- Conflict of laws — Recognition and enforcement — Interest
6.01 This study demonstrates 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.
6.04 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. An award of interest as damages should fully compensate the claimant for its proven, foreseeable losses. The rate, calculation method, and period over which interest is granted should reflect those losses.
6.05 The claimant could claim the actual costs that it incurred in borrowing money to replace the sum in question. However, the claimant should also be able to seek to demonstrate its losses by any other appropriate means. This might include, for example, the claimant proving its losses by reference to its historical investment performance.
(a) at a commonly used commercial rate, augmented appropriately, for the relevant currency at the place of payment;
(b) compounded, with the rests corresponding to the rate used or, if the appropriate rests cannot be determined from the rate used, annually;
6.08 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. More importantly, two points flow naturally from this approach:
• Positively, arbitrators should consider basic economic principles when deciding questions of interest in international arbitration.
• Negatively, arbitrators should consider not applying, or reading down, applicable law provisions to the extent that they contradict those basic economic principles. That may be because those provisions are based on historical, religious prohibitions, or because they are based on policy considerations not appropriate when resolving international disputes.
6.10 The approach proposed in this work would increase the uniformity of treatment of interest in international arbitration. Uniformity is a key issue because inconsistent decisions undermine the legitimacy of international arbitration.1 Uniformity also relates to predictability, which is key to users. As Professor Lew puts it:
It is hardly possible to predict in advance at what rate and for what period interest will be awarded: every national and international arbitration tribunal reacts differently, and the constitution of the tribunal can be directly relevant to the approach to be followed. Even within the Iran-USA Claims Tribunal, a standing, permanent institution, no uniform approach has been developed or adopted.2
6.11 Some authors have expressed scepticism whether any uniform approach might be reached. For example, Professor Giardina, a prominent Italian academic, has stated, after analysing various state court and arbitral decisions on interest that:
… it clearly appears that it is difficult or even impossible to find at [sic] a uniform solution to the problems relating to interest. Various factors encourage scepticism as to the possibility of reaching conclusions that can be generally valid and applicable worldwide.3
6.12 Professor Giardina is correct that establishing a uniform approach is challenging, but a solution seems possible. It requires, however, a change of mindset. It requires arbitrators to consider and understand interest’s nature, and to be open to not applying or reading down national law provisions which contradict basic economic principles.
6.13 Arbitrators can (and do) apply the approach in this work within the existing legal framework. This should not be confused for result-orientated decision making; quite to the contrary, this work looks at the fundamental legal underpinnings of interest and argues that there is a reason why different legal approaches should reach the same conclusion.
2 Julian DM Lew, ‘Interest on Money Awards in International Arbitration’ in Ross Cranston (ed), Making Commercial Law: Essays in Honour of Roy Goode (Clarendon Press 1997) 544. Professor Lew goes on to highlight some of the negative effects of such uncertainty. For example, he argues that this uncertainty makes it more difficult for parties to evaluate their rights and liabilities in advance. He suggests that this may reduce the likelihood of settlement.