Q 78-1
Which duty does Article 78 CISG establish?
The general duty to pay interest.
Q 78-2
What follows from the fact that the CISG itself has a provision on interest?
Interest is a matter of substantive law and not one of procedural law as it has been perceived in many legal systems belonging to the Common Law.
Q 78-3
On which sums is interest to be paid?
On any sum of money that is due. This encompasses not only the purchase price but also damages, repayment after price reduction, reimbursement for expenses. For repayment of the purchase price after avoidance see Article 84(1) CISG.
Q 78-4
Why has the applicable interest rate not been settled in Article 78 CISG?
Because no agreement was possible at the diplomatic conference in 1980.
Q 78-5
(a) When will the purchase price fall due? See Article 58 CISG.
(b) Has the question of the point in time at which other monetary obligations fall due been expressly settled in the CISG?
(c) Why will the debtor who is entitled to withhold its performance (Arts 71(1), 81(2), sentence 2 CISG) not be obliged to pay interest?
(a) Primarily, this has to be decided based on the contract terms. If nothing is specified in the contract, Article 58 CISG stipulates that the purchase price is to be paid reciprocally in exchange with the goods.
(b) No, other monetary obligations become due as soon as they accrue.
(c) As long as there is a right to withhold performance, the sum is not yet due.
Q 78-6
Originally, a topic of dispute was whether a sum must have been made certain (‘liquidated’) in order to be interest-bearing. Can you explain why there used to be a controversy, due to this uncertainty, about whether or not interest could accrue? (It should be noted that, nowadays, the legal majority does not require a liquidated sum in order to incur interest.) How does C 78-1 deal with this question?
If the amount is uncertain, the debtor may be prevented from paying. C 78-1 clarifies that interest on damages is due as of the occurrence of the damage. It is irrelevant whether the exact amount of the loss has been already established or not.
Q 78-7
Is compound interest possible under Article 78 CISG (See C 78-2)?
Article 78 CISG does not expressly prohibit compound interest. It is disputed in scholarly writing whether it may be granted or not.
Q 78-8
(a) Describe the different approaches in determining the applicable interest rate under the CISG.
(b) What general principle of the CISG may be relied upon in determining the interest rate?
(c) If this principle is applied, what effect does this have on the concrete interest rate?
(d) Which interest rate is provided for in the PICC 2016 (Art 7.4.9(2))? Are there any problems in applying this rate?
(e) What problems can you identify when relying on the subsidiary applicable domestic law?
(f) Could there be a compromise between a truly uniform determination and reliance on the private international law/domestic law approach?
(a) Primarily, it is up to the parties to provide for an interest rate to be applied (C 78-1). As Article 78 CISG does not provide for an interest rate, there is a gap in the meaning of Article 7(2) CISG. The question is how this gap may be filled. One approach (C 78-2) is to determine the applicable interest rate autonomously in conformity with general principles underlying the CISG. Another possibility is to rely on the PICC (C 78-3). And finally, to resort to domestic law that is subsidiarily applicable by virtue of the rules of private international law (C 78-4).
(b) The principle of full compensation (Art 74 CISG), see C 78-2.
(c) There are two different sub-questions to this question. First, the place at which the interest is to be calculated has to be determined. In case of the purchase price, for example, this may be either the place of payment or the place of business of the seller. Having determined the relevant place, different interest rates might come into play. There may be a statutory interest rate, and there may be different interest rates for borrowers and investors.
(d) Article 7.4.9(2) PICC 2016 provides for the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment. This rate fluctuates daily. Although it is possible to average a rate for the time passed until a judgment or award, it is not possible to foresee its development for the time after the award/judgment until effective payment.
(e) This approach undermines uniform interpretation and application of the CISG. The rules of private international law usually lead to the law of the State of the place of business of the seller. Although this solution may be appropriate in relation to the purchase price where the seller is the creditor, it may not lead to just results in case of a damages claim of the buyer.
(f) One might start from the general principle of full compensation under the CISG (Art 74 CISG) which may lead to the place of business of the creditor and then apply the (statutory) interest rate there. This solution on the one hand guarantees uniformity as to the place and certainty as well as foreseeability as to the rate on the other hand.
Q 78-9
Does the duty to pay interest on sums in arrears prejudice a claim for damages recoverable under Article 74 CISG? See C 78-6 and Article 7.4.9(3) PICC 2016.
No. Article 74 CISG is still applicable. However, Article 74 CISG is less favourable to the creditor than Article 78 CISG as under Article 74 CISG, the creditor must prove its loss and thereby reveal details of its business.
Q 78-10
(a) To the extent that interest is recoverable, does the aggrieved party have a choice between Article 74 and Article 78 CISG?
(b) In which situations will the creditor prefer to proceed under Article 74 CISG? When will Article 78 CISG provide the only suitable basis?
(a) Yes.
(b) If the loss suffered by the creditor exceeds the interest rate, it will proceed under Article 74 CISG. If loss cannot be proven or was not foreseeable for the debtor at the time of the conclusion of the contract (Art 74, sentence 2 CISG), Article 78 CISG will provide the only suitable basis. Furthermore, certain provisions of the CISG, for example, Article 77 CISG applies to damages only, but not to interest under Article 78 CISG.
Q 78-11
(a) Describe the areas where the CISG Advisory Council Opinion clarifies the scope of application of Article 78.
(b) Does the CISG Advisory Council Opinion suggest a certain interest rate to be applied? How would you describe the solution laid down in Rule No 9? Is there any comparable provision in the CISG itself?
(a) Starting and endpoint when interest is to be paid. Monetary obligations that can give rise to interest. Relationship between Article 78 and 79. Freedom of contract as regards all questions relating to interest.(b) The CISG Advisory Council abstained from suggesting a certain interest rate. Rather the Opinion provides for a rule of private international law designating the law applicable at the creditor’s place of business in a similar contract of sale not governed by the CISG. Article 28 contains a comparable rule.
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