A public sitting of the Shanghai International Commercial Court heard a second-instance case concerning an international goods sales contract dispute on Feb 13. This adjudication marked the first foreign-related commercial case handled by the court since its inauguration on Dec 30, 2024.

[Photo/court.gov.cn]

The collegial panel for the case, which involves a German company and a Chinese company in an international goods sales contract dispute, made a final judgment on the applicable interest payment rules for a buyer's overdue payment in international sale of goods under the United Nations Convention on Contracts for the International Sale of Goods (CISG), referring to and applying CISG Advisory Council Opinion No 14 for the first time in courts nationwide.

The dispute arose when the German company sold industrial components to the Chinese company, which failed to pay on time after delivery. Consequently, the German company filed a lawsuit demanding the overdue payment with interest. The first-instance court ruled in favor of the German company, prompting the Chinese company to appeal to the Shanghai International Commercial Court.

A key issue of contention in this case was determining the commencement point and standard for interest for overdue payments in international sale of goods. Both China and Germany are contracting parties to the CISG, and since the parties did not exclude the application of the convention, the CISG provisions should apply. However, Article 78 of the CISG mandates interest for delayed payments by the buyer, it does not specify the exact rules for interest payment, leading to divergent judicial practices across countries.

The Chinese company argued that the interest rate falls outside the scope of the convention and should be determined based on China's international private law, citing the UN Commission on International Trade Law's Digest of Case Law on the CISG. It maintained that Chinese law should be applied to determine the interest rate standard.

Conversely, the German company contended that the court should follow CISG Advisory Council Opinion No 14, and directly apply the interest rate determined by the creditor's place of business, that is Germany in this case, without further guidance from international private law of the place where the court hearing the case is located.

[Photo/court.gov.cn]

In the second-instance adjudication, the Shanghai International Commercial Court emphasized the importance of predictability in international trade. The court noted that the CISG Advisory Council Opinion No 14 made it clear that the interest prescribed in Article 78 of the CISG serves as compensation for the creditor's damages, and the law of the creditor's place of business should be applied to determine the interest starting time and rate. Ultimately, the court rejected the appeal and upheld the original judgment that the interest rate standard shall be based on the law applicable in the German company's jurisdiction.

This case, the first in Chinese courts to reference and apply the CISG Advisory Council Opinion No 14 in a final judgment, holds significant exemplary value. 

The CISG, as a fundamental convention in resolving international trade disputes, aims to harmonize legal application in international trade among member states. 

The case reflects the precise understanding and application of the CISG by Chinese courts, contributing a model for its unified application in global judicial practices. 

The case also demonstrates the international perspective and level of internationalized adjudication in China, contributing to the advancement of foreign-related rule of law and the building of a world-class, market-oriented business environment governed by a sound legal framework.