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Expropriation in Investment Treaty Arbitration by Cox, Johanne M (9th May 2019)

Part III Remedies, 14 Interest

From: Expropriation in Investment Treaty Arbitration

Johanne M. Cox

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved. Subscriber: null; date: 16 September 2019

Expropriation — Investor — Compensation — Interest

(p. 348) 14  Interest

A.  The Main Factors

14.01  Interest is a very important component of damages in cases of expropriation. The interest awarded can be considerable and, in some cases, far more than the principal sum. This is because, often times, many years have passed since the expropriation.

14.02  The obligation of a State to pay interest in order to ensure full reparation for the injury caused by an internationally wrongful act is a principle recognized in customary international law. Article 38 of the International Law Commission’s Articles on State Responsibility (ILC Articles) provides as follows:

Article 38.  Interest

  1. 1.  Interest on any principal sum due under this chapter shall be payable when necessary in order to ensure full reparation. The interest rate and mode of calculation shall be set so as to achieve that result.

  2. 2.  Interest runs from the date when the principal sum should have been paid until the date the obligation to pay is fulfilled.

This Article has been relied on by parties in investment treaty cases and cited by tribunals when considering interest.1 The Commentary to ILC Article 38 observes that the awarding of interest depends on the circumstances of each case, in particular, on whether interest is necessary in order to ensure full reparation,2 and further explains, albeit in respect of an injured State as opposed to a foreign investor, that where a loss of profits is included as part of the compensation an award of interest would be inappropriate if it would thereby obtain double recovery as a capital sum cannot be earning interest and notionally employed in earning profits at one and the same time. However, interest may be due on the profits (p. 349) which would have been earned but which have been withheld from the original owner.3 The Commentary explains that Article 38 does not deal with post-judgment or moratory interest as it is only concerned with interest that goes to make up the amount that a court or tribunal should award, i.e. compensatory interest. The power of a court or tribunal to award post-judgment interest is a matter of its own procedure.4

14.03  In Crystallex International Corp. v. Venezuela,5 the tribunal referred to ILC Article 38(1) and emphasized that interest is an integral component of the principle of full reparation under international law because, in addition to losing its property and other rights, an investor loses the opportunity to invest funds or to pay debts using the money to which that investor was rightfully entitled. The tribunal held that, due to Venezuela’s unlawful conduct, the investor had lost the opportunity to use the amount corresponding to the fair market value of its expropriated investment to productive ends and that the reparation should address this loss of opportunity by virtue of awarding interest.6

14.04  The interest awarded by tribunals depends on a number of different factors. Firstly, the date of accrual of the interest. If this is the date immediately before the expropriation7 as in cases of lawful expropriation (or unlawful expropriations where the tribunal applies the treaty standard of compensation), then the length of time that has elapsed since the expropriation can be considerable—in many cases years, if not decades. On the other hand, in cases of unlawful expropriation where the tribunal determines that customary international law applies (as opposed to the treaty standard), then it is open to the investor to argue that the date of valuation should be the date of the award. The tribunal may not accept the claimant’s position,8 but if it does, and determines that the date of valuation is the date of the award, there will be no pre-award interest as the claim for damages will be based on the expropriated investment as of the date of the award.

14.05  In ADC Affiliate Ltd and ADC & ADMC Management Ltd v. Hungary,9 the tribunal held that Hungary had unlawfully expropriated the claimant’s investment in and related to (p. 350) an airport project. The claim for damages under the restitution approach fell into two parts: (a) the estimated value of the claimants’ stake in the project company as of the award date; and (b) all unpaid dividends and management fees from the date of expropriation until the date of the award. The tribunal determined that pre-award interest did not accrue ‘since the calculation of damages was based on the value of the expropriated investments as of the date of the award’.10 The tribunal awarded interest at 6 per cent per annum compounded at monthly rests from the thirtieth day following the date of the award until full payment.11 On occasion, tribunals have also chosen dates other than the date of taking or the date of the award for interest to start accruing.12

14.06  Secondly, the interest rate. Some tribunals have applied the legal interest rate. Other tribunals have applied market-related rates (e.g. interbank interest rates such as LIBOR) or have awarded interest based on borrowing rates or government bonds. Sometimes tribunals have sought guidance from the treaty standard of interest (where it exists), even in cases of unlawful expropriation, whereas other times tribunals have rejected this approach.

14.07  Thirdly, tribunals can either award simple interest or compound interest, or a different formula, for example, a combination of both or an adjustment of one or the other. Where compound interest is awarded, tribunals decide between different frequencies of compounding, for example monthly, quarterly, semi-annually, or annually.

14.08  In recent times, the trend in investment treaty arbitration has been for tribunals to award compound interest, however this very much depends on the circumstances of the case, in particular whether the tribunal deems it necessary in order to ensure full reparation. For example, in Olin Holdings Ltd v. Libya, the tribunal found that Libya had unlawfully expropriated the claimant’s investment but rejected the claimant’s request for compound interest. The tribunal determined that, in this specific instance where interest had already been accounted in the amount of compensation calculated by the claimant’s experts and awarded by the tribunal for the past losses accrued, simple interest would enable the claimant to achieve the result of full compensation. The tribunal therefore awarded simple interest at the rate of 5 per cent on the amount of EUR 18.225 million from the date of the award until final payment.13

14.09  Fourthly, tribunals can calculate pre- and post- award interest on different bases or the same basis, or award interest without considering pre- and post- award interest separately.14 Tribunals consider that this is still consistent with the objective of ensuring full (p. 351) reparation notwithstanding that, conceptually, pre- and post- award interest have different functions in that pre-award interest forms part of the compensation for the breach of treaty whereas post-award interest compensates against failure by the State to make payment under the award.

B.  Treaty Standard of Interest

14.10  In investment treaty cases where the treaty identifies the interest rate for expropriations, this will apply for lawful expropriations. The issue becomes whether, in cases of unlawful expropriation, the treaty standard of interest should apply or not. In Siag and Vecchi v. Egypt,15 the tribunal held that the investment had been unlawfully expropriated16 but it nevertheless sought guidance from the interest rate specified in Italy–Egypt bilateral investment treaty signed on 2 March 1989. The claimants sought interest on all damages ‘at the highest appropriate rate’ and that interest be compounded at six-month intervals. Egypt argued that the interest should be simple interest only, and that it should be at the rate of just 4 per cent as permitted by domestic Egyptian law in respect of civil matters.17

14.11  The tribunal observed that the higher rates of interest suggested by the claimants were based on cost of financing whereas the bulk of the damages awarded to the claimants derived, not from costs which have been borne and were only now being recovered, but from an asset which had been taken. In the circumstances, the tribunal determined that interest should expressly be tied to the loss of opportunity to invest, and not to the cost of servicing debt, concluding that interest should be awarded on an investment basis.

14.12  The tribunal sought guidance from the BIT, which provided that ‘compensation for any such expropriation should include interest at the current six-month LIBOR rate of interest from the date of nationalisation or expropriation until the date of payment’. Although the expropriation was unlawful, the tribunal considered that, in the present case, there may be no practical difference between compensation for a lawful or unlawful expropriation and concluded that, in the same way it can be said that if LIBOR rates were thought to compensate adequately for delay in payment of compensation for a lawful expropriation, there was no reason not to hold that they are similarly adequate to compensate in case of delayed payment of compensation for an unlawful expropriation.18

14.13  The tribunal held that interest should run from the date of the expropriation and that it should be compounded. The tribunal expressed certainty that in recent times compound interest had indeed been awarded more often than not and was becoming widely accepted as an appropriate and necessary component of compensation for expropriation. The tribunal held that, in the case at hand, there was nothing to suggest that an award of compound interest would be inappropriate, nor any reason to believe that simple interest would provide adequate compensation for the deprivation of an asset for more than twelve (p. 352) years. The tribunal also considered the claimants’ request that interest be compounded only at half-yearly intervals as modest and appropriate.19 The tribunal awarded interest on the compensation award of USD 74,550,794.75 at the six-month LIBOR rates applicable from time to time since the date of expropriation, 23 May 1996, until the date of payment, with such interest compounded at six-monthly rests.20

14.14  In Belokon v. Kyrgyzstan,21 the tribunal applied the treaty standard of interest notwithstanding its findings of unlawful expropriation. The BIT provided that, in case of expropriation, compensation shall ‘include interest at the commercial market rate for the currency for which the compensation will be paid, from the date of expropriation to date of actual payment’. The tribunal considered that whilst the treaty criterion was applicable to lawful expropriation, the limitation did not apply in this case to the extent that the claimant had established that in the absence of breach of the BIT he would have had higher earnings. The tribunal did not consider that the case justified more than interest at a commercial market rate for the US dollar.22

14.15  Accepting the claimant’s argument, the tribunal concluded that an appropriate commercial market rate for pre-award interest was the rate for deposits in US dollars in Latvia, compounded annually. The rates ranged from 2.20 to 4.60 per cent during the four years that had lapsed since the expropriation. For post-award interest, the tribunal considered that interest should run as a matter of commercial realism at a rate that was unlikely to reward postponed payment. The tribunal considered it fair to fix the post-award rate at 4.5 per cent per annum, compounded annually, representing, in its view, a rate which broadly conformed to current corporate debt instruments offered to the public. The tribunal observed that it could not predict the future and consequently chose this rate as its best estimate, prudently lower than the highest yields available.23

C.  Interest under Customary International Law

14.16  In cases of unlawful expropriation, investment treaty tribunals may decide to apply customary international law remedies including interest at a rate and mode of calculation to ensure full reparation. The principle that interest should be awarded to achieve this objective is codified in Article 38(1) of the ILC Articles.

14.17  In Ioannis Kardassopoulos v. Georgia,24 whilst recalling that Article 13(1) of the Energy Charter Treaty (ECT) requires that compensation ‘shall also include interest at a commercial rate established on a market basis from the date of Expropriation until the date of payment’, the tribunal also considered the unlawful character of the Georgian government’s conduct vis-à-vis the investments of the two claimants. In the circumstances, the tribunal considered it appropriate to award interest for damages at its discretion. The tribunal relied (p. 353) on ILC Article 38 and its Commentary which provide for an award of interest in order to ensure full reparation.25

14.18  Evidencing the significance of interest in achieving full reparation, the tribunal awarded interest in twice the sum of the principal awarded, bringing the total compensation to each of the investors to just over USD 45 million (USD 15 million for losses and USD 30 million in interest).26 The tribunal awarded pre-award interest compounded semi-annually at the six-month term LIBOR rate for US dollar deposits published by the Wall Street Journal plus 4 per cent from 20 February 1996 and reset thereafter to the current six-month LIBOR rate in effect at the beginning of each six-month period from 1 July 1996 to the date of the award, i.e. 28 February 2010, resulting in the total sum of pre-award interest of just over USD 30 million for each of the claimants.27 To ensure full reparation, the tribunal also awarded post-award interest semi-annually from the date of issuance of the award at the six-month term LIBOR rate for US dollar deposits published by the Wall Street Journal, plus 4 per cent, with such interest rate reset semi-annually to the current six-month LIBOR rate in effect each 1 January and 1 July until such time as the award was satisfied in full.28

14.19  Similarly, in Tenaris SA and Talta-Trading E Marketing Sociedade Unipessoal LDA v. Venezuela,29 the tribunal considered that in both BITs at issue the language on interest was directed to lawful expropriations rather than an unlawful expropriation to which it was concerned.30

D.  Legal or Commercial Interest

14.20  Sometimes investment treaty tribunals apply the legal interest rate as opposed to a commercial rate. In Southern Pacific Properties v. Egypt,31 the tribunal held that Egypt had unlawfully expropriated the claimant’s investment by cancelling a project to develop tourist complexes at the pyramids area near Cairo and at Ras El Hekma on the Mediterranean coast. The tribunal accepted Egypt’s argument that the legal interest rate in the Egyptian Civil Code of 5 per cent in commercial matters should apply and concluded that Article 42(1) of the ICSID Convention required that interest be determined according to Egyptian law because there was no rule of international law that would fix the rate of interest or proscribe the limitations imposed by Egyptian law.32 The tribunal further held that the provisions of Egyptian law which prohibit compound interest and require that the interest not exceed the principal were also applicable.33

(p. 354) 14.21  The tribunal awarded compensation for the capital invested and the development costs adjusted for monetary devaluation and simple interest at the rate of 5 per cent per annum from the date of taking (28 May 1978) to the date of the award (20 May 1992). One exception to this was a loan agreement which the tribunal determined had a contractual right and had been expropriated. The loan agreement established a higher rate of interest than that prescribed by Egyptian law and also provided for compound interest. The interest on the loan amounted to USD 8,134,000 and therefore far exceeded the principal sum of USD 1,650,000. The tribunal considered that since the loan agreement was governed by the laws of England which allowed for compound interest and the accrual of interest in excess of the principal, the Egyptian limitation on interest did not apply in respect to it and the tribunal instead awarded interest at the rate and on the terms specified in the loan agreement.34 The tribunal also awarded post-award interest at simple interest of 5 per cent per annum until payment.35

14.22  The tribunal recognized that the 5 per cent interest rate which it had determined applicable did not fully compensate the claimants for the losses which they had incurred as a consequence of being deprived of money owed them between the time when the project was cancelled and the date of the award. It reasoned that the interest rate did not make the claimants whole given that since the project was cancelled in 1978 there had been a significant devaluation in the US dollar. The tribunal further reasoned that, if it had determined that a commercial rate of interest (as opposed to a legal rate) applied, then devaluation would have been accounted for automatically because commercial interest rates add an adjustment for inflation to the ‘real’ interest rate. The tribunal concluded that since commercial interest rates are always higher (usually by 2–3 per cent) than the clearing bank’s base rate, it is evident that the 5 per cent rate did not compensate the claimants for the devaluation of the US dollar that had occurred since 1978. In light of this, the tribunal adjusted the claimants’ out of pocket expenses upwards using a ‘deflator factor’ derived from data published by the International Monetary Fund in International Financial Statistics to compensate for the devaluation of the US dollar.36

14.23  This case is illustrative of why some commentators argue that legal interest is not appropriate in cases of investment treaty arbitration. The tribunal applied Egyptian law which prohibits compound interest and requires that the interest not exceed the principal and then applied a ‘deflator factor’ because it recognized that legal interest rates, unlike commercial interest rates, did not automatically adjust for inflation. Marboe, for example, argues that it is doubtful whether national limitations with respect to the principal or regarding compounding are in accordance with international law, and where the time between the event giving rise the claim and date of payment is very long, it is not evident why interest should shop accruing as soon as it reaches the amount of the principle. Furthermore, the prohibition on compound interest is, Marboe contends, inconsistent with economic reality in which compound interest is the norm.37

(p. 355) 14.24  In CME Czech Republic v. Czech Republic,38 the tribunal also awarded the legal interest rate of the host State reasoning that, firstly, civil law countries such as the Czech Republic only provide for simple interest by specifying the rate to be applied by statute and that the Czech Commercial Code only grants compound interest on the basis of an agreement by the parties. In this case, such an agreement did not exist. Secondly, in accord with international legal principles and international arbitration practice, the tribunal considered that the purpose of compensation in this case—to ‘fully’ compensate the damage sustained—did not require the award of compound interest having regard to the generous interest provision of the Czech Statute. Thirdly, the tribunal observed that arbitral tribunals in the past have awarded compound interest infrequently and the Iran–US Tribunal had rejected claims for compound interest even in cases where the claimant was entitled to compound interest under the relevant contract, in order to ensure that the compensation was not out of the proportion to the possible loss that was incurred. The tribunal considered that, in contrast, in recent years international arbitral tribunals, particularly those acting under bilateral investment treaties, have increasingly awarded compound interest essentially in recognition of the prevalent contemporary commercial reality that companies that borrow pay compound interest. However, in this case, the claimant had not demonstrated that it borrowed money from banks and paid compound interest.39 The tribunal determined that under the Czech Civil Code a government decree on interest rates applied. This decree set out that the interest rate is determined by the double of the actual discount rate as determined from time to time by the Czech National Bank at the point of time when the debt was due, 23 February 2000. On this date the discount rate fixed by the Czech National Bank was 5 per cent, therefore the interest rate to be applied since the due date until the payment date would be 10 per cent per annum.40

14.25  An unusual aspect of this award is that, whilst the tribunal recognized that other international tribunals in expropriation cases have granted interest as of the date when the expropriation occurred, which would have been 5 August 1999, due to the various circumstances in the case, the tribunal decided that interest should accrue from the date that the respondent became aware of the compensation claim raised by the claimant which was 23 February 2000 when the claimant served the notice of arbitration.41

14.26  In contrast, in Petrobart Ltd v. Kyrgyzstan,42 a case in which the tribunal rejected the claimant’s expropriation claim but found a breach of fair and equal treatment (FET),43 the tribunal held that determining both the rate of interest and when it should accrue must be undertaken in accordance with rules and principles of international law as made explicit in Article 26(6) of the ECT and not, as argued by the respondent, in accordance with the rate applicable in the Kyrgyz Republic. The tribunal considered that the UNCITRAL Principles of International Commercial Contracts, relied on by the claimant, was an appropriate basis for determining the interest.44

(p. 356) E.  Simple or Compound Interest

14.27  The issue of whether simple or compound interest should be awarded also splits tribunals, although in recent years tribunals have frequently awarded compound interest. Compounding interest can significantly increase the sum of interest awarded. In Compañía del Desarrollo de Santa Elena SA v. Costa Rica,45 the tribunal awarded total damages in the sum of USD 16 million, comprising a principal sum of USD 4,150,000, representing the value of the property taken at the time of expropriation,46 and nearly three times that amount in interest. The interest was compounded on an adjusted basis. Costa Rica argued that no interest was due or, if interest was due, then the claimant was entitled to simple interest only at a nominal rate.47

14.28  In an award rendered almost twenty years ago, the tribunal considered that compound interest was not excluded where it was warranted by the circumstances of the case. The tribunal observed that, even though there was then a tendency in international jurisprudence to award only simple interest, this was manifested principally in relation to cases of injury or simple breach of contract whereas the same considerations do not apply to cases relating to the valuation of property or property rights. The tribunal considered that compound interest was appropriate in the case before it for the following reasons. Firstly, international arbitral decisions have expressly allowed compound interest. Secondly, there are decisions where the possibility of compound interest appears to have been acknowledged but the circumstances were not thought to be appropriate for its award. Thirdly, in the Iran–US Tribunal Sylvania Technical Services case although it was stated that ‘the Tribunal has never awarded compound interest’, the tribunal specifically declared its intention to ‘derive a rate of interest based approximately on the amount that the successful claimant would have been in a position to have earned if he had been paid in time and thus had the funds available to invest in a form of commercial investment in common use in its own country’. Fourthly, views of writers of high authority supported the award of compound interest.48

14.29  The tribunal further considered that no uniform rule of law had emerged from the practice in international arbitration as regards the determination of whether compound or simple interest was appropriate in any given case. In its view, the determination of interest was a product of the exercise of judgment taking into account all of the circumstances of the case at hand and especially considerations of fairness which must form part of the law to be applied:49

(p. 357)

In particular, where an owner of property has at some earlier time lost the value of his asset but has not received the monetary equivalent that then became due to him, the amount of compensation should reflect, at least in part, the additional sum that his money would have earned, had it, and the income generated by it, been reinvested each year at generally prevailing rates of interest. It is not the purpose of compound interest to attribute blame to, or to punish, anybody for the delay in the payment made to the expropriated owner; it is a mechanism to ensure that the compensation awarded the Claimant is appropriate in the circumstances.50

14.30  Whilst ruling out simple interest on the basis it would not be justified given that since May 1978 (i.e. for almost twenty-two years) the claimant had been unable either to use the property for the tourism development it had in mind when it purchased the property or to sell the property, the tribunal also ruled out an award of full compound interest. It determined that this would not do justice to the facts of the case since the claimant, while bearing the burden of maintaining the property, had remained in possession of it and had been able to use and exploit it albeit to a limited extent. Consequently, the tribunal awarded the claimant compound interest adjusted to take account of all the relevant factors. In addition to pre-award interest, the tribunal also awarded post-award simple interest on the sum of USD 16 million at the rate of 6 per cent per annum until the date of payment.51

14.31  In Metalclad Corp. v. Mexico,52 the tribunal held that Mexico had indirectly expropriated the claimant’s investment in a hazardous waste landfill in violation of Article 1110 of the North American Free Trade Agreement (NAFTA). The tribunal noted that, in providing at Article 1135(1) that a tribunal may award ‘monetary damages and any applicable interest’, NAFTA clearly contemplates the inclusion of interest in an award. The tribunal endorsed the arbitral tribunal’s findings in Asian Agricultural Products v. Sri Lanka, based on a review of the authorities, that, ‘interest becomes an integral part of the compensation itself, and should run consequently from the date when the State’s international responsibility became engaged’53 and saw no reason to depart from this view. It considered that, of the various possible dates at which it might be possible to fix the engagement of Mexico’s responsibility, it was reasonable to select the date on which the Municipality of Guadalcazar wrongly denied Metalclad’s application for a construction permit. The tribunal concluded that interest should be awarded from the date of taking until the date forty-five days from which the award was made and awarded interest at 6 per cent per annum, compounded annually, so as to restore the claimant to a reasonable approximation of the position in which it would have been if the wrongful act had not taken place.54 The tribunal determined that post-award interest should accrue on the unpaid award or any unpaid part thereof at the rate of 6 per cent compounded monthly. The total amount to be paid to Metalclad, including interest, was calculated at USD16,685,000.00.55

(p. 358) 14.32  Approving the award of compound interest in Metalclad, the tribunal in Wena Hotels Ltd v. Egypt56 awarded interest at 9 per cent compounded quarterly, opining that it believed that an award of compound (as opposed to simple) interest is generally appropriate in most modern, commercial arbitrations.57 In support of this rate of interest, the award footnoted a reference to the yield of 10 per cent for long-term government bonds in Egypt.58

14.33  The Annulment Committee in Wena Hotels considered that extended practice shows that international tribunals and arbitration panels usually dispose of a large margin of discretion when fixing interest. The Committee added that ‘it is normal, therefore, that very limited reasons are given for a decision which is left almost entirely to the discretion of the tribunal’.59

14.34  In Técnicas Medioambientales Tecmed SA v. Mexico,60 the tribunal opined that the application of compound interest was justified as part of the integral compensation owed to the claimant as a result of the loss of its investment. It held that the amount of USD 5,533,017.12 should accrue interest at an annual rate of 6 per cent, compounded annually, commencing on the date of the expropriation until the effective and full payment by the respondent of all amounts payable to the claimant under the award.61

14.35  In Compañía De Aguas Del Aconquija SA and Vivendi Universal SA v. Argentina,62 the tribunal awarded compound interest over a decade long period opining that the object of an award of interest was to compensate the damage resulting from the fact that, during the period of non-payment by the debtor, the creditor was deprived of the use and disposition of that sum he was supposed to receive. The tribunal further considered that, to the extent there has been a tendency of international tribunals to award only simple interest, this was changing, and the award of compound interest was no longer the exception to the rule. The tribunal remarked that this development was not surprising once it was recognized that compound interest is not punitive in nature.63

14.36  In Gold Reserve Inc. v. Venezuela,64 the tribunal similarly observed that there had been an evident shift in investment treaty cases in recent years towards awarding compound interest, especially in cases involving the total deprivation of property:

Compound interest better reflects current business and economic realities and therefore the actual damage suffered by a party. It is also commensurate with the serious nature of the (p. 359) breach involved in the present case, as there is an observable trend in recent years to award compound interest in cases involving the total deprivation of property.65

Interestingly, the tribunal awarded different interest rates for pre- and post- interest because it considered that the purpose of post-award interest was arguably different—damages become due as at the date of the award, and from this time, the respondent is essentially in default of payment.66

14.37  In Tenaris SA and Talta-Trading E Marketing Sociedade Unipessoal LDA v. Venezuela,67 recognizing that the claimants had been unlawfully deprived of their investment without compensation (or a viable process for determining compensation) for more than seven years, the tribunal awarded compound interest.68 In doing so, the tribunal considered that, whilst many of the authorities rejecting the grant of compound interest were now somewhat dated (e.g. the Norwegian Shipowners’ Claims, and the British Claims in the Spanish Zone of Morocco), or specific to the practice of the US–Iran Tribunal, more recent authorities still reflect a degree of caution on this issue69 and a number of tribunals in recent years have determined that simple interest should be applied.70 The tribunal concluded however that, as recognized by Dolzer and Schreuer, the practice of recent tribunals shows a trend towards compounding interest as more in accord with commercial reality.71

(p. 360) 14.38  The tribunal determined that the rate of interest from the date of expropriation to the date of the award should be 9 per cent, compounded semi-annually. The tribunal concluded that this rate was reasonable and fair for pre-award interest by comparing, on the one hand, the reasoning of the respondent’s expert with the combination of a 4 per cent ‘no risk rate’ with a Country Risk Premium of 4.6 per cent which yielded an 8.6 per cent ‘borrowing rate’, and on the other hand, the 9.75 per cent borrowing rate for the government of Venezuela propounded by the claimants.72

14.39  On this basis, the interest component awarded, calculated on the loss of USD 87.3 million from 30 April 2008 to 29 January 2016, was USD 85,501,213.70, for a total compensation amount of USD 172,801,213.70.73 The tribunal also accepted the claimant’s submission that it was entitled to post-award interest, recognizing this as another important element of quantum in order to attempt to eliminate, as far as possible, the effects of the unlawful taking. The tribunal concluded that post-award interest should continue to be paid at the same 9 per cent rate compounded semi-annually, from the date of the award until payment in full of all sums due.74


1  For example, Teinver SA and ors v. Argentina, ICSID Case No. ARB/09/1, Award, IIC 966 (2017), despatched 21 July 2017, World Bank; International Centre for Settlement of Investment Disputes (ICSID), Award despatched 21 July 2007, para. 1121.

2  ILC Articles with Commentaries, p. 108, Commentary to Article 38 at para. (7).

3  Ibid, p. 109, Commentary to Article 38 at para. (11).

4  Ibid, p. 109, Commentary to Article 38 at para. (12).

5  Crystallex International Corp. v. Venezuela, ICSID Case No. ARB(AF)/11/12, Award, IIC 984 (2016), dispatched 4 April 2016.

6  Ibid, para. 932.

7  Most BITs e.g. the China–Canada BIT (2012), Denmark–Bulgaria BIT (1993), Singapore–Kuwait BIT (2009), Korea–Finland (1993) provide that compensation shall amount to the market value immediately before the expropriation or immediately before the expropriation became known. Other BITs stipulate ‘immediately before the expropriation’ without further reference to ‘immediately before the expropriation became known’ e.g. Poland–Bangladesh BIT (1997), Egypt–Armenia BIT (1996). Some BITs expressly state that the fair market value shall not reflect any change in value occurring because the expropriatory action had become known before the date of expropriation e.g. US–Jordan BIT (1997): ‘compensation shall be paid without delay; be equivalent to the fair market value of the expropriated investment immediately before the expropriatory action was taken (“the date of expropriation”); and be fully realizable and freely transferable. The fair market value shall not reflect any change in value occurring because the expropriatory action had become known before the date of expropriation.’

8  For example, in Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur SA v. The Argentine Republic, ICSID Case No. ARB/09/1, Award of 21 July 2017, para. 1115, the tribunal rejected the claimants’ submission that the date of valuation should be the date of the award. While the tribunal agreed that it may be an appropriate determination of reparation when a State expropriates an obviously profitable asset, it considered that this was not an appropriate case.

9  ADC Affiliate Ltd and ADC & ADMC Management Ltd v. The Republic of Hungary, ICSID Case No. ARB/03/16, Award of 2 October 2006, paras 518–20.

10  Ibid, para. 520.

11  Ibid, para. 543.

12  For example, in CME v. Czech Republic the tribunal held that interest must be paid from the date following the claimant’s request to the respondent to pay the amount claimed under the treaty. As the claimant had not submitted in the arbitration the date on which it claimed compensation under the treaty, the tribunal determined that the date of the initiation of the arbitration proceedings was the decisive date. CME Czech Republic BV v. The Czech Republic, UNCITRAL, Final Award of 14 March 2003, para. 633.

13  Olin Holdings Ltd v. State of Libya, ICC, Final Award of 25 May 2018, para. 533.

14  In Tenaris SA and Talta-Trading E Marketing Sociedade Unipessoal LDA v. Venezuela, ICSID Case No. ARB/11/26, Award, IIC 764 (2016), despatched 29 January 2016, , the tribunal observed at para. 585 that whist there are sometimes reason to calculate pre- and post-award interest differently, tribunals have also, in a number of cases chosen not to consider pre- and post-award interest separately but have instead awarded interest, for example, from the date of an expropriation or other key event, running until the payment in full of the award.

15  Siag and Vecchi v. Egypt, ICSID Case No. ARB/05/15, Award, IIC 374 (2009), 11 May 2009, dispatched 1 June 2009.

16  Ibid, para. 443.

17  Ibid, para. 594.

18  Ibid, para. 597.

19  Ibid, para. 595.

20  Ibid, para. 598.

21  Belokon v. Kyrgyzstan, Ad Hoc Tribunal (UNCITRAL), Award, IIC 760 (2014), 24 October 2014.

22  Ibid, para. 321.

23  Ibid, paras 321–5.

24  Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, ICSID Case No. ARB/07/15, Award, IIC 458 (2010), 28 February 2010, dispatched 3 March 2010.

25  Ibid, paras 658–60.

26  Ibid, para. 693(f).

27  Ibid, para. 668.

28  Ibid, para. 678.

29  Tenaris SA and Talta-Trading E Marketing Sociedade Unipessoal LDA v. Venezuela, ICSID Case No. ARB/11/26, Award, IIC 764 (2016), dispatched 29 January 2016.

30  Ibid, para. 585.

31  Southern Pacific Properties (Middle East) Ltd v. Arab Republic of Egypt, Case No. ARB/84/3, date of dispatch of Award 20 May 1992.

32  Ibid, para. 222.

33  Ibid, para. 224.

34  Ibid, paras 229 and 257.

35  Ibid, para. 257.

36  Ibid, paras 232–43.

37  Marboe, Calculation of Compensation and Damages in International Investment Law, 2nd Edition, Oxford University Press, 2017, para. 6.6.1.

38  CME Czech Republic B.V v. The Czech Republic, Ad Hoc Tribunal (UNCITRAL), Final Award of 14 March 2003.

39  Ibid, paras 642–6.

40  Ibid, para. 641.

41  Ibid, para. 635.

42  Petrobart Ltd v. Kyrgyzstan, SCC Case No. 126/2003, IIC 184 (2005), 29 March 2005, Arbitration Institute (SCC Institute), Award of 29 March 2005.

43  Ibid, para. 422.

44  Ibid, paras 321 and 494.

45  Compañía del Desarrollo de Santa Elena SA v. Costa Rica, ICSID Case No. ARB/96/1, Final Award, IIC 73 (2000), dispatched 17 February 2000.

46  Ibid, para. 95.

47  Ibid, para. 96.

48  Ibid, paras 97–101. The scholarly authorities referred to are Dr Mann, Compound Interest as an Item of Damage in International Law, Further Studies in International Law, 1990 and Prof. Gaetano Arangio–Ruiz, Special Rapporteur of the UN International Law Commission on State Responsibility who concluded: ‘The Special Rapporteur is therefore inclined to conclude that compound interest should be awarded whenever it is proved that it is indispensable in order to ensure full compensation for the damage suffered by the injured State’ (61 Yearbook of the International Law Commission, 1989, Vol. II, Part 1, p. 30.).

49  Ibid, para. 103.

50  Ibid, para. 104.

51  Ibid, para. 111.

52  Metalclad Corp. v. Mexico, ICSID Case No. ARB(AF)/97/1, Award, (2001) 16 ICSID Rev-FILJ 168, 25 August 2000, dispatched 30 August 2000.

53  Ibid, para. 114.

54  Ibid, para. 128.

55  Ibid, para. 131.

56  Wena Hotels Ltd v. Egypt, ICSID Case No. ARB/98/4, Award, (2004) 6 ICSID Rep. 89, (2002) 41 ILM 896, IIC 273 (2000), 8 December 2000.

57  Ibid, para. 129.

58  Ibid, footnote 289.

59  Wena Hotels Ltd v. Egypt, ICSID Case No. ARB/98/4, Decision on Annulment Application, (2004) 6 ICSID Rep. 129, (2002) 41 ILM 933, (2003) 130 Clunet 167, IIC 274 (2002), 28 January 2002, dispatched 5 February 2002, para. 96.

60  Técnicas Medioambientales Tecmed SA v. Mexico, ICSID Case No. ARB(AF)/00/2, Award, 10 ICSID Rep. 130, (2004) 43 ILM 133, IIC 247 (2003), 29 May 2003.

61  Ibid, paras 196 and 197.

62  Compañía De Aguas Del Aconquija SA and Vivendi Universal SA v. Argentine Republic, Case No. ARB/97/3, Award of 20 August 2007.

63  Ibid, paras 9.2.3–9.25.

64  Gold Reserve Inc. v. Venezuela, ICSID Case No. ARB(AF)/09/1, Award, IIC 660 (2014), dispatched 22 September 2014.

65  Ibid, para. 854.

66  Ibid, para. 856.

67  Tenaris SA and Talta-Trading E Marketing Sociedade Unipessoal LDA v. Venezuela, ICSID Case No. ARB/11/26, Award, IIC 764 (2016), dispatched 29 January 2016.

68  Ibid, para. 592.

69  Ibid, para. 589 citing Professor Crawford’s Third Report on State Responsibility, summarizing the practice of international courts and tribunals, and cautioning against the indiscriminate application of compound interest:

… although compound interest is not generally awarded under international law or by international tribunals, special circumstances may arise which justify some element of compounding as an aspect of full reparation. Care is however needed since allowing compound interest could result in an inflated and disproportionate award, with the amount of interest greatly exceeding the principal amount owed.

70  Ibid, para. 590 citing e.g. Partners & Electroquil SA v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award of 18 August 2008, para. 491 (the tribunal applied interest at the mere lending rate of the Banco Central de Ecuador); Desert Line LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award of 6 February 2008, para. 298 (simple interest of 5 per cent); Archer Daniels Midland Co. and Tate & Lyle Ingredients Americas Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/05, Award of 21 November 2007, para. 300 (simple interest for US Treasury bills); CMS Gas, para. 471 (simple interest on US Treasury bills to those dated prior to the award date, and the arithmetic mean of the rate of the treasury bills of the US for the last six months taken semi-annually); Occidental v. Republic of Ecuador, LCIA Case No. UN3467, para. 217 (pre-judgment simple interest at 2.75 per cent and post-judgment simple interest at 4 per cent beginning thirty days after the award until payment). CME, paras 641 and 647 (simple interest at 10 per cent); Marvin Feldman v. Mexico, ICSID Case No. ARB(AF)/99/l, Award of 16 December 2002, para. 211 (simple interest on the Mexican Treasury Certificates); Autopista Concesionada de Venezuela CA (Aucoven) v. Venezuela, ICSID Case No. ARB/00/5, Award of 23 September 2003, paras 387 and 397 (simple interest on the average lending rate of five principal banks in the country).

71  Ibid, para. 591 citing Dolzer and Schreuer,Principles of International Investment Law, 1st Edition, Oxford University Press, 2008 citing footnote 366: Atlantic Triton v. Guinea, Award of 21 April 1986, 3 ICSID Rep. 13, at 33, 43; Compania del Desarrollo de Santa Elena SA v. Costa Rica, ICSID Case No. ARB/96/1, Award of 17 February 2000, paras 104 and 105; Metalclad v. Mexico, ICSID Case No. ARB(AF)/97/l, Award of 30 August 2000, para. 128; Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Award of 13 November 2000, para. 96; Wena Hotels Ltd v. Arab Republic of Egypt, ICSID Case No. ARB/98/4, Award of 8 December 2000, para. 129; Middle East Cement v. Egypt, ICSID Case No. ARB/98/4, Award of 12 April 2002, para. 174; Pope & Talbot Inc. v. Government of Canada, UNCITRAL, Award in Respect to Damages of 31 May 2002, para. 90; Tecmed v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award of 29 May 2003, para. 196; MTD v. Chile, ICSID Case No. ARB/01/7, Award of 25 May 2004, para. 253(4); Azurix v. Argentina, ICSID Case No. ARB/01/12, Award of 14 July 2006, paras 439–40; ADC v. Hungary, ICSID Case No. ARB/03/16, Award of 2 October 2006, para. 522; PSEG v. Turkey, ICSID Case No. ARB/02/5, Award of 19 January 2007, para. 348; Enron v. Argentina, ICSID Case No. ARB/01/3, Award of 22 May, 2007, paras 451–2; Compañía de Aguas del Aconquija, SA and Vivendi Universal v. Argentina, ICSID Case No. ARB/97/3, Award of 20 August 2007, paras 9.1.1–9.2.8; BG Group v. Argentina, Final Award of 24 December 2007, paras 456–7; Sempra v. Argentina, ICSID Case No. ARB/02/16, Award of 28 September 2007, paras 483–6; OKO Pankki v. Estonia, ICSID Case No. ARB/04/6, Award of 19 November 2007, paras 343–56; Continental Casualty v. Argentina, ICSID Case No. ARB/03/9, Award of 5 September 2008, paras 306–16; Bernardus Henricus Funnekotter and ors v. Republic of Zimbabwe, ICSID Case No. ARB/05/6, Award of 22 April 2009, paras 141–6; Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic of Egypt, ICSID Case No. ARB/05/15, Award of 1 June 2009, paras 594–8; Impregilo v. Argentina, ICSID Case No. ARB/07/17, Award of 21 June 2011, paras 382–4.

72  Ibid, para. 587.

73  Ibid, para. 594.

74  Ibid, para. 595.