VIII. Interest

Art. 78 entitles the obligee of a payment claim to interest:

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 systematic position of this provision among provisions dealing with claims for damages show that the legal nature of the claim for interest also is a claim for damages for the loss of use of the owing amount, albeit with significantly less possible defenses. In particular, the obligee does not have to prove that it incurred actual damage and the obligor cannot be exempt from its obligation to pay interest. This last point deviates from the concept of some domestic legal systems under which the obligor only owes interest if it defaults on its payment obligation.

Under this provision the obligee can claim interest from the moment on in which payment is due. With the exception of specific regulations in the parties’ contract or in the CISG, payment is generally due immediately when the requirements of the claim for payment are fulfilled. Art. 84 specifically provides that a seller that is bound to refund the purchase price has to pay interest on it from the day on which the price was paid. This provision is also applied by way of analogy to the buyer’s right to reduce the purchase price. To ensure effective protection of an obligee that cannot immediately quantify its claim (e.g. because it needs certain information of the obligor), it is not required that the amount interest has to be paid on is fixed. The obligation to pay interest ends once payment was made, i.e. once the obligee has the amount owed at its disposal.

The interest rate to be applied is not determined by the CISG since it was not possible to reach a compromise in that regard during the drafting process. As a consequence, it is highly disputed which interest rate applies. Some authors favor a uniform approach either on a substantive law level (e.g. application of the LIBOR) or on a conflicts of law level (interest rate at the buyer’s or seller’s place of business), while others suggest a conflict of law analysis applying either the lex contractus or the lex monetae (the law of the currency the payment is owed in).

The last part of Art. 78 clarifies that it is also possible for the obligee to claim the actual loss it occurred due to the obligor not paying upon due date as damages under Art. 74:

[…] without prejudice to any claim for damages recoverable under article 74.

For example, an obligee that had to take a loan with an interest rate higher than the rate applicable under Art. 78. Of course, under Art. 74, the obligee has to prove the damage it occurred and the obligor might be exempt from liability. Recourse to Art. 74 is also the solution when, like in certain Islamic states, taking interest is prohibited for religious reasons (riba).

Whether Art. 78 excludes so called post-judgment interest which is common in many common law jurisdictions, is disputed.

Last modified: Friday, 23 October 2015, 6:45 PM