## Facts

- An Austrian seller and a Bulgarian buyer entered an international sales contract for goods to be delivered DAF at the Austrian–Hungarian frontier, with delivery due four weeks after the buyer opened a documentary credit.
- The contract required the buyer to open a documentary credit by a specified date as the agreed method of payment.
- The contract included a penalty clause that purported to cap recoverable damages to a percentage of the contract price in the event of non-performance by the seller.
- The buyer failed to open the documentary credit by the agreed date.
- The seller prepared the goods for delivery, preserved them by depositing them in storage, and commenced ICC arbitration seeking performance and damages, including storage costs and interest.
- The buyer argued it could not open the credit because a Bulgarian governmental order suspended payment of foreign debts, which the buyer treated as a force-majeure-type impediment.
- The contract’s arbitration clause did not designate the applicable substantive law.

## Issues

1. Whether the CISG governed the contract through conflict-of-laws rules pointing to Austrian law, even though the buyer’s place of business was in a non-Contracting State at the relevant time.
2. Whether the buyer’s obligation to pay the price under CISG Article 54 includes opening a documentary credit and related payment formalities.
3. Whether the buyer was exempt from liability under CISG Article 79 due to the governmental suspension of foreign-debt payments.
4. Whether the seller could recover full damages under CISG Articles 74–77 despite a contractual penalty/limitation clause, and what role domestic law plays in that analysis under CISG Article 7(2).
5. Whether interest was due under CISG Article 78, and how the applicable interest rate should be determined.
6. Whether the buyer bore losses from deterioration of goods during storage, including whether risk had passed under CISG risk rules.

## Decision

- The tribunal applied the CISG to the parties’ dispute via CISG Article 1(1)(b), because the relevant private international law rules led to Austrian law, which includes the CISG.
- The tribunal found the buyer breached its payment obligation under CISG Article 54 by failing to open the documentary credit.
- The tribunal rejected the buyer’s CISG Article 79 defense, finding the buyer did not prove the governmental order caused the failure to open the credit and that the circumstances were foreseeable at contract formation.
- The tribunal awarded the seller damages under CISG Articles 74–77, declining to treat the contractual penalty/limitation clause as restricting recovery, using Austrian law as gap-filling law under CISG Article 7(2).
- The tribunal awarded interest under CISG Article 78 and set the rate at 12%, tied to commercial borrowing rates, rather than limiting the award to the domestic statutory rate.
- The tribunal denied recovery for deterioration losses attributed to prolonged storage, holding risk had not passed to the buyer because the seller had not delivered the goods DAF or otherwise placed them at the buyer’s disposal as required.

## Legal Principles

- CISG Article 1(1)(b) permits application of the CISG when conflict-of-laws rules designate the law of a CISG Contracting State, even if one party’s place of business is in a non-Contracting State.
- Under CISG Article 54, the buyer’s obligation to pay the price includes taking the steps and completing formalities required for payment, including opening a documentary credit and obtaining required authorizations.
- A party claiming exemption under CISG Article 79 must prove the alleged impediment caused the non-performance and that it was not reasonably foreseeable at contract conclusion.
- CISG Article 74 provides for full compensation subject to foreseeability; questions about the effect or validity of contractual penalty/limitation clauses may be resolved through CISG Article 7(2) by recourse to the applicable domestic law.
- CISG Article 78 establishes a right to interest on sums in arrears without requiring a reminder; because the CISG does not specify a rate, tribunals may determine the rate through CISG Article 7(2) and, where proven, may account for commercial borrowing costs as recoverable loss.
- Risk of loss does not shift to the buyer before the seller has delivered or placed the goods at the buyer’s disposal in the manner required by the contract and CISG risk provisions; storage costs may be recoverable, but deterioration losses before risk passes remain with the seller.

## Conclusion

The tribunal applied the CISG via conflict-of-laws to Austrian law, held the buyer’s failure to open a documentary credit breached the Article 54 payment obligation without Article 79 excuse, awarded damages and 12% interest to the seller notwithstanding a contractual damages cap, and denied deterioration damages because risk had not passed prior to delivery.


ICC Int’l Ct. Arb. Case No. 7197 (1992)