ICC Arbitration Case No. 7197 of 1992 (Failure to open letter of credit and penalty clause case)
[Cite as: http://cisgw3.law.pace.edu/cases/927197i1.html]
Primary source(s) for case presentation: Michael R. Will; UNCITRAL abstract; Unilex abstract
DATE OF DECISION:
JURISDICTION:
TRIBUNAL:
JUDGE(S):
CASE NUMBER/DOCKET NUMBER: 7197 of 1992
CASE NAME:
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Austria (claimant)
BUYER'S COUNTRY: Bulgaria (defendant)
GOODS INVOLVED: Unavailable
Case law on UNCITRAL texts (CLOUT) abstract no. 104
Reproduced with permission from UNCITRAL
The dispute concerned the failure of the Bulgarian buyer to pay the Austrian seller within the time period agreed in the sales contract.
The arbitral tribunal found that, while the parties did not specify any applicable law, the application of Austrian and Bulgarian rules of private international law led to the application of Austrian law. In view of the fact that CISG had been incorporated into the Austrian legal system, the tribunal decided to apply CISG, in accordance with Article 1(1)(b) of the Convention. The tribunal also noted that, as the applicable rules of private international law led to the application of the law of Austria, where the seller had its place of business, it was immaterial that Bulgaria, where the buyer had its place of business, was not a party to the Convention at the time the contract was concluded.
The tribunal found that the buyer committed a breach of contract in that it failed to open the irrevocable and divisible letter of credit provided for in the contract, despite the additional period of time allowed by the seller (Articles 54, 62 and 63(1) CISG). The tribunal also found that the seller was entitled to demand performance (Article 64 CISG), without losing its right to request compensation since no force majeure was involved (Articles 61(1)(a), 61(2) and 79 CISG). The tribunal, applying Austrian law pursuant to Article 7(2) CISG, held that the exercise of the seller's right to demand compensation was not contrary to the penalty clause contained in the contract.
The tribunal awarded the seller interest on the amount due (Article 78 CISG). As the Convention does not specify the interest rate, the tribunal determined the interest rate in accordance with the substantive law applicable to the relationship between creditors and debtors (Article 7(2)). The tribunal held that the interest rate to be awarded may be higher than the legal rate since the entitlement to interest under Article 78 CISG was independent of any claim for damages under Article 74 CISG. In the case in question, the tribunal found that the seller operated on the basis of credit for which it had to pay interest at the rate of 12% and applied that rate since the seller would have to obtain credit in order to replace the funds missing due to the non-payment by the buyer.
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APPLICATION OF CISG: Yes [Article 1(1)(b) and 100(2)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue: Articles
54A1 [Obligations of the buyer: obligation to pay price
includes enabling steps (arranging for letter of credit)];
69D [Passage of risk: impact upon buyer's obligation to pay damages during
prolonged deposit of goods by buyer];
74A [Damages (general rules for measuring); loss suffered as consequence of
breach (expenses incurred by seller in deposit of goods];
77A [Obligation to take reasonable measures to mitigate damages: measures to
preserve the goods and to sell perishable goods may also be required, even
where a contractual duty to take such measures does not exist under Arts. 85
to 88];
78B [Interest on delay in receiving price or any other sum in arrears: rate
of interest];
79B [Exemptions (impediment excusing party from damages): suspension of
payment of foreign debts by buyer's government not regarded as a qualifying
exemption]
Classification of issues present
Editorial remarks
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=37&step=Abstract>
German: Schweizerische Zeitschrift für Internationales und Europäisches Recht (SZIER) / Revue Suisse de droit international et de droit européen, 1996, 57-58 [cited as 1993]
Italian: Diritto del Commercio Internazionale (1994) 854-855 No. 37
Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 263-264
CITATIONS TO TEXT OF DECISION
Original language (German): Unavailable
Translation (French): Journal du Droit International (1993) 1028-1037 = ICC Coll III 500-509
CITATIONS TO COMMENTS ON DECISION
English: Honnold, Uniform Law for International Sales (1999) 485 [Art. 79]; Gillette/Walt, Sales Law Domestic and International (Foundation Press 1999) 230-231 [foresseability of impediment, 342 n.71, 354 [scope of CISG: liquidated damage clause]; Koneru, 6 Minnesota Journal of Global Trade (1997)123-138 [comments on liquidated damages/penalty clauses and on interest rulings in this case and other cases]; Kizer, 65 University of Chicago Law Review (1998) 1279-1306 [comments on interest rulings in this case and other cases]; Curran, 15 Journal of Law and Commerce (1995) 175-199 [185-186] [English summary of comments by Witz cited below]; Lookofsky, Understanding the CISG in the USA [CISG/USA] (1995) 54-55, 62 n.38, 95 n.230, 97 n.248, 106-107 n.57-58; Lookofsky, CISG/Scandinavia (1996) 67 n.120, 76 n.34, 107 n.206, 114 n.259, 116 n.277, 124 n.50; Bernstein/Lookofsky, CISG/Europe (1997) 70 n.113, 79, 112 n.205, 121 n.264, 125 n.282, 135 n.57; Stoll in Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (Oxford 1998) [Art. 74] 560 n.57, 561 n.63, 572 n.148; [Art. 77] 588 n.27; [Art. 79] 607 n.52; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) nn.44, 87; Flambouras, Transfer of Risk in the Contract of Sale involving Carriage of goods (1999) n.29; Boghossian, A Comparative Study of Specific Performance Provisions in the United Nations Convention on Contracts for the International Sale of Goods (1999-2000) n.428; Kimbel, 18 Journal of Law and Commerce (1999) 301-331 (analysis of the remedy of Nachfrist citing this and other cases: 316 nn.60; 62); Kazimierska, Pace Review of the Convention on Contracts for the International Sale of Goods (1999-2000) n.260; Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [when parties fail to designate the apllicable law 52-68 (this case at 62)]; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 4-12 n.193; §: 5-5 n.44; §: 6-19 n.256; §: 6-21 n.283; §: 6-25 n.303; §: 6-31 n.353; §: 6-32 n.372; §: 7-4 n.62; Liu Chengwei, Recovery of interest (November 2003) nn.57, 185, 273; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn.437, 745, 809; [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 135
French: Hascher, Journal du Droit International (1993) 1037-1040 = ICC Coll III 509-512; Witz, Les premières applications jurisprudentielles du droit uniforme de la vente internationale (L.G.D.J., Paris: 1995) 37-38, 42-43, 109; Guilbeault, Les Cahiers de Droit (Québec 1997) 315 [350-351 n.165]
German: Berger, [1999] Recht der Internationalen Wirtschaft (RIW) 401 nn.10, 13, 38, 122; Stoll in von Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht, München (Beck) 2d ed. 1995, Art. 74 No.16, n.47; Schlechtriem, Internationales UN-Kaufrecht (1996) 163 n.257
Italian: Giardina, [1998] Rivista dell'Arbitrato (Riv.Arb) 191 [207 n.47]
Spanish: Perales, 3 Cuadernos Jurídicos (1996) No. 43, 5 [7-8, 9] [commentary on Article 78: determination of rate of interest under the CISG (review of case law)]; Castellanos, Autonomia de la voluntad y derecho uniforme en la compraventa internacional, thesis, Carlos III de Madrid (1998) 155-156
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