Compound interest on claimed interest arrears: when it may be demanded

Interest on due interest follows a specific rule under Austrian law. Section 1000(2) ABGB permits interest on interest where the parties have expressly agreed it. Without such an agreement, interest on interest may be claimed from the day on which due interest is claimed in court and the proceedings become pending between the parties.

The principal claim, accrued interest arrears and interest claimed on those arrears must therefore remain separate. Filing the claim, serving it on the defendant and identifying the interest arrears in the claim are different steps with different significance.

This article explains which dates and documents belong in the calculation. It addresses interest on interest in a claims process, not ordinary default interest on principal, bank current-account arrangements or reminder fees.

What Section 1000(2) ABGB says about compound interest

Section 1000(2) ABGB provides two starting points. The parties may expressly agree on interest on interest. Without such an agreement, a creditor may claim interest on interest where due interest is claimed in court. The claim then runs from the day on which the proceedings become pending.

This is a distinct part of the calculation. The rule does not impose compound interest automatically on every unpaid principal claim. The due interest must be identifiable as a separate part of the monetary claim and must be included in the court claim.

Where the rate for interest on interest has not been agreed, Section 1000(2) ABGB also provides a rate of four percent per year. That rate does not remove the need to establish which interest was due and claimed.

Why principal and interest arrears stay separate

A claim schedule should show at least three layers: the unpaid principal, interest that became due up to a defined date and interest claimed on that arrears amount. Each layer needs its own period and calculation basis.

Payments, credits, settlements and payment instructions can change the balance. A single combined figure makes review difficult and can lead to double counting or an interest claim that exceeds its basis.

Why service of the claim is decisive

Section 232 ZPO distinguishes between a claim becoming pending before the court and the proceedings becoming pending between the parties. Court pendency begins when the claim reaches the court. Pendency between the parties begins when the claim is served on the defendant. For interest on interest under Section 1000(2) ABGB, the second point is decisive.

The proof of service therefore belongs in the calculation file. The filing date may matter for other legal questions. It does not replace evidence of the service date where the calculation of interest on interest is tied to pendency between the parties.

Which interest must be claimed in court

The statutory rule requires due interest to be claimed. The statement of claim and its reasoning should therefore show the principal from which the interest arose, the period calculated and the amount claimed as interest arrears.

A later internal schedule cannot freely replace the original scope of the claim. The statement of claim, exhibits, any reduction of the claim and payments during the proceedings must be read together. The court decides the specific claim on that basis.

How to prepare a traceable calculation timeline

Assume that interest has become due on a principal claim up to a defined cut-off date. The interest is claimed as a separate amount in the statement of claim. For a calculation under Section 1000(2) ABGB, the file then records the date on which the claim was served.

The schedule states the amount of due interest claimed, the applicable rate and the period from pendency. Each later payment is entered with its date and allocation. This shows whether the calculation basis changed and whether the balance remains correct.

How the agreement and type of transaction matter

An express agreement on interest on interest is the first point to review under Section 1000(2) ABGB. The wording, contract date and later amendments must fit together. A general default-interest clause does not automatically answer the separate question whether interest arrears are also to bear interest.

Commercial transactions may involve additional rules on default interest and costs. Consumer matters, foreign parties and special account arrangements require separate analysis. The rule in Section 1000(2) ABGB should not be applied without distinction to bank current accounts or other special relationships.

Which documents and mistakes matter in review

The chronological file should contain the contract and amendments, invoice, due-date agreement, interest schedule, payment records, statement of claim, proof of service and court decisions on payment. In pending proceedings, reductions of the claim, admissions and settlements are also relevant.

Common mistakes include starting with the invoice date, treating filing as service and applying one rate to principal and interest arrears alike. It is also problematic to keep paid interest in the calculation base after it has been settled.

How to prepare the claims review

Before sending another demand or pursuing a court step, compare the claim schedule with the original documents. The key questions are: which principal remains open, which interest was due, what was claimed and when was the claim served?

These details allow the calculation to be reviewed on its merits. Depending on the result, the next step may be correcting the schedule, responding in the pending proceedings or preparing a further court step. The enquiry should describe the facts briefly and chronologically.

Common questions about interest on interest in claims proceedings