Default Interest / Article 104(3) of the Swiss Code of obligations / Applicable to merchants, yes / Interest owed for the entire duration of the default until payment, yes / Rate of interest: rate of place of payment applicable to commitments in the currency of the debt / Damages under 106 of the Code of obligations: not awarded due to late submissions of evidence

'Claimant claims compound interest computed at the rate charged by its bank . . ., from . . . April 1988. In support of this claim, it relies on a statement issued [by Claimant's bank], pursuant to which such bank has financed the price of the steel coils in an amount of US$ . . . from . . . February, 1988 to the date of the statement and pursuant to which the total sum due by Claimant on . . . November, 1990 amounted to US$ . . . [Claimant's bank]'s computation includes compound interest and uses rates fluctuating between 9.4375% and 12.875% p.a.

Pursuant to Article 104(3) C.O., between merchants the defaulting debtor owes late interest for the entire duration of the default, computed at the rate at which banks at the place of payment discount commercial papers of first class debtors (ATF 116 II 140/141). This rule calls for the following clarifications:

a) Both Claimant and Defendant qualify as merchants (Schenker, Die Voraussetzungen und die Folgen des Schuldnerverzugs im Schweizerischen Obligationenrecht, 1988, p. 52 and citations therein).

b) Interest is owing for the entire duration of the default. The default occurred at the time of the wrongful delivery in March 1988. The default will end at the time of payment of the amount owing as awarded in the present arbitral decision. Thus, interest should run until payment of the amount awarded herein.

c) Since payment was "available by negotiation of drafts drawn at sight on you . . .", the place of payment must be deemed the place of business of the confirming bank, i.e. Geneva. This does not mean, however, that the discount rate applicable to commercial papers in Swiss francs applies. The Swiss Federal Court has left this issue unsettled (ATF 116 II 140/141; see also in a similar context 116 II 373/375). Absent a clear statutory rule to the contrary, economic reality requires that interest be computed at the rate generally applicable in business to commitments in the currency of the debt, i.e. here in US dollars.

d) This tribunal has ascertained this rate by means of an inquiry from a prime bank at the place of payment. Such bank has indicated that it would discount commercial papers in US dollars at the following rates:

from April 5, 1988 7 15/16%

from April 3, 1989 10 7/8%

from April 2, 1990 9 5/16%

from April 2, 1991 7 1/16%

Accordingly, the arbitrators decide in their discretion that interest will be awarded at the average yearly rate of 8.8%.

It is true that, according to Article 106 C.O., the creditor is entitled to recover damages in excess of late interest allowable under Article 104, if he proves having incurred such damages. The arbitral tribunal is reluctant to accept [Claimant's bank]'s statement as sufficient evidence of additional damage. Indeed, such statement was filed on . . . December 1990 in the course of the last hearing, when the arbitral tribunal had closed the evidentiary proceedings as of the end of the . . . May, 1990 hearing and expressly ruled that thereafter no further documents would be accepted in evidence . . .

The arbitral tribunal later allowed submission of additional documents, but to a limited extent and provided they were filed . . . in advance of the last hearing . . . The arbitral tribunal recognizes that a similar statement filed earlier would not have contained up-to-date information on interest rates. However, the statement at issue not only deals with rates, but purports to prove the very principle of the deal's financing. There is no reason why such proof could not have been submitted timely. As a result of the late submission, Defendant-although formally given an opportunity to comment on this statement at the hearing-had no effective possibility of verifying and, if appropriate, challenging the statement's contents. Neither did the arbitrators have an opportunity to enquire about the contents, e.g. by questions to party representatives.

As a consequence, the arbitral tribunal decides that interest should be awarded pursuant to Article 104(3) and not to Article 106 C.O.'