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ICC Arbitration Case No. 7153 of 1992 (Hotel materials case) [translation available] Go to Database Directory || Go to CISG Table of Contents
ICC Arbitration Case No. 7153 of 1992 (Hotel materials case) [translation available] [Cite as: http://cisgw3.law.pace.edu/cases/927153i1.html]
DATE OF DECISION: 19920000 (1992) JURISDICTION: Arbitration ; ICC TRIBUNAL:	Court of Arbitration of the International Chamber of Commerce
CASE NUMBER/DOCKET NUMBER: 7153 of 1992 CASE NAME: Case report does not identify parties to proceedings CASE HISTORY: Unavailable SELLER'S COUNTRY: Austria (claimant) BUYER'S COUNTRY: Yugoslavia [Croatia] (defendant) GOODS INVOLVED: Provision and installation of materials for
hotel Case abstract
ICC Arbitration Case No. 7153 of 1992
Case law on UNCITRAL texts (CLOUT) abstract no. 26
In the absence of an agreement of the parties on the law applicable, the
arbitral tribunal found that
CISG is applicable to the contract for the provision and installation of
materials destined for the
CISG entered into force in Yugoslavia and Austria, the countries of the
respectively, before the conclusion of the contract. In addition, the
contract falls within the scope
of application of CISG, since it is clear from the text of the contract that
is secondary to the sale.
Consequently, if CISG applies, the buyer in default is obligated to pay the
price and the interest
for delay in payment. As CISG does not indicate the applicable interest
rate, the arbitral tribunal
applied the national law applicable in accordance with the rules of private
international law, that is
the law of the place of payment. Since the contract does not specify the
place of payment, the
tribunal applied Article 57(1) CISG and designated the place of delivery of
the goods as the place
APPLICABLE CISG PROVISIONS AND ISSUES Key CISG provisions at issue: Articles 3(2) ; 9(1) ; 53 ; 57(1)(b) ; 59 ; 78 [Also cited: Article 30 ] Classification of issues using UNCITRAL classification code numbers:
3C ["Sale of goods"]
53A [Obligations of the buyer: obligation to pay price of goods]
57B [Place for payment: agreement for payment in exchange for goods or documents]
Descriptors: Applicability ; Scope of Convention ; Installation services ; Payment, place of ; Usages and practices ; Interest Go to Case Table of Contents
Applicability. The relevant place of business of the seller was in
Austria; the relevant place of business of the buyer was in Yugoslavia. The CISG was in effect in both countries at the time the contract was
concluded. The contract did not specify the governing law. The
tribunal stated: "According to the deep-seated conviction of the court
of arbitration, [the CISG] applies in the absence of an agreement
between the parties relating to the law applicable to the case in
point." Article 1(1)(a) is the relevant CISG provision.
Scope of CISG (goods vs. services). The contract was for "the
furnishing and assembly of materials for a hotel". Article 3(2) states
that the CISG "does not apply to contracts in which the preponderant
part of the obligations of the party who furnishes the goods consists in
the supply of labour or other services." The tribunal states: "It is
true that [seller] alleged that she did not only undertake the
obligation of delivery [of the goods] but also that of assembling the
installation. However, given that the text of the contract is
unequivocal in this respect, and that no contrary provision emerges from
[buyer], the court of arbitration assumed that the type of contract in
question here was a sales contract, such that the Convention applies."
Additional information on the facts is provided in a case commentary by
Dominique Hascher, Conseiller Général of the ICC International
Court of Arbitration. He advises that the tribunal's conclusion "was further
supported by a bill addressed to the [buyer] which made apparent that
the price to be paid for the assembly of the materials was of a
completely secondary order of magnitude compared to that of the price of
the materials."
Payment, buyer's obligation to pay for the goods. The tribunal stated: "The claim of the [seller] results from a contract signed by the
parties, related to [CISG] Article 53 . . . pursuant to which the buyer
is required, in accordance with the contract provisions and the
Convention, to pay the price for the goods."
Payment, place of/Usages and practices. The tribunal stated: "[T]he
contract does not contain any provision as to the place of payment. In
the absence of such a provision, Article 57(1) of the Convention . . .
applies. [I]t stipulates that the Buyer is required to pay the price at
the Seller's place of business or, if the payment is to be made against
the handing over of the goods, where [the] handing over takes place. At
the hearing, [seller] alleged that the payment was to be made against
the handing over of the goods in [Czechoslovakia]. Since the [buyer]
did not participate in the proceeding, this position was accepted, given
that the contract contains no contrary position."
As indicated below, this tribunal used place of payment to determine the
rate of interest. Under the circumstances of this case, the CISG
choices for place of payment were: pursuant to Article 57(1)(a) [at
seller's place of business in Austria]; or pursuant to Article 57(1)(b)
[in Czechoslovakia, the place where the goods were to be handed over]. Seller's testimony determined this issue. Article 9(1) provides that
practices the parties have established between themselves control. It
appears as though seller testified to a place-of-payment practice the
parties established between themselves: payment where the goods were to
be handed over, in Czechoslovakia.
Interest (right to, accrual of, rate of). The tribunal stated: (i) "In
the absence of an agreement between the parties about the payment of
interest accruing from the date of the commencement of this action, the
[seller's] claim concerning . . . interest stems from Article 78 of the
Convention, pursuant to which the seller has the right to receive
interest, if the buyer neglects to pay the price for the goods." (ii)
"[T]he rate of . . . interest is not provided for in the Convention,
which is why we need to turn to the national law designated by the rule
of conflict of laws. . . . In this case, the . . . applicable law is
Czech law, i.e., the law applicable at the place of payment." (iii)
"The New Czech Commercial Code does not explicitly speak to the amount
of interest owing . . . The Czech Embassy in Paris confirmed, however,
in any case, a claim for interest at a minimum rate of 12% should be
customary. In this matter, the research of the [seller] overlaps with
that of the arbitration court, such that the court . . . allowed an
accrual rate of 12%"
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=15&step=Abstract>
German: Schweizerische Zeitschrift für Internationales und
Europäisches Recht (SZIER) / Revue Suisse de droit international
de droit Européen, 1995, 280-281 Italian: Diritto del Commercio Internazionale (1993) 651, 656 No.
miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 241
CITATIONS TO TEXT OF DECISION Original language (German): Unavailable Translations:
English: 14 Journal of Law & Commerce (1995) 217-219 [text presented below] French: Journal du Droit International (1992) 1005-1007 = ICC Coll III, 442-444; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=15&step=FullText>
Spanish: 8 Revista de la Corte Española de Arbitraje (1992) 249-250
English: Ferrari, International Legal Forum (4/1998) 138-255 [191 n.461, 192 n.466 (analysis of Art. 3(2))]; Honnold, Uniform Law for International Sales (1999) 52 [Art. 2 (goods: materials used in construction of building)], 59 [Art. 3]; Behr, 17 Journal of Law and Commerce (1998) 266-288 [abstracts and comments on 29 interest rulings from 10 countries (this case presented at 275)]; Thiele, 2 Vindobono Journal (1998) 3-35, citing this case [n.95, n.125] and 42 other interest rulings; Bonell/Liguori, Uniform Law Review (1996-1) 147 [152 n. 30]; Callaghan, 14 Journal of Law & Commerce (1995) 183 [195-200] [text presented below]
Hascher, 14 Journal of Law & Commerce (1995) 220-224 (translation of
Journal du Droit International (1992) 1007-1010 [text presented below]; Koneru, 6 Minnesota
Journal of Global Trade (1997) 123-138
[comments on interest rulings in this case and other cases]; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) n.80; Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed., Kluwer (2003) §: 6-31 n.353; Tuula Ämmälä, 5 Turku Law Journal (1/2003) Sections 2.2, 3.2; Liu Chengwei, Recovery of interest (November 2003) n.218; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 1 para. 23 Art. 78 paras. 27, 32 French: Hascher, Journal du Droit International (1992) 1007-1010 =
ICC Coll III, 444-447;
Mayer, Mélanges Loussouarn (1994) 275 [281-282]; Witz, Les
applications jurisprudentielles du droit uniforme de la vente
internationale (L.G.D.J., Paris: 1995) 35, 106 n.115
German: Piltz, Neue Juristische Wochenschrift (NJW) 1994, 1101; Schlechtriem, Internationales UN-Kaufrecht (1996) 120 n.163; Will, UN-Kaufrecht und internationale Schiedsgerichtsbarkeit (1999) n.33
Italian: Liguori, Foro italiano (1996-IV) 145 [155 n. 51]
Spanish: Checa Martínez, 8 Revista de la Corte Española de
(Jurisprudencia Arbitral) (1992) 249, 250-252; Castellanos, Autonomia de la voluntad y derecho uniforme en la compraventa
internacional, thesis, Carlos III de Madrid (1998) 166-167
Reproduced with permission from 14 Journal of Law and Commerce (1995) 217-224
International Court of Arbitration, Matter No. 7153 in 1992 [1] [2]
I. APPLICABLE LAW. -- Vienna Convention on Contracts for the International
Sale of Goods. -- Rules governing the application. Article 1 of the
II. OBLIGATIONS OF THE BUYER. -- Payment of the price (Article 53 of the
Vienna Convention).
III. STAY OF INTEREST ACCRUING FROM THE DATE OF COMMENCEMENT OF ACTION.
Assessment of the rate. -- Conflict of laws analysis.
Verdict rendered in Matter No. 7153 in 1992
The parties finalized a contract in 1989 for the furnishing and
assembly of materials for the construction of a hotel. The [seller], an
Austrian national, maintains that she furnished the totality of her goods,
maintains that she received payment for only a part of them. After
attempts to obtain payment, she demanded arbitration. Notwithstanding the
failure to respond of the [buyer], a Yugoslavian (Croatian) national, the
arbitration was implemented by the International Court of Arbitration, in
accordance with Article 4 of the ICC regulation. The proceeding in front of
sole arbitrator was, moreover, to be held in accordance with the provision
Article 15(2) of the Regulation, pursuant to which "[i]f one of the parties,
despite being duly summoned, does not appear, the arbitrator, once he/she
ascertained that the absent party had notice of the summons, has the power,
the absence of a valid excuse [on the part of the absent
party] to proceed nevertheless to the accomplishment of his/her mission, and
the argument is deemed to be a full hearing of both sides."
The claim of the [seller] results from a contract signed by the
related to Article 53 of the Convention of 11 April 1980 of the United
on Contracts dealing with the International Sale of Goods (hereinafter
to as the "Convention") pursuant to which the buyer is required, in
with the contract provisions and the Convention, to pay the price for the
goods. According to the deep-seated conviction of the court of arbitration,
said Convention applies in the absence of an agreement between the parties
relating to the law applicable to the case in point.
Even though the article . . . of the contract is called "Litigation
Applicable Law," the parties nevertheless have not reached any agreement on
this matter, such that the court of arbitration must apply that law which is
designated by the law of conflicts which it deems appropriate (Article 13,
paragraph 3 of the regulation of conciliation and arbitration).
According to the terms of Article 1 of the Convention, the latter
contracts for the sale of goods between parties having presences in various
countries which are Contracting States. At the time of the contract's
finalization, i.e., on 31 May 1989, Austria (the [seller's] place of
business) as well as Yugoslavia (the [buyer's] place of business) were
contracting states. The Convention became effective in Austria on 1 January
1989 and in Yugoslavia on 1 January 1988 (cf. Herber v.
Caemmerer/Schlechtriem,
Commentary on the Uniform Law of States). It is true that the [seller]
that she did not only undertake the obligation of delivery [of the goods]
also that of assembling the installation. However, given that the text of
contract is unequivocal in this respect, and that no contrary provision
from the [seller's] mail, the court of arbitration assumed that the type
of contract in question here was a sales contract, such that the Convention
The amount in controversy is not in dispute.
The [buyer] did not participate in the instant proceeding, despite
been duly requested to do so on several occasions and despite having been
explicitly informed of the legal consequences of her non-participation.
Consequently, the [seller's] argument has been accepted.
In the absence of an agreement between the parties about the payment
[seller's] claim concerning said interest stems from Article 78 of the
Convention, pursuant to which the seller has the right to receive interest
the buyer neglects to pay the price for the goods.
Moreover, the rate of said interest is not provided for in the
which is why we need to turn to the national law designated by the rule on
conflict of laws. (Cf. Eberstein, in: V. Caemmerer/Schlechtriem, Commentary
the Uniform Law of Sales of the United Nations -- CISG -- 1990, Article 78,
end of line 3.) In this case, the court of arbitration believed the
law to be Czech law, i.e., the law applicable at the place of payment.
It is true that the contract does not contain any provision as to
payment. In the absence of such a provision, Article 57(1) of the Convention
nevertheless applies. The latter stipulates that the buyer is required to
the price at the seller's place of business or, if the payment is to be made
against the handing over of the goods, where said handing over takes place.
the hearing, the [seller] alleged that the payment was to be made against
handing over of the goods in Prague. Since the [buyer] did not participate
the proceeding, this position was accepted, given that the contract contains
contrary provision. The New Czech Commercial Code does not explicitly speak
the amount of interest owing. (Cf. Articles 735, 502 of the Commercial
Despite intensive efforts undertaken by the arbitrator, it was not possible
gain precise information on this matter. The Czech Embassy in Paris
however, that, in any case, a claim for interest at a minimum rate of 12%
should be customary. In this matter, the research of the [seller] overlaps
with that of the arbitration court, such that the court had to allow an
rate of 12%.
The [buyer], having incontestably acknowledged a delay of payment,
from the . . . [seller's] claim in this matter similarly is
Since the [buyer] is the losing party in the present proceeding,
required to bear the costs and expenditures of the arbitration proceeding as
well as the fees and necessary expenses of the representatives ad litem of
[seller] (original in German).
1. The following excerpts . . . were originally published in French in 4 JOURNAL DU DROIT INTERNATIONALE [J.D.I] 1005 (1992). Case No. 7153, International Chamber of Commerce, International Court of Arbitration (1992) . . .
2. This Journal of Law & Commerce case translation was prepared by Vivian Curran, Legal Writing Instructor, University of Pittsburgh School of Law (B.A. University of Pennsylvania; Ph.D., J.D. Columbia University). Any reader who intends to rely on this case must consult the original text.
Hascher commentary Callaghan commentary Reproduced with permission from 14 Journal of Law and Commerce (1995) 220-224
Commentary on ICC Case 7153 of 1992 Dominique Hascher [3]
I. This judgment is the first decision of an arbitrator, at least in
the ICC system, to apply the Vienna Convention of 1980 on International
to the litigation before it. In a prior publication (J.D.I. 1991, p. 1054),
group of judgments was reported in which the arbitrators referred to the
of that Convention, or evoked it to support solutions drawn from the
law which they had to apply in order to resolve the litigation before them.
Vienna Convention, by reason of the large number of states interested in
text, thus greatly exerted an influence on the jurisprudence of arbitration,
even if its role was only subsidiary because the conditions for its
had not at that time been met. Indeed, the Vienna Convention, although
by a diplomatic conference which was held in Vienna from 10 March to 11
1980, only became effective following the ratification by ten states on 1
January 1988. Since that date, 24 other states have joined the first ones,
bringing the number of Contracting States to 34, to which four other
states were added (DOC. CNUDCI A/CN-9/368, 28 April 1992.) It still was
necessary to wait for contracts which came within the purview of the
to lead to litigation brought before arbitrators. Indeed, we should recall
that, pursuant to its Article 100, the new Convention applies . . . to the
formation of contracts made following an offer which occurred after the
Convention's effective date; as well as . . . to the obligations of the
and the buyer which arise out of contracts entered into after 1 January
In the instant case, the contract was formed in the first six months of
namely, after the Convention took effect in the States in which the parties
their places of business according to the meaning of Article 1(1)(a). Paragraph
(a) thus retains the permanent geographical criterion of the place of
at the time of the formation of the contract in order to determine the area
the Convention's application. The latter does not consider either the State
which it is performed or the nationality of the parties. Article 1(1)(b) of the
Convention, however, contains a legal criterion which contemplates its
application when the rules of private international law designate the law of
At the beginning, the arbitrator confronted the problem of
between the uniform rules and private international law. Even though the
contract contained a clause entitled "Litigation and Applicable Law,"
nevertheless the parties had not made any choice of law. Thus, the
referred to Article 13(3) of the Regulation of the ICC, according to which,
the absence of an indication of the law applicable to the main issue, it is
appropriate to apply the law designated by the conflicts of law rule which
judge in the instant case deemed appropriate. The text is identical to that
Article VII of the Geneva Convention of 1961 which the arbitrator did not
mention, but which applied to the controversy by reason of the scope of its
application. When the parties have not chosen the law applicable to the
controversy, the arbitrator generally makes use of three different methods
determine the law which applies to the issue. The first [method] consists of
applying cumulatively the systems of conflicts of laws of the States
in the litigation. The second [method consists of] having recourse to the
general principles of private international law, such as rules contained in
international conventions, which, even if they are not applicable, either
because they have not become effective, or because they have not been
by the States interested in the litigation, express an international
The third method consists of choosing directly material rules, avoiding
reasoning of a conflict of laws nature (Derains, "Legitimate expectation of
parties and applicable law to the substantive issue in international
arbitration": Travaux Comité fr. DIP, 1984-1985, p. 81).[4] Indeed, Article 13(3) of the Regulation does
not require recourse to the conflicts of laws method. In the context of
13(3), the meaning to be ascribed to the expression ["] rule of conflict ["]
the general one of international law, rather than the narrow one of a rule
which gives priority to one among several conflicting laws which are able to
govern a specific situation. In the instant case, the arbitrator immediately
determined the applicable international law. However, we must recall that
Article 1 of the Vienna Convention can be considered as expressing a true
of conflict even though it determines only the conditions of application of
Convention, and there is no contest between different laws which
purport to apply to a situation, no more than the application of a rule of
conflict to Article 1(1)(b) will suffice to transform the scope of application
a rule of conflict (Bianca and Bonnell, Commentary on the International
Sales Law, Gouffré, p. 28; Honnold, Uniform Law for
Kluwer, and preparatory work, Official Documents A/Conf. 97/19, Report
the Secretariat, p. 15, which indicates that the Convention notably aims to
discourage a search for the forum whose law is the most favorable and to
the need for recourse to rules of international private law).
The second problem which the arbitrator confronted with respect to
application of the Vienna Convention was the definition of the litigation.
Indeed, the Convention nowhere defines the juridical operation which,
determines its material area of application, its drafts people having
a search for a common definition of a kind to elicit the adherence of all.
then on, it has been appropriate to rely on the provisions of the Convention
which, we must underscore, are generally characteristic of sales in all
systems. Thus, Article 30 states that "the seller must deliver the goods and
transfer the property in the goods," Article 53 provides that "the buyer
pay the price for the goods and take delivery of them." (See Kahn and
Bérando, Le nouveau droit de la vente internationale de
marchandises.[5] Marchés internationaux,[6] no. 89.) However, Article 3 of the Vienna
Convention excludes both contracts for the supply of goods when the party
orders the goods furnished a substantial part of the materials necessary for
the manufacture or production [Article 3(1)] and also [excludes] contracts
hiring labor or performing services when the preponderant part of the
obligation of the party who furnishes the goods is to furnish labor or other
services. [Article 3(2)]. In fact, the negotiators of the Convention deemed
that these transactions are more closely related to another legal category
that of sale. However, the line of demarcation can prove to be difficult to
draw; the concept of "substantial part" or "preponderant part", on which the
application of the Convention depends, being subject to the understanding of
the interpreter (Bianca and Bonnell, supra; Kahn and Bérando,
Audit, La vente internationale des marchandises,[7] LGDJ.[8])
In order to resolve the difficulty, the arbitrator referred in the decision
the text and to the general meaning of the contract which established
unambiguously that the principal transaction was a sale. This conclusion was
further supported by a bill addressed to the [buyer] which made apparent
the price to be paid for the assembly of the materials was of a completely
secondary order of magnitude compared to that of the purchase of the
The arbitrator thus correctly examined the economic value of the benefits
furnished in order to conclude that the contract at issue came within the
purview of the Vienna Convention.
[II.] With respect to a claim for payment which, by the way, never
contested by the [buyer] during the parties' attempt at conciliation
preceding the arbitration, the arbitrator based his finding of liability on
Article 53 of the Convention, pursuant to which the payment of the price
the taking of delivery of the goods is the principal obligation of the
The payment of the price represents of course the counterpart of the
of the goods. One should recall that, according to Article 59 of the
Convention, the payment takes effect either at the contractually
date, or on the date determined by the Convention. No other formal notice
other procedure is necessary on the part of the seller.
III. Pursuant to Article 78 of the Vienna Convention, a default in
payment of the price creates a right to interest on the sum owing, without
prejudice to the damages which can be claimed in the event of a fundamental
breach, or of a non-fundamental breach, of the contract (See Articles 25
74 of the Convention).[9] If the Convention
contemplates allowing interest accruing from the date of the commencement
the action, it is silent as to the rates of such interest. With respect to
this matter, the sole arbitrator decided to refer to a State law, adopting
conflict of laws type of procedure. Arbitrators generally determine the
of interest according to the law applicable to the contract, or they adopt
rate of the country of the creditor or of the State of the contractually
agreed currency for payment (Derains, "Intérêts moratoires,
compensatoires et dommages punitifs devant l'arbitre international."[10] Mélanges Bellet, Litec, p.101).
Somewhat strangely, this arbitrator referred to the law of the place of
payment. When nothing has been provided in the contract about the place of
payment, Article 57 of the Vienna Convention states that the buyer must pay
the seller at the latter's place of business or at the place of the handing
over of the documents. But in the final analysis, the arbitrator went to
law of the place of delivery of the goods; i.e., Czech law, based on
payment's having occurred against delivery. It appears that there was here first of all confusion between the place of
and the time of payment, which last, according to Article 58 of the
is deemed to occur, in the absence of indications to the contrary, at the
of the seller's placing the goods at the buyer's disposal. Moreover, one
call attention to the weakness of the link which the arbitrator made. The
interest accruing from the date of the commencement of the action
contractual reparation which indemnifies for the deprivation of capital.
Therefore, the emerging tendency of arbitrational jurisprudence is to
directly, without recourse to a State's law, a rate [of interest] which,
into account the circumstances of each particular case, indemnifies against
harm due to delay in payment. (Derains, supra.) Moreover, Article 502
the Czech Commercial Code (which took effect on 1 January 1992) to which
Article 735 of the same Code pertains, provides that, in the absence of an
agreement of the parties, the rate of interest accruing from the date of the
commencement of the action is that of credit extended by the banks in the
debtor's domicile[11] at the time of
entering the contract, which in this case means Croatian banks.
3. Commentary by Dominique Hascher, Conseiller
Général et Secrétaire Général
Adjoint, International Court of Arbitration, International Chamber of Commerce,
4 J.D.I. at 1007, supra note 1. [Footnote explanations provided by Vivian Curran.]
4. DIP is the legal abbreviation for droit international public
("public international law") and for droit international privé
("private international law.").
5. The New Law of the International Sale of Goods.
6. International Markets.
7. The International Sale of Goods.
8. LGDJ is the legal abbreviation for Librairie
de Droit et de Jurisprudence. 9. U.N. Conference on Contracts for the International Sale
of Goods, Final Act, U.N. Doc. A/Conf. 97/18 (1980) [hereinafter "CISG"],
reprinted in S. Trcaty Doc. No. 98-9, 98th Cong., 1st Sess. and 17
LEGAL MAT. 668 (1980). Article 25 defines fundamental breach and Article 74
deals with the calculation of damages for breach of contract, without
restricting its application to fundamental breaches. 10. "Interest Accruing From the Commencement of Actions,
Compensatory Damages -- Interest and Punitive Damages Before the International
11. Under French law, "domicile" is the place where a citizen has his or
her principal establishment rather than actual residence. See CODE
CIVIL, Domicile, art. 102-111 (edition of 1 January 1983); see also
JEAN BALEYTE, ALEXANDRE KURGANSKY, CHRISTIAN LAROCHE, JACQUES
SPINDLER, DICTIONNAIRE ÉCONOMIQUE JURIDIQUE (3d ed. 1992). Reproduced, with permission, from 14 Journal of Law and Commerce
183-200 (1995)
U.N. Convention on Contracts for the International Sale of Goods: Examining the Gap-filling Role of CISG in Two French Decisions James J. Callaghan
III. INTERNATIONAL CHAMBER OF COMMERCE (ICC),
INTERNATIONAL COURT OF ARBITRATION (ICA) CASE No. 7153
In 1989, a contract was entered into by the Seller, an Austrian
national, and the Buyer, a Yugoslavian national (Croatian),[76] for the furnishing and assembling of
materials to be used in the construction of a hotel in Czechoslovakia. The
Seller maintained that it delivered all of the goods required by the
but received only a portion of the payment. After unsuccessful attempts to
obtain the outstanding payment, the Seller demanded arbitration seeking the
remaining balance along with interest on that balance. Although the Buyer
served with notice of the impending arbitration, it failed to respond.
Notwithstanding the Buyer's failure to respond in accordance with Article 4
the ICC Rules,[77] the arbitration was
implemented in front of a sole arbitrator by the ICA. Article 15(2) of ICC
"[i]f one of the parties, although duly summoned, fails to
arbitrator, if he is satisfied that the summons was duly received and the
is absent without valid excuse, shall have the power to proceed with the
arbitration, and such proceeding shall be deemed to have been conducted in
presence of all parties."[78]
Although the contract between the parties contained an article called
"Litigation and Applicable Law," the parties nevertheless had failed to
an agreement on this matter.[79] The Court,
pursuant to Article 13, paragraph 3, of the Regulation of Conciliation and
Arbitration, "must apply that law which is designated by the law of
which it deems appropriate."[80]
the ICA applied CISG.
The issue in this case is what rate of interest should be used
determining the Seller's damages. There is no question that the Seller is
entitled to the outstanding balance of the contract price for the delivered
goods (absent some claim by the Buyer of which we are unaware due to the
Buyer's refusal to participate in the proceedings). Article 53 of CISG, if
is indeed applicable here, states simply that "[t]he buyer must pay the
for the goods and take delivery of them as required by the contract and this
Convention."[81] The first stage of the
analysis then is to determine whether it was appropriate for the ICA to
Article 1(1)(a) provides for the application of CISG if the
for the sale of goods arises between parties whose places of business are in
different states and where both states are signatories of CISG.[82] Buyer and Seller have their places of
business in different states, Buyer in (the former) Yugoslavia and Seller in
Austria, and both of these states are signatories of CISG.[83] Since the parties did not adequately
for choice of law or forum in the article of the contract entitled
and Appropriate Law," as discussed in the previous section, the ICA applied
CISG as the law designated by the law of conflicts.
There is, however, the question of whether the mixed nature of the
i.e., the fact that it involves both the furnishing of the goods and
their assembly by the Seller, affects the proper application of CISG. As the
Hascher Commentary on this case points out, Article 3(2) of CISG is
here. Article 3(2) states that "[t]his Convention does not apply to
in which the preponderant part of the obligations of the party who furnishes
the goods consists in the supply of labour or other services."[84] The ICA treated this question as a factual
issue finding that it was clear from the text of the contract that the
provision of assembly services was secondary to the sale and the transaction
could thus be treated as a contract for the international sale of goods.[85]
Notice the similarity between the issue of the nature of the contract here and
that in Ytong. Here at least, there is evidence in the contract that
parties intended to subordinate the assembly obligation to that of the
obligation of the Seller to deliver the goods. In Ytong, there was no
written indication of the nature of the contract and the French Court was
forced to make a factual determination, which ultimately led to the
Whereas in Ytong the Court applied Article 57 to
place of performance of the obligation in order to apply the Brussels
Convention for jurisdictional purposes, here the ICA is using Article 57 to
determine whether interest on the unpaid balance of the purchase price is
available and at what rate. Since the contract had no provision for an
payment, the ICA applied Article 78 of CISG which provides that "[i]f a
fails to pay the price or any other sum that is in arrears, the other party
entitled to interest on it, without prejudice to any claim for damages
recoverable . . . ."[86] CISG, however,
not supply the applicable rate at which the interest is to be paid to the
damaged party. Thus, the ICA had to determine an appropriate rate. The
of a court to engage in such gap-filling is authorized by Article 7(2) of
"[q]uestions concerning matters governed by this Convention which
principles on which it is based or, in the absence of such principles, in
conformity with the law applicable by virtue of the rules of private
The Hascher Commentary notes that arbitrators generally determine
interest according to the law applicable to the contract, or they adopt the
rate of the country of the creditor, or the state of the contractually
currency for payment.[87] The Hascher
Commentary goes on to note that despite this common practice, the ICA chose
adopt the law of the place of payment. Since the parties did not provide for
place of payment in the contract, the ICA applied Article 57 to determine
location.[88] The ICA applied Article
57(1)(b),
which states that "if the payment is to be made against the handing over of
goods or of documents, [then payment of the price should be made] at the
where the handing over takes place."[89] The
ICA held that the partial payment made by the Buyer, which occurred upon the
handing over of the goods, placed the obligation to pay under Article
57(1)(b).[90] The contract does not mention
that payment is to be made upon the handing over of the merchandise.[91] However Article 9(1) of CISG provides that
"[t]he parties are bound by any usage to which they have agreed and by any
practices which they have established between themselves."[92] The Seller alleged at the hearing that
payment was to be made at the handing over of the goods in Prague.[93] Since the Buyer did not participate in the
hearing, the ICA accepted the Seller's position and applied 57(1)(b). This
makes a significant difference because if the ICA had applied 57(1)(a), the
place of performance of the obligation would have been Austria, the location
the Seller's place of business. It appears that there must have been a more
favorable rate of interest in Czechoslovakia since the Seller was so eager
convince the ICA that the place of payment was located there.
The Hascher Commentary criticizes the ICA's reasoning on this matter
of a growing tendency of arbitral jurisprudence to determine directly,
recourse to any particular state's law, a rate of interest which, taking
account the circumstances of each particular case, indemnifies against the
due to the delay in payment.[94] A further
anomaly of the ICA's holding is that the New Czech Commercial Code provided
firm position on the rate of interest either. The Czech embassy in Paris
provided a figure of a minimal rate of 12% to be customary.[95] However, the Hascher Commentary
to dispute this finding stating that Article 502 of the Czech Commercial
(which took effect on January 1, 1992) provides that, "in the absence of an
agreement of the parties, the rate of interest payable on the unpaid balance
that of credit extended by banks in the debtor's place of business at
the time of entering the contract," i.e. Croatian banks.[96]
There appear to be four possible methods of determining the rate
interest to be paid on the outstanding balance in this case. The first does
involve CISG and is the position the Hascher Commentary suggests is the
trend in arbitrational jurisprudence. Using this method, the arbitrator
considers the circumstances of each particular case to determine the
appropriate rate. The second method involves applying Article 57(1)(a) of
which would locate the place of the Buyer s obligation to pay the Seller in
Austria, and Austrian interest rates would apply. The third method is the
chosen by the ICA. Applying Article 57(1)(b), the ICA found the place of
performance of the Buyer's obligation to pay the Seller was Czechoslovakia
partial payment of price was made upon the delivery of the goods. CISG
parties to be bound by usage and established practices between them, but
is no concrete evidence that payment was to be made upon the handing over of
the goods, and the ICA relies on the Seller's allegations. In addition, the
ICA was unable to find a satisfactory solution under Czech national law and
to rely on a 12% customary figure. The fourth and final possibility involves
applying section 502 of the New Czech Commercial Code instead of the
figure applied by the ICA. In this case, the rate would be determined by
of the debtor's place of business, i.e., Croatia.
The foregoing illustrates the uncertain outcome where the parties to
contract for the international sale of goods do not adequately provide for
defaults. Although CISG provides an aggrieved seller the remedy of interest
the unpaid balance, it does not provide for an applicable interest rate,
subjecting the parties to the uncertainties common to private international
law. CISG cannot be expected to fill all the gaps in all contracts for the
international sale of goods, but serious problems, as well as anomalous
decisions, can arise when courts and arbitrators are forced to fill the gaps
CISG itself.
Go to entire text of Callaghan commentary
75. The following is a summary of the relevant facts from the translated case
published along with this Note. Please refer to the translated case for the
unabridged facts. 76. The names of the parties are not provided by the Court
and will be referred to hereinafter as "Seller" and "Buyer."
77. INTERNATIONAL CHAMBER OF COMMERCE RULES OF
CONCILIATION AND ARBITRATION (in force from 1 January 1988) [hereinafter ICC
RULES], reprinted in W. LAURENCE CRAIG ET AL., INTERNATIONAL CHAMBER OF
COMMERCE ARBITRATION, app. II (2d ed. 1990). Article 4 provides the procedures
for the defendant's answer to the plaintiff's request for arbitration.
79. The ICA does not state the content of the article on
"Litigation and the Law," but only that it was insufficient to provide the ICA
with the applicable law to be applied in the conflict. 80. ICC RULES, supra note 77,
app. II, at 3. Art. 13(3) states: "[t]he parties shall be free to determine the
law to be applied by the arbitrator to the merits of the dispute. In the
absence of any indication by the parties as to the applicable law, the arbiter
shall apply the law designated as the proper law by the rule of conflict which
it deems appropriate." The Commentary following the case, written by Domonique [sic]
Hascher, notes that when parties to a contract have not chosen the law
applicable to the controversy, arbitrators generally use three different
methods to determine which law applies. See Hascher Commentary, supra note 18.
The first method consists of applying cumulatively the systems of conflicts of
laws of the states interested in the litigation. The second method consists of
having recourse to the general principles of private international law, such as
the rules contained in international conventions, e.g. CISG, and the
third method consists of directly choosing trial rules, avoiding rules of a
conflictualist nature. Id., citing Derains, Legitimate Expectation of
the Parties and Applicable Law to the Substantive Issue in International
Commercial Arbitration, TRAVAUX COMITÉ DIP, 81, 1984-1985.
83. Declarations Table, supra note 55, at 237,
84. See Hascher Commentary, supra note 18, at
85. See ICA Case, case No. 7153, at 1007. The
Hascher Commentary notes that this conclusion is further supported by a bill
addressed to the Buyer which stated that the price for the assembly of the
materials was of a completely secondary order of magnitude compared to that of
the purchase of the materials. See Hascher Commentary, supra note
18, at 1009.
87. See Hascher Commentary, supra note 18, at
1009 (citing Derains, Intérêts Monetaires,
et Dommages Punitifs Devant l'Arbitre International, Mélanges Bellet,
LITEC, p. 101).
88. See Hascher Commentary, supra note 18, at
94. See Hascher Commentary, supra note 18, at 1009-10 (citing
Derains, supra note 87).
96. Id. at 1010