Corporate and Business Law (Global) · Obligations of the seller and buyer, and provisions common to both

CISG Exemptions, Interest and Effects of Avoidance Explained

Updated 11 October 2026 · Fact-checked

Under the CISG, a party who fails to perform is excused from damages if an impediment beyond their control caused it and they could not reasonably have foreseen or avoided it. Interest is owed on late sums. If the contract is avoided, both sides are released and must give back what they received.

Understand Exemptions, Interest and Effects of Avoidance

The CISG is the UN Convention on Contracts for the International Sale of Goods. Most of its rules say what happens when someone breaches. This topic covers three provisions that sit around breach: when a party is excused, what interest is due on unpaid money, and what happens after the contract is avoided.

Exemption (Article 79). A party is not liable in damages for failing to perform if they prove the failure was due to an impediment beyond their control. They must also show that they could not reasonably be expected to have taken the impediment into account when the contract was made, and could not reasonably have avoided or overcome it or its consequences. All three points matter. Think of floods, war, a sudden export ban. A price rise or a supplier letting you down is usually not enough.

If the impediment is only temporary, the exemption lasts only while it exists. If the failure is due to a third party engaged to perform the whole or part of the contract, the party is exempt only if (a) it is exempt under the general test and (b) the third party would also be exempt if the same test applied to it. The party who fails to perform must give notice of the impediment and its effect to the other party. That notice must be received by the other party within a reasonable time after the non-performing party knew or ought to have known of the impediment. If the notice is not received within a reasonable time, the non-performing party is liable for damages resulting from the non-receipt.

The exemption is narrow. It removes the right to damages only. Under Article 79(5), every right other than damages stays intact. For example, the other party can still avoid the contract, reduce the price (a buyer's remedy), require performance and claim interest.

Interest (Article 78). If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it. This right exists without prejudice to any claim for damages. Article 78 does not fix the interest rate. Which law or approach determines the rate is disputed. Tribunals have applied, for example, the law governing the contract under private international law rules, the law of the creditor's place of business, or general principles.

Effects of avoidance (Articles 81 to 84). Avoidance releases both parties from their obligations, subject to any damages due. It does not affect any contract provision on dispute settlement or on the parties' rights and duties after avoidance. A party who has performed can claim back what they supplied or paid. If both must give back, they must do so at the same time. The buyer loses the right to avoid or demand substitute goods if they cannot return the goods substantially in the condition received, with some exceptions. A seller who must refund the price must also pay interest from the date of payment. A buyer who must return the goods must account for benefits they derived from them.

Key formulas to remember

Exemption test (Article 79): Exempt from damages = impediment beyond control + not reasonably foreseeable at contract + not reasonably avoidable or surmountable; The party claiming exemption must prove all three. Failing any one means no exemption.
Notice of impediment: Notice of the impediment and its effect must be received by the other party within a reasonable time after the non-performing party knew (or ought to have known) of the impediment; Sending is not enough. If the notice is not received in time, the non-performing party is liable for damages resulting from the non-receipt.
Scope of exemption: Article 79 exempts from damages only; Under Article 79(5), every right other than damages stays available to the other party, such as avoidance, price reduction (buyer), specific performance and interest.
Interest on arrears (Article 78): Interest is due on the price or any other sum in arrears; Article 78 does not set the rate. The applicable law or approach is disputed (for example, the law governing the contract under private international law rules). The right is without prejudice to a damages claim.
Effect of avoidance (Article 81): Avoidance releases both parties, subject to damages; each can claim back what they supplied or paid; Mutual restitution must be carried out concurrently.
Refund and benefits: Seller refunding price pays interest from the date of payment; buyer returning goods accounts for benefits derived; This keeps restitution fair on both sides.

How to solve Exemptions, Interest and Effects of Avoidance questions

Read the scenario and decide which of the three areas it tests: excuse for non-performance, interest, or consequences of avoidance.

1Identify the event. Is a party claiming they are excused, is money overdue, or has the contract been avoided?
2For an excuse, test the three limbs in order: beyond control, not foreseeable at contract, not avoidable or surmountable. Apply facts to each.
3Check whether the other party received notice within a reasonable time. If not, say damages for non-receipt may follow.
4State what the exemption does and does not cover: damages only, not the other party's other remedies.
5For late payment, say interest is due on the sum in arrears and the CISG does not set the rate.
6For avoidance, say both are released, restitution is due, and it is concurrent. Add interest on the refund and accounting for benefits where relevant.
7Give a clear conclusion that matches the facts, then pick the option or write the answer.

Quickest way: Three-question check

When to use it: Use it in Section A or B objective questions where time is tight and the options differ by one legal point.

Ask: is the event beyond control, unforeseeable and unavoidable? If any is missing, no exemption.
Ask: what is lost? Exemption removes only damages, so look for options saying avoidance is also barred and reject them.
If money is late, pick the option giving interest. Under Article 78 the creditor is entitled to interest on sums in arrears, independently of any damages claim, without needing to prove loss. If avoidance occurred, pick restitution at the same time.

Common mistakes in Exemptions, Interest and Effects of Avoidance

Treating any cost increase or supplier failure as an Article 79 impediment.
Students confuse hardship with an impediment beyond control.
Fix: Check all three limbs. A supplier's failure counts only if that supplier would itself be exempt, and a price rise rarely meets the test.
Saying the exemption stops all remedies.
The word exemption sounds total.
Fix: State that it only exempts from damages. Article 79(5) leaves every other right intact, such as avoidance, price reduction (for the buyer), specific performance and interest.
Forgetting the notice requirement, or treating sending the notice as enough.
Students focus on the event and skip the procedure, or assume that giving notice is the same as the other party receiving it.
Fix: Always check whether the notice was received by the other party within a reasonable time after the impediment was or should have been known. If not, damages for non-receipt are due.
Stating a fixed interest rate under the CISG.
Students assume the Convention supplies a rate.
Fix: Say interest is due but Article 78 does not fix the rate. The applicable law or approach is disputed, for example the law governing the contract under private international law rules.
Thinking avoidance cancels any damages claim.
Release from obligations is misread as release from liability.
Fix: Avoidance releases both parties from future performance but is subject to damages that are due.
Ignoring that restitution is concurrent.
Students treat each side's return duty as separate.
Fix: Write that both parties must return what they received at the same time.

Worked examples

Example 1

A seller in Country A agrees to ship machine parts to a buyer in Country B. After the contract is made, a government unexpectedly bans the export of those parts. The seller's notice of the ban is received by the buyer a week after the seller learns of it. Can the seller escape liability for damages under the CISG?

Show the solution

The ban arose after the contract and was unexpected, so it was not reasonably foreseeable at contract and was outside the seller's control.
Test whether the seller could reasonably avoid or overcome it. On these facts there is no sign of a way round the ban, so this limb is likely met.
Check notice. Receipt by the buyer a week after the seller learns of the ban is likely within a reasonable time, so no extra damages arise from non-receipt.
Conclude: the seller is likely exempt from damages under Article 79, but only for damages.

Answer: The seller is probably exempt from damages because the ban was beyond its control, unforeseeable and unavoidable, and the buyer received notice in reasonable time. The buyer can still use other remedies, such as avoiding the contract.

Example 2

A contract for goods priced at ₹10,00,000 is avoided by the buyer because of the seller's fundamental breach. The buyer had already paid in full and still holds the goods, which can be returned in the condition received. Explain the consequences under the CISG.

Show the solution

Avoidance releases both parties from their obligations, subject to any damages due.
The buyer can claim back the ₹10,00,000 paid, and the seller can claim back the goods.
Both returns must be made at the same time.
Under Article 84(1), the seller, who must refund the price, must also pay interest on the ₹10,00,000 from the date of payment.
Under Article 84(2), the buyer, who must return the goods, must account to the seller for any benefits derived from the goods.

Answer: Both sides are released. The seller refunds ₹10,00,000 with interest from the date of payment (Article 84(1)), and the buyer returns the goods and accounts for any benefits (Article 84(2)). The returns are concurrent, and damages may still be claimed.

Exam tips

In Section A, a wrong option often says the exemption bars all remedies or that the CISG fixes an interest rate. Reject both.
Memorise the three limbs of Article 79 in order. Scenario questions usually fail one limb.
Look for the word notice in the facts. It signals the damages-for-non-receipt point.
For avoidance questions, tick off release, restitution, concurrency, interest on refund and benefits.
In constructed answers, give the rule, apply it to the facts, then conclude in one line.

Practice questions from Obligations of the seller and buyer, and provisions common to both

Exemptions, Interest and Effects of Avoidance: frequently asked questions

What does Article 79 of the CISG cover?

It excuses a party from paying damages if their failure to perform was caused by an impediment beyond their control. They must show it was not reasonably foreseeable at contract and could not reasonably be avoided or overcome.

Is Article 79 the same as force majeure?

It works in a similar way, but it is a Convention rule with its own three-part test. Parties may also have a force majeure clause in their contract, which can add to or change the position.

Does the CISG say what interest rate applies to late payment?

No. It gives a right to interest on sums in arrears but does not set the rate. How the rate is determined is disputed. Tribunals have applied, for example, the law governing the contract under private international law rules, the law of the creditor's place of business, or general principles.

What happens to the parties when a contract is avoided?

Both are released from their obligations, subject to damages. Each can claim back what they supplied or paid, and the returns must happen at the same time.