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Acknowledgements »

From: Interest in International Arbitration
Matthew Secomb

2 Background »

From: Interest in International Arbitration
Matthew Secomb
This chapter provides a background of interest in international arbitration, tracing the early history of interest through medieval times, the Reformation, modern times, and today. Interest has a long and rich history, intertwined with the world's development. It involves religion, politics, and economics. Religion's effect on interest continues to this day, seen most prominently in various shari'a-based laws' restrictions on interest. Meanwhile, the law's view of interest has evolved over time. Throughout history, various systems — both religious and legal — contained laws to protect consumers from abusive interest. These factors, among others, help to explain the current state of interest in international arbitration. They explain why arbitrators view interest cautiously, rather than just focusing on the real economic value of money over time. The chapter then discusses the economics of interest, considers the treatment of interest in arbitral practice and the law applicable to interest, and looks at interest under shari'a law.

4 Calculation Method »

From: Interest in International Arbitration
Matthew Secomb
This chapter focuses on the method used to calculate interest. This is effectively a choice between simple and compound interest. Simple interest can be defined as ‘interest paid on the principal only and not on accumulated interest’. By contrast, compound interest can be defined as ‘interest paid on both the principal and the previously accumulated interest’. When compound interest is granted, the compounding ‘rests’ need to be determined. The rests are the time intervals after which accrued interest is calculated and then interest is calculated on the accrued interest. The chapter suggest that the choice between simple and compound interest is probably the thorniest issue when it comes to interest in international arbitration. No uniform approach has been established on this question. This lack of uniformity could be for any number of reasons. The chapter describes the traditional approaches to determining the calculation method for interest in international arbitration. It then critiques some of those approaches and sets out a possible uniform approach to determine the calculation method. Finally, it considers a possible limitation to this uniform approach, namely, mandatory laws.

6 Conclusion »

From: Interest in International Arbitration
Matthew Secomb
This chapter concludes that international arbitrators do not yet take a uniform approach to the granting of interest on awards. However, the law and practice of international arbitration seem to have converged, or be converging, on certain aspects of interest. An example of this is respecting any agreement by the parties on interest. By contrast, on other aspects, there remains some significant variance in the way the issues are dealt with. An illustration of this is whether interest should be simple or compound. The chapter argues that there should be convergence between the law and practice of international arbitration with regard to interest on a three-step uniform approach. First, the parties' agreement should be respected if it determines the rate, calculation method, or dates over which interest should be granted. Second, absent such agreement, the claimant should be able to claim the losses it incurred because it did not have the use of the money in question. The rate, calculation method, and period over which interest is granted should reflect those losses. Third, if the claimant cannot, or does not, prove its actual losses, then it should be granted interest at a commonly used commercial rate, augmented appropriately, for the relevant currency at the place of payment; compounded, with the rests corresponding to the rate used; and running from the date the payment should have been made, or the date of the loss, until the date of payment. It is the third step that is most important in practice. While the first two steps can sometimes be important, in the majority of cases, they do not apply.

Contents »

From: Interest in International Arbitration
Matthew Secomb

Index »

From: Interest in International Arbitration
Matthew Secomb

Interest in International Arbitration »

Matthew Secomb

3 Interest Rate »

From: Interest in International Arbitration
Matthew Secomb
This chapter examines the interest rates applied to international arbitral awards. In the context of an arbitral award, an interest rate means the rate at which interest accrues on the amounts granted in the award. The chapter then describes the traditional approaches to determining interest rate in international arbitration and proposes a possible uniform approach to determining interest rates. The proposed approach comprises a three-step solution, which is further discussed in the chapter that follows. First, any agreement on the rate of interest should be respected. Second, absent agreement, the claimant should be able to prove the loss it incurred because it was denied the use of the money in question by way of damages. Third, if the claimant does not prove its actual loss, it should be granted interest at a commonly used commercial rate, augmented appropriately, for the relevant currency at the place of payment.

1 Introduction »

From: Interest in International Arbitration
Matthew Secomb
This introductory chapter provides an overview of the role of interest in international arbitration. Interest has three key facets: the rate at which interest accrues; the way interest is calculated (simple or compound); and the period over which interest is calculated. These three facets apply equally to commercial instruments and interest on arbitral awards. As such, any award granting interest must decide on these three issues to enable the parties to calculate the interest payable. Arbitral awards have taken different approaches when deciding questions relating to interest. Some arbitrators approach interest as a purely legal question. They determine a national law through a conflict of laws approach and then apply that law to interest. In other awards, arbitrators have decided that they are free to determine what interest is reasonable.

List of Abbreviations »

From: Interest in International Arbitration
Matthew Secomb

5 Period »

From: Interest in International Arbitration
Matthew Secomb
This chapter assesses the period over which interest is granted in arbitral awards. The period is usually defined by the start date and the end date. However, sometimes other factors can be relevant, such as a distinction between pre- and post-award interest. The chapter then explains that international arbitration has not yet established a uniform approach to the period over which interest is granted. It suggests that perhaps greater convergence can be seen as to the period than with the rate or calculation method. The chapter starts by describing the traditional approaches to determining the period over which interest is granted. It then contains a critique of some of the most common traditional approaches. Next, it sets out a possible uniform approach to the period over which interest is granted. As with the rate and the calculation method, the uniform approach largely builds on existing law and practice. Finally, the chapter considers a possible limitation on this uniform approach, namely, mandatory laws.

Table of Cases »

From: Interest in International Arbitration
Matthew Secomb

Table of Legislation »

From: Interest in International Arbitration
Matthew Secomb