Penalty interest on amounts due/ Swiss law / Article 104 C.O., general rule / Applicable discount rate, that of place of payment / Definition of place of payment, Article 74 C.O., place where the obligee has his domicile at the time of performance / Date when interest starts running, Article 102 C.O., when debtor is in default.

'The Claimants demand a penalty interest on all amounts due to them and not yet paid or which have been paid after the due date. The parties did not agree on a conventional penalty interest rate. Therefore the general rules of the Swiss Code of Obligation must be applied.

Article 104 C.O. states:

"If an obligor is in default as to the payment of a financial obligation, he shall pay penalty interest at 5% per annum, (...). As between merchants, penalty interest may be calculated at a higher rate when the usual bank discount rate at the place of payment is higher than five percent."

Therefore the Respondent will be condemned to pay on each amount due an interest at the rate of 5% or at the higher rate of discount at the place of payment. Since the Tribunal has received no information as to what the discount rate may be at the various places of payment, it must reserve such determination. If the discount rate is higher than 5%, then this rate will be applicable. By discount rate it is understood the officially announced percentage at which the Banks are prepared to discount a bill of exchange not yet due to first class clients. In case this rate is lower than five percent or if it cannot be determined, the minimum rate of 5% shall be applied.

Since the discount rate, as above defined, may vary from one place to the other, the law states that the usual discount rate at the place of payment shall be taken into consideration. Therefore, in order to determine the applicable rate, the Tribunal must further decide where the place of payment is located for each sum due.

As the contract does not define the place of payment, Swiss law is applicable. According to Article 74 § 1 C.O. "financial obligation shall be paid at the place where the obligee has his domicile at the time of performance". One of the Claimants has its seat in France and the other in Egypt. Therefore the Tribunal decides that the place of payment of the obligations stipulated in FF shall be France, whereas the amount in any other currency (US$, E£) shall be Egypt, with the exception of the reimbursement of US$ ... representing the amount debited in Luxembourg by [Bank] as a consequence of the performance bond being unlawfully drawn by the Respondent. For this amount, the higher discount rate, if any, shall be the one applicable in Luxembourg.

It must finally be decided for each claim when the interest starts running. Under Swiss law, the payment of penalty interest is dependent on the debtor being in default. This can occur either when a fixed due date was agreed upon for performance, or when the defaulting party has been duly reminded by the other party (Article 102 C.O.). The reminder can be a simple letter or the opening of a court proceeding. On the other hand, the mere issuance of an invoice or of a work progress report is not sufficient.

It does not seem that the Claimants gave the Respondent formally notice to pay their various invoices before the request for arbitration. Therefore, the Arbitral tribunal decides that the "dies a quo" of the interests for the sums due before opening of the procedure must be fixed at the date of the request for arbitration...

After the request for arbitration, some further losses occurred for the Claimants.

Thus the performance bond was unjustly drawn by Respondent on ... Therefore at this date the interests started running.

Finally the sums related to the work done after the termination of the contract were invoiced on ... and were reminded through the issuance of the Statement of claim. The interests start running from this date.'