A Chinese state owned factory (seller) and a US corporation (buyer) concluded a series of contracts for the sale of headwear through a Chinese intermediary. At the end of 1998, the parties started contracting directly with one another by using a contract form that contained a ninety-day credit limit and an arbitration clause. Since the buyer failed to pay the amounts due under the sale contracts, the seller filed an application for arbitration with the China International Economic and Trade Arbitration Commission (CIETAC). The Arbitral Tribunal found the buyer liable for breach of contract. In 2007, the Kansas District Court recognized and enforced the award pursuant to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, while it fixed for January 22, 2008, the trial on the buyer’s counterclaim. The jury awarded damages to the buyer, having found the seller liable for breach of contract and breach of the duty of good faith and fair dealing.
The seller then filed a motion before the Court to have the judgment altered or amended pursuant to the Federal Rules of Civil Procedure in order to set-off the amount of damages it was entitled by virtue of the arbitral award with the amount awarded to the buyer by the jury. The Court granted the motion, but then considered whether the buyer was entitled to post-confirmation and pre-judgment interest even if this was not included in the pretrial order or explicitly covered by CISG. The Court awarded the pre-judgment interest holding that otherwise it would have granted an interest free loan to a party who delayed payment of the award by protracting litigation. This would have been contrary to the purpose of CISG, i.e. to favour “arbitration as a means to resolve disputes by promoting the enforcement of arbitral agreements in international commerce”.
As to the issue of rate of interest to be applied, after recalling that this matter is not resolved by CISG, the Court decided to apply the federal rate, having found it appropriate under the circumstances of the case and consistent with the aim of CISG to improve stability and certainty in international commercial transactions.
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