price, (b) at 1% above the official discount rate in the seller's country (this rate was also made applicable to the case provided for by Article 84(1) of the present Convention). The same basis of calculation was adopted by the Working Group, but with the important qualification that if the rate applied to unsecured short-term commercial credits in the seller's country were higher, that higher rate should apply. This formula was, however, found unsatisfactory by the Commission (for reasons which were substantially the same as those in § 1.4., infra) and it was decided to make no provision at all. The UNCITRAL Draft Convention thus contained no provision at all on interest (except for the present Article 84(1), which by an oversight survived).

     1.3. - At the Vienna Conference the First Committee decided to make another attempt to find an acceptable formula and appointed a Working Group, which produced three formulae, each of which had some support. One of these was accepted by a majority, but was criticized as ambiguous and obscure and was remitted to the Drafting Committee. This Committee found it difficult to determine in all respects what the intended meaning of the formula was, with the result that the Committee's draft itself provoked controversy and was not adopted by the Plenary. A proposal was made that, in view of the difficulty of finding a formula which was both clear and acceptable, the Convention should not only omit a provision on interest, but also include a statement that it was not concerned with questions of interest (and that the provision now in Article 84(1) should be deleted). This proposal did not, however, gain acceptance and a further Working Group was therefore appointed. It concluded that it was impossible, at least in the time and with the expertise available to the Conference, to find an acceptable formula and therefore proposed the present text.

     1.4. - The principal sources of the difficulty encountered at all stages were the following. Some countries, on religious grounds or for reasons of public policy, either forbid the charging of interest or impose a limit on the rate charged. Any reference to an external standard, such as the official discount rate or the [page 569] rate applied to unsecured short-term commercial credits or the prime rate, was open to the objection that in some countries there was no such rate while in others there was more than one. And there was disagreement as to whether the rate, however defined, should be the one applicable in the creditor's country or the debtor's. It was also pointed out that a formula applicable to a case of compensation for default, as here, was not necessarily suitable to a case of restitution as in Article 84(1).

The objection to expressly excluding any rule on interest was that, since this would have the effect of leaving the question to be governed wholly by the applicable domestic law, there would be even greater uncertainty than under the provision actually adopted, particularly in view of the divergence between different legal systems on the question whether damages include interest.

2. Meaning and purpose of the provision

     2.1. - Article 78 entitles the creditor to interest, even if the applicable domestic law makes no provision for this. The rate to be applied is, however, a matter, in the first place, for the domestic law. If that law provides no relevant formula for calculating interest, it would seem that the court should look to the cost of credit at the creditor's place of business. Since the text speaks of interest as something distinct from damages, the creditor should not have to show that he actually incurred such a cost.

3. Problems concerning the provision

     3.1. - Article 78 goes beyond the corresponding provisions of ULIS and of the Working Group's draft in three ways. It is not confined to cases of delay in paying the price, but includes failure to pay «any other sum that is in arrears »; there is no requirement that the failure constitute a breach of contract; and there is an express reservation of the right to damages under Article 74. The purpose of this last addition is to ensure that, in those legal systems in which interest is included in damages, Article 78 is not taken to exclude a claim to damages under another heading [page 570] (see Official Records, II, 225-226). The other two differences do not seem to have been explained or discussed. As far as the first is concerned, the word «sum» suggests a liquidated sum (see § 1.2., supra), but its meaning is likely to vary according to the practice of different jurisdictions (see HONNOLD, Uniform Law, 524). The absence of a requirement of a breach of contract may presumably have the effect of requiring interest to be paid where payment of a sum due has been temporarily suspended by an exemption under Article 79. If, for example, the price is payable in the seller's currency and the buyer is prevented from paying by a temporary ban imposed by his government on the export of currency, and if under Article 79 the seller is able to claim the price when the ban ends, Article 78 seems to entitle him to interest (see SCHLECHTRIEM, UN-Kaufrecht, 94; Uniform Sales Law, 100). [page 571]


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