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transnational law transnational law (lex mercatoria or international business law) and "Duty to pay interest" 2016-03-01 13:58:16

No. VII.6 - Duty to pay interest

(a) If the parties have not agreed otherwise, the debtor, who does not pay a sum of money when it falls due has to pay to the creditor interest on that sum from the time when payment was due.

(b) The rate of interest is to be determined on the basis of the average bank short-term lending rate to commercial borrowers prevailing for the currency of payment at the place of payment. The average bank long-term lending rate to commercial borrowers may be applied in cases in which a significant amount of time has elapsed from the date of the breach or maturity date of the debt to the date of the award.

(c) If the creditor's actual costs of borrowing are higher, he may recover the costs which exceed the rate of interest determined pursuant to subsection (b) as damages pursuant to Principle VII.1 and Principle VII.2, provided that he has exercised reasonable efforts in securing competitively priced financing.


1 A claim for interest on a sum of money can be qualified either as a damage claim, because the creditor has to borrow the money he does not receive from his debtor elsewhere and has to pay interest for this money, which constitutes his damage. Alternatively, a claim for interest can be characterized as a claim for restitution because the debtor, while withholding the money and investing it, is unjustifiably enriched because it would have been the right of the creditor to invest the sum owed to him or to use it for other purposes. From a functional perspective, the first approach is to be preferred because in business life, there is a general presumption that businesses work with bank credit for money they do not have or that is due to them but that they have not yet received. With this credit-oriented perspective derived from commercial reality, the view that the damage calculation for interest claims should rather be based on lost investment opportunities of the creditor (treasury bill rates or similar reference rates) is rejected.

2 Consequently, interest for sums in arrears are regularly awarded by international arbitral tribunals to compensate for the damage resulting from the fact that the creditor is deprived for a certain period of time of the use of and disposition over the sums to which he is entitled. Based on what has been stated above in para. 1, the damages must fully compensate the creditor for is actual costs of replacing the sum owed to him.

3 The interest rate must be reasonable and must be fixed taking into account all relevant circumstances, in particular all relevant contractual stipulations, the nature of the facts which have caused the damage, the interest rates in force on the markets for the relevant currency, the inflation rate of that currency and the time that has elapsed between the breach of contract leading to the damage claim or the maturity date of a claim not honored by the debtor and the time of the award. Given that the interest rate to be paid for a loan depends to a large extent on the term of the loan and increases with the term of the loan, it could be punitive to the creditor to assume that he would have loaned the substitute funds on a short term basis if the time until the award is rendered is significant. For these reasons and depending on the time that has elapsed between the moment of breach or maturity date of the debt and the time of the award, the reasonable rate would be the average short- or long-term bank lending rate to commercial borrowers for the currency of payment at the place of payment. This means that, in order to determine the proper interest rate, a tribunal would have to determine how much time has elapsed between the moment of breach or the maturity date and the date of the award and then assess what the longest-term loan in that period would have been.

4 The creditor may of course always prove that his costs for borrowing substitute funds were higher than the costs calculated pursuant to Subsection b) of the Principle. The creditor may, however, not shift the increased economic burden arising out of the fact that he did not pursue a reasonable search for competitive interest rates to his debtor. That would mean a violation of his duty to mitigate damages pursuant to Principle VII.4.

5 In light of the significance of the duty to pay interest under this Principle, the parties' agreement not to allow for a claim for interest must be clear and unequivocal.

Please cite as: "Commentary to Trans-Lex Principle , "


Arbitral Awards
Arbitration Rules
Court Decisions
International Legislation
Miscellaneous Legislation
Model Laws
Model Terms
National Legislation
Principles / Restatements
Contract Clauses
1. Contractual Clause Foreseeing Payment of Interest following an Event of Default
Employment Contract

In the event a default is not cured within the grace period, the Administrator may direct the Trustee to report the outstanding principal balance of the loan and accrued interest thereon as a taxable distribution to the Participant.

Sales & Purchase Contract
Late Payment

If either Party owing an amount to the other Party fails to pay in accordance with this Contract, that Party shall pay interest on any overdue amount at a rate equal to the lesser of: (i) the posted prime rate in The Wall Street Journal as listed under "Money Rates", plus two percent (2%), or (ii) the maximum rate allowed by law, from the due date until such principal amount and interest thereon are paid.

Claims, Pre-Estimated Damages

In the case of any delay in payment hereunder respectively, the Buyer or the Seller, shall pay to the other Party interest for each day of delay at LIBOR for 1 month deposits in USD plus 1% (one per cent), calculated on the basis of 360 day-year.

Payment of the Purchase Price

Without prejudice to any other contractual or statutory rights and remedies of the sellers arising from a default on the part of the Purchaser, if the Purchase Price or part of the Purchase Price is not credited to the accounts (...) interest at a rate of 17,5% (Default Interest) shall become due and payable by the Purchaser on any outstanding amounts of the Purchase Price (...) whereby such Default Interest shall in each case be calculated daily on the basis of a year of 360 days and the actual number of days elapsed.

Invoicing and Settlement of Costs

(...) each Party agrees to pay all of the Service Costs on or before {X} days after the date on which an invoice for Service Costs is delivered to such Party by check or wire transfer of immediately available funds; provided that the Parties may agree to a net amount owed by one Party to the other. If a Party fails to pay any monthly payment on or before the Payment Date, such Party shall be obligated to pay, in addition to the amount due pursuant to such invoice, interest on such amount at the prime rate published in The Wall Street Journal (as of the applicable Payment Date) plus {X} percent per annum, compounded monthly from the relevant Payment Date through the date of payment (...)

Services Contract
Validity Period and Breach of Agreement

Party B should timely make bottom-line payments to Party A for the exclusive advertisement agency fee. In the case of a late payment, for the delay per day, Party B should pay a late fee at 0.1% of the amount of the late monthly payment.

Accounts Receivable Agreement
Default Rate

If any Obligation is not paid when due, the amount of such unpaid Obligation bears interest at the Applicable Rate plus five percent until the earlier of (a) payment in good funds or (b) entry of a final judgment when the principal amount of any money judgment will accrue interest at the highest rate allowed by law.

Loan Contract
Default Rate; Usury

During any period in which an Event of Default has occurred and is continuing, Company shall pay interest on the unpaid principal balance hereof at a rate per annum equal to the rate otherwise applicable hereunder plus two percent (2%). If any interest is paid on this Bridge Note is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Bridge Note.

Interest after Default

Upon the occurrence of any Event of Default, including, but not limited to, (i) any material adverse change in the business assets, affairs, prospects or financial condition of Borrower or any guarantor, (ii) failing to provide financial statements, copies of Federal tax returns and other information relating to the financial condition, properties and affairs of the Borrower, any guarantor or grantor, as provided for in this Note and/or any Related Document, or (iii) failure to pay upon final maturity, Lender may, at Lender's option and if permitted by applicable law, a) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note, including any increased rate, and/or b), increase the interest rate on this Note by X percentage points (the "Default Rate Margin"). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no Event of Default. However, in no event will the interest rate exceed the maximum interest rate allowed under applicable law.

2. Interest Due Following Late Payment
Employment Contract
Interest on Late Payment

In addition to its other liabilities under this deed the Surety will pay to the Landlord on demand interest at the rate of 4% above the base rate from time to time of Lloyds TSB Bank Plc compounded with quarterly rests (before and after judgment) on any amount payable by the Surety pursuant to this deed for the period from the date when the payment became due until the date on which it is paid.

Sales & Purchase Contract
Late Payment

If either Party owing an amount to the other Party fails to pay in accordance with this Contract, that Party shall pay interest on any overdue amount at a rate equal to the lesser of: (i) the posted prime rate in The Wall Street Journal as listed under "Money Rates", plus two percent (2%), or (ii) the maximum rate allowed by law, from the due date until such principal amount and interest thereon are paid.

A project of CENTRAL, University of Cologne.