Noteworthy, interest can have a significant impact on damages in arbitral awards.3
Chartered Institute of Arbitrators, Drafting Arbitral Awards Part II – Interest, 2016, Preamble, para. 1; Tenaris S.A. and Talta-Trading e Marketing Sociedade Unipessoal Lda v. Bolivarian Republic of Venezuela (I), ICSID Case No. ARB/11/26, Award, 29 January 2016, para. 594; Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award, 16 December 2002, para. 211; Alpha Projektholding GmbH v. Ukraine, ICSID Case No. ARB/07/16, Award, 8 November 2010, para. 518; Investment Treaty News, Tribunal finds Pakistan breached FET, expropriation and non-impairment obligations in the context of a mining joint venture with Australian investor Tethyan Copper Company, IISD, 17 December 2019; Marion Unglaube and Reinhard Unglaube v. Republic of Costa Rica, ICSID Case Nos. ARB/08/1, Award, 16 May 2012, para. 332.
II. Calculation of pre-award interest
A. Interest rates
Interest rates are sometimes specified either in the contract between the parties, in the applicable law or in a bilateral investment treaty. In these cases, the statutory or contractual rate, which could be a fixed interest rate, or a rate expressed relative to a benchmark rate, is to be applied.5
In case the interest rate is neither statutory nor established in the contract between the parties, economic principles can be employed to select an appropriate interest rate. Three rival theories exist:
Maniatis, A.M., Dorobantu, F. and Nunez, F., A Framework for Interest Awards in International Arbitration, Fordham International Law Journal, 2018, p. 826; Tenaris S.A. and Talta-Trading e Marketing Sociedade Unipessoal Lda v. Bolivarian Republic of Venezuela (I), ICSID Case No. ARB/11/26, Award, 29 January 2016, para. 586.
B. Simple v. Compound
In absence of a statutory rate or contractual regulations, tribunals need to determine whether interest accrues on a simple basis or on a compound basis.14 While both were equally common in arbitral awards pre-2000 and in the early 2000s, tribunals increasingly rely on compounding since around 2006, as it better “reflects the economic reality of investment”.15
C. Currency Issues
III. Calculation of post-award interest
Insofar as the principle of interest is to compensate Claimant for the time period between the date of valuation and the date of payment, there is no reason to differentiate between pre-award and post-award interest.17 In that spirit, tribunals in most cases “[...] did not comment upon or distinguish between pre-award and post-award interest.”18
However, some tribunals “have subjected pre- and post-award interest to different rates”,19 arguing that the purpose of post-award and pre-award is different. I.e. “damages become due as at the date of the Award, and from this time, Respondent is essentially in default of payment.”20 A higher post-award interest may also be justified to incentivize respondent to pay the award early.21
Emilio Augustin Maffezini v. The Kingdom of Spain, ICSID Case No. ARB//7, Award, 13 November 2000, paras. 86, 97.
Global Arbitration Review, The Guide to Damages in International Arbitration, 3rd ed., 2018
Investment Treaty News, Tribunal finds Pakistan breached FET, expropriation and non-impairment obligations in the context of a mining joint venture with Australian investor Tethyan Copper Company, IISD, 17 December 2019
Sabahi, B., Compensation and Restitution in Investor-State Arbitration: Principles and Practice, 2011