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Awarding Interest in International Arbitration
Published online by Cambridge University Press: 27 February 2017
Extract
The popularity of arbitration as a mechanism for settling disputes between transnational contracting parties has led to standardization in many areas of arbitration law and procedure. One important aspect of the arbitral process, however, the practice of awarding compensatory interest, has been left behind in the march toward uniformity. To date, arbitral tribunals have failed to adopt a rational and uniform approach for evaluating interest claims. Consequently, resolving interest claims is often an expensive and time-consuming process, fraught with uncertainty, which typically results in inconsistent arbitral awards. This result is particularly problematic in the international arbitral arena: such claims often involve millions of dollars, and because a lengthy period may elapse between the origin of the dispute and the final award, whether an arbitrator awards interest may be as significant, from a monetary standpoint, as the principal claim itself.
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- Research Article
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- Copyright © American Society of International Law 1996
Footnotes
The author gratefully acknowledges helpful suggestions by Joseph Dellapenna, Doris DelTosto Brogan and Brenda Hustis Gotanda. Thanks are also due to Christie Callahan, Lynn Carino, Jennifer Lucy, Marc Miles, Michelle Morgan, Michael Petrizzo, Laura Schiller, Lisa Paye and Daniel Winters for valuable research assistance.
References
1 See James H. Carter, The International Commercial Arbitration Explosion: More Rules, More Laws, More Books, So What?, 15 Mich. J. Int’l L. 785 (1994); Saul Perloff, Comment, The Ties That Bind: The Limits of Autonomy and Uniformity in International Commercial Arbitration, 13 U. PA. J. Int’l Bus. L. 323 (1992).
2 See J. Gillis Wetter, Interest as an Element of Damages in the Arbitral Process, Int’l Fin. L. Rev., Dec. 1986, at 22; Richard B. Lillich, Interest in the Law of International Claims, in Essays in Honor of Voitto Saario and Torvo Sainio 52 (1983).
The present article specifically addresses issues concerning the awarding in international commercial arbitrations of compensatory or preaward interest, which is interest as part of an award, as opposed to moratory interest, which is interest on an award.
3 See, e.g., American Bell Int'l Inc. v. Islamic Republic of Iran, 12 Iran-U.S. CI. Trib. Rep. 170, 229–31 (1986) (awarding approximately $28 million in interest on damages of approximately $50 million); Kuwait and American Independent Oil Co., 21 ILM 976, 1042 (1982) (awarding $96 million in interest on $83 million in damages) [hereinafter AMINOIL].
4 See, e.g., American Bell, 12 Iran-U.S. CI. Trib. Rep. at 229 (awarding, in addition to damages of $15 million, interest at a rate of 10% for seven years); Telecommunications Co. of Iran v. United States, 23 Iran-U.S. CI. Trib. Rep. 320, 337 (1989) (awarding, in addition to damages of $1.2 million, 10% interest for approximately 10 years).
5 See, e.g., KCA Drilling Ltd. v. Sonatrach, International Chamber of Commerce [ICC] No. 5651 (awarding $23 million in damages and $26 million in interest), summarized in pertinent part in David J. Branson & Richard E. Wallace, Jr., Awarding Interest in International Commercial Arbitration: Establishing a Uniform Approach, 28 Va. J. Int’l L. 919, 920 (1988); AMINOIL, 21 ILM at 1042 (awarding $83 million in damages and $96 million in interest). If, for example, simple interest accumulates at a rate of 10% per annum, the amount owed will double in 10 years. By contrast, if interest on the amount owed is compounded, it will double in 7.3 years.
6 See, e.g., Bechtel, Inc. v. Iran, 14 Iran-U.S. CI. Trib. Rep. 149, 162 (1987); Final Award No. 6230 (ICC 1990), reprinted in 17 Y.B. Com. Arb. 164, 175–77 (1992).
7 See, e.g., Final Award No. 6281 (ICC 1989), reprinted in 15 Y.B. Com. Arb. 96 (1990); Final Award No. 6527 (ICC 1991), reprinted in 18 Y.B. Com. Arb. 44, 45–47 (1993).
8 See, e.g., Final Award No. 3572 (ICC 1982), reprinted in 14 Y.B. Com. Arb. Ill (1989); Sapphire Int’l Petroleum Ltd. v. National Iranian Oil Co., 35 ILR 136, 191 (1963).
9 See, e.g., Philbro Corp. v. Ministry of War—Etka Co., Ltd., 26 Iran-U.S. CI. Trib. Rep. 15 (1991); Asian Agric. Prods., Ltd. v. Sri Lanka, reprinted in 17 Y.B. Com. Arb. 106 (1992).
10 Compare Grove-Skanska v. Lockheed Aircraft Int’l AG, Award No. 3903 (ICC 1981), summarized in pertinent part in Branson & Wallace, supra note 5, at 933 (refusing to apply New York statutes regarding interest even though the parties explicitly stated that New York law would govern all contract disputes) with Final Award No. 5946 (ICC 1990), reprinted in 16 Y.B. Com. Arb. 97 (1991) (holding that the parties’ disputes concerning interest would be resolved under the New York statutes as provided in the agreement).
11 See McCollough & Co. v. Ministry of Post, Tel. & Tel., 11 Iran-U.S. CI. Trib. Rep. 3, 28 n.21 (1986) (citing cases); 3 Marjorie M. Whiteman, Damages in International Law 1924, 1975–86 (1953) (discussing cases); Jackson H. Ralston, The Law and Procedure of International Tribunals 130 (1926) (discussing cases).
12 See McCollough, 11 Iran-U.S. CI. Trib. Rep. at 29; Illinois Central R.R. Case, 3 Ann. Dig. 257 (U.S.-Mex. Gen. Claims Comm’n 1922), reprinted in part in 5 Hackworth, Digest §539, at 735.
13 Library of Congress v. Shaw, 478 U.S. 310, 315 n.2 (1986) (citations omitted).
14 See Dan B. Dobbs, Handbook on the Law of Remedies §3.5, at 164 (1973); Charles Mccormick, Damages §50, at 205 (1935).
15 See McCollough, 11 Iran-U.S. Gl. Trib. Rep. at 29. However, for interest to accrue, the amount in dispute generally must be liquidated or capable of being ascertained through computation of the data presented. See Whiteman, supra note 11, at 1991–92; Mccormick, supra note 14, §54, at 213–16.
16 Spalding v. Mason, 161 U.S. 375, 396 (1896) (quoting Curtis v. Innerarity, 47 U.S. (6 How.) 146, 154 (1848)). In some cases, the award of interest has been justified on the grounds that the claimant was forced “to borrow money to finance its current expenses on wages, operating and administrative costs or [to] use its own cash and incur an opportunity cost.” Award of January 30, 1984, reprinted in 10 Y.B. Com. Arb. 39, 41 (1985). Another explanation for allowing interest is that “the running of interest from the date of injury offers an inducement to the [debtor] to make prompt settlement of legitimate claims or to comply speedily with any award.” Louis B. Sohn & Richard R. Baxter, Convention on the International Responsibility of States for Injuries to Aliens, Draft No. 12 with Explanatory Notes, §83(1) Explanatory Note, at 242 (1961).
17 See, e.g., Code Crvii. Art. 1153 (Belg.), translated in The Constitution of Belgium and the Belgian Civil Code 223 (1982); Civil Code Art. 345 (Greece) (Constantine Taliadoros trans., 1982); Burgerlijk Wetboek [BW] §§119–20 (Neth.) (P. P. C. Haanappel, Ejan Mackaay trans., 1990); Interest Act (Swed.), summarized in Arbitration in Sweden 135 (1984); Allgemeines Burgerliches Gesetzbuch [ABGB] Art. 1333 (Aus.); Finland Interest Act of 1982, summarized in The Finnish Legal System 128 (Jaakko Uotila ed., 2d ed. 1985); Civil Code, RF Act No. 51–fz, Art. 395 (Rus.) (1994); Polgárl Törvénykönyv [PTK] Art. 301 (Hung.) (Ministry of Justice of the Hungarian People’s Republic, 1982); Código Civil Art. 1108 (Spain), discussed in Award in Case No. 2637 (ICC 1975), reprinted in 2 Y.B. Com. Arb. 153,155 (1977); Civil Code Art. 359 (Pol.), translated in Commercial, Business and Trade Laws: Poland 23–24 (Jerzy Rajski ed., 1985).
18 See Code Civil [C crv.] Art. 1153 (Fr.); Schweizerisches Obligationenrecht [OR] Art. 104 (Switz.); Bürgerliches Gesetzbuch [BGB] Art. 288 (Ger.); Codice Civile [C.C.] Art. 1224 (Italy).
19 In France, for example, a claimant places a debtor in default by issuing a formal demand for payment, or mise en demeure. See John C. Reitz, The Mysteries of the Mise en Demeure, 63 Tul. L. Rev. 85, 87–89, 111–18 (1988).
20 See 2 Marcel Planiol, Traité élémentaire de droit civil 101 (Louisiana St. L. Inst, trans., 11th ed. 1959).
21 See BGB Art. 284 (Ger.); Final Award No. 4629 (ICC 1989), reprinted in 18 Y.B. Com. Arb. 11, 33 (1993).
22 See BGB Art. 284 (Ger.); OR Art. 102 (Switz.).
23 See Eugen Bucher, Schweizerisches Obligationenrecht, allgemeiner Teil ohne Deliktsrecht 357 (1988); Peter Gauch, Schweizerisches Obligationenrecht, allgemeiner Teil: Rechtsprechung des Bundesgerichts, art. 102 OR (1989); Andreas von Tuhr & Arnold Escher, Allgemeiner Teil des schwei-zerischen Obligationenrechts 137 (1974); Otto Palandt, Bürgerliches Gesetzbuch §284 n.3A (48th ed. 1989).
24 See Maurice S. Amos & Frederick Walton, Introduction to French Law 183 (F. H. Lawson et al. eds., 3d ed. 1967). Compare Award in Case No. 2637, 2 Y.B. Com. Arb. at 155 (allowing interest from the date of a “formally worded registered letter”) with Final Award No. 6531 (ICC 1991), reprinted in 17 Y.B. Com. Arb. 221, 224 (1992) (ruling that the delivery of an invoice requesting payment for goods delivered was not sufficient to meet the mise en demeure requirement).
25 See C.c. Art. 1219 (Italy); Final Award No. 6230 (ICC 1990), reprinted in 17 Y.B. Com. Arb. 164, 176(1992).
26 See, e.g., Final Award No. 6531, 17 Y.B. Com. Arb. at 224; Final Award No. 4629, 18 Y.B. Com. Arb. at 33.
27 See Amos & Walton, supra note 24, at 184.
28 See C. civ. Art. 1139 (Fr.); see also Planiol, supra note 20, at 102.
29 See C.c. Art. 1219 (Italy); Francois Dessemontet, Country Handbook on Switzerland, in International Contract Manual 10 (Albert H. Kritzer ed., Supp. 1993).
30 See Martin Hunter & Volker Triebel, Awarding Interest in International Arbitration: Some Observations Based on a Comparative Study of the Laws of England and Germany, 6 J. Int’l Arb. 7, 17 (1989).
31 See BGB Art. 288 (Ger.).
32 See OR Art. 104 (Switz.); C.c. Art. 1284 (Italy).
33 If on June 15, however, the discount rate of the Bank of France differs by at least three percentage points from the December rate, the June 15 rate will remain in effect for the last six months of the year. Law No. 75-619 of July 11, 1975, Art. 2, reprinted in French Law: Constitution and Selective Legislation (George A. Bermann, Henry P. de Vries & Nina M. Galston eds., 1992).
34 See OR Art. 104 (Switz.); BGB Art. 288 (Ger.); C.c. Art. 1284 (Italy). However, in Switzerland, if the parties have agreed to a rate of interest lower than the statutory rate, the statutory rate still applies. See OR Art. 104. This interest is awarded regardless of the injury suffered by the claimant. See Bucher, supra note 23, at 115.
35 See Amos & Walton, supra note 24, at 184.
36 See BGB Art. 286(1) (Ger.); C.c. Art. 1224 (Italy); C. crv. Art. 1153 (Fr.).
37 See Final Award Nos. 3099 and 3100 (ICC 1979), reprinted in 7 Y.B. Com. Arb. 87, 92–94 (1982).
38 See OR Art. 104 (Switz.); see also Final Award No. 6527 (ICC 1991), reprinted in 18 Y.B. Com. Arb. 44, 53 (1993).
39 For a comprehensive review of the history of awarding interest in England, see F. A. Mann, On Interest, Compound Interest and Damages, 101 L.Q. Rev. 30, 31–46 (1985).
40 Arbitration Act, 1950, 14 Geo. 6, ch. 27, §19A (Eng.), as amended by Administration of Justice Act, 1982, §15(6), sch. 1, pt. IV, reprinted in 2 Halsbury’s Statutes of England and Wales 594 (4th ed. 1992).
41 Id.
42 See 1 Chittyon Contracts §1622, at 772 (A. G. Guest ed., 24th ed. 1977).
43 See Hunter & Triebel, supra note 30, at 11.
44 See Panchaud v. Pagnan, 1974 Lloyd’s Rep. 395, 409.
45 See Arbitration Act, supra note 40, §19A.
46 See Harvey Mcgregor, Mcgregor on Damages §476, at 347 (14th ed. 1980).
47 See Hunter & Triebel, supra note 30, at 11–12.
48 See Código de Comercio [Cód.Com.] Art. 362 (Mex.), translated in Commercial, Business and Trade Laws: Mexico 37 (Michael W. Gordon ed., 1985); Commercial Code Art. 223 (Pan.), translated in Panama, Commercial Laws of the World 30 (Foreign Tax Law Ass’n 1991) [Pan. Com. Code]; Código Civil [C.C.] Art. 1063 (Braz.), translated in Brazil, Commercial Laws of the World 165 (Foreign Tax Law Ass’n 1976).
49 See Courts of Justice Act, R.S.O., ch. 11, §138 (1984) (Ontario); Court Order Interest Act, R.S.B.C., ch. 76, §1 (1979) (British Columbia); Judicature Act, R.S.A.,ch.J–l, §15 (1980) (Alberta); Court of Queen’s Bench Act, R.S.M., ch. C280, §71 (1970) (Manitoba); Queen’s Bench Act, R.S.S., ch. Q–1, §46 (1978) (Saskatchewan); Judicature Act, R.S.P.E.I., ch. J–3, §33 (1974) (Prince Edward Island) Judicature Act, R.S.N.B., ch.J–2, §45(1) (1973) (New Brunswick); Judicature Act, R.S.N.S., ch. 2, §38 (1972), amended by ch. 55, §1 (1980) and ch. 54, §1 (1981) (Nova Scotia).
50 Harvin D. Pitch, Damages for Breach of Contract 206, 213 (1985).
51 Section 1961 of Title 28 of the United States Code provides for the payment of moratory interest in civil cases brought in federal courts. 28 U.S.C. §1961 (1988); see Jarvis v. Johnson, 668 F.2d 740 (3d Cir. 1982) (stating that §1961 makes no provision for prejudgment interest). Federal courts, however, have generally held that district judges have broad discretion in deciding whether to award compensatory interest. See Fort Hill Builders, Inc. v. National Grange Mutual Ins. Co., 866 F.2d 11, 14–15 (1st Cir. 1989); Waterside Ocean Navigation Co. v. International Navigation Ltd., 73V F.2d 150, 153–54 (2d Cir. 1984).
52 For a discussion of the awarding of interest in the United States, see Anthony E. Rothschild, Comment, Prejudgment Interest: Survey and Suggestion, 77 Nw. U.L. Rev. 192, 193 n.6 (1982); Comment, Prejudgment Interest: An Element of Damages Not to be Overlooked, 8 Cumb. L. Rev. 521 (1977).
53 N.Y. Crv. Prac. L. & R. §5001 (a) (McKinney 1992 & Supp. 1995).
54 See R.S.B.C, ch. 76, §1(1) (1979); R.S.N.B., ch. J–2, §45(1) (1973); R.S.N.S., ch. 2, §38(9), supra note 49; Miller v. Robertson, 266 U.S. 243, 257 (1924).
55 See C.C. Art. 1063 (Braz.); Pan. Com. Code Art. 227; R.S.P.E.I., ch. J–3, §33(2) (1974); Ledyard v. Bull, 119 N.Y. 62, 23 N.E. 444, 447–48 (1890); Knights of Columbus v. Wirtz, 592 F.2d 466, 469 (8th Cir. 1979).
56 See R.S.A., ch. J–l, §15 (1980); Rothschild, supra note 52, at 204.
57 C.C. Art. 1063 (Braz.); see also Cód.Com. Art. 362 (Mex.).
58 Law No. 4 of Jan. 2, 1935, Art. 2, translated in Panama, supra note 48, at 30 n.28.
59 R.S.O., ch. 11, §138 (1984).
60 R.S.B.C, ch. 76, §1(1) (1979); R.S.A., ch. J–1, §15 (1980).
61 This is the general rule for the courts in the western provinces, Prince Edward Island and Nova Scotia. Pitch, supra note 50, at 210, 213. One commentator believes that the New Brunswick courts would also follow this practice. Id. at 213.
62 See, e.g., Alaska Stat. §45.45.010 (1994) (10.5% interest); D.C. Code Ann. §28-3302 (1991) (6% interest); Ind. Code Ann. §24-4.6-1-101 (West 1995) (8% interest); Mass. Gen. Laws Ann. ch. 231, §6B (West 1995) (12% interest); N.Y. Civ. Prac L. & R. §5004 (9% interest) (McKinney 1992 & Supp. 1995).
63 See Blanton v. Anzalone, 813 F.2d 1574 (9th Cir. 1987); Dependahl v. Falstaff Brewing Co., 653 F.2d 1208 (8th Cir.), cert, denied, 454 U.S. 968 (1981).
64 McKelvy v. Metal Container Corp., 125 F.R.D. 179 (1989); Loft v. Lapidus, 936 F.2d 633 (1st Cir. 1991); Brown v. Consolidated Rail Corp., 614 F.Supp. 289 (D. Ohio 1985).
Finally, the awarding of compound interest is expressly prohibited in Mexico and Panama. See Cód.Com. Art. 363 (Mex.); Pan. Com. Code, Art. 223. Similarly, compound interest ordinarily is not awarded in Canada and the United States. See S. M. Waddams, The Law of Damages 512 (1983); Dynamics Corp. of Am. v. United States, 766 F.2d 518, 520 (Fed. Cir. 1985). But see In re Investment Bankers, Inc., 135 B.R. 659, 670 (Bankr. Colo. 1991), aff’d, 161 B.R. 507 (D. Colo. 1992), aff’d, 4 F.3d 1556 (10th Cir. 1993), cert, denied, 114 S.Ct. 1061 (1994); In re Brantley, 116 B.R. 443, 448–49 (Bankr. Md. 1990).
65 See Law of the People’s Republic of China on Economic Contracts Involving Foreign Interest, Art. 23, translated in Laws and Regulations of the People’s Republic of China Governing Foreign-Related Matters 486 (China Legal System Publishing House 1991) [PRC Foreign Econ. Law]; Minpō [Civil Code] Art. 419 (Japan); Civil Code Art. 548 (Korea), translated in Laws of the Republic of Korea (Korean Legal Center ed. & trans., 1964) [Korean Civ. C.]; Interest Act, 1978 A.I.R. Acts 96 (India); see also Arbitration Ordinance, ch. 341, §22A (1982) (Hong Kong), in 1 International Handbook on Commercial Arbitration: Hong Kong Annex 1–9 (Pieter Sanders ed., Supp. 1985); Commercial Code Arts. 203–05 (Taiwan), translated in Commercial, Business and Trade Laws: Taiwan 44 (Allan P. K. Keesee ed., 1983); Commercial Code Art. 224 (Thail.), translated in Commercial Laws of the World: Thailand 33 (Foreign Tax Law Ass’n 1976).
66 See Korean Civ. C. Art. 387; Minpō Art. 412; Laws of the Republic of China, Art. 229 (Law Revision Planning Group et al. eds., 1961) [ROC Civ. C.]; PRC Foreign Econ. Law, Art. 23; General Principles of Civil Law of the People’s Republic of China, Art. 88, translated in The Laws of the People’s Republic of China 1983–86, at 240 (Foreign Languages Press 1987) [PRC Civ. C.].
67 See Korean Civ. C. Art. 379; ROC Civ. C. Art. 203.
68 See 3 Doing Business in Japan 118 (Zentaro Kitagawa ed., 1992).
69 Id.
70 However, the rate of interest set by a tribunal may not exceed the maximum rates issued to banking companies by the Reserve Bank of India. See Interest Act, supra note 65.
71 PRC Foreign Econ. Law, Art. 23; PRC Civ. C. Art. 112.
72 Doing Business in Japan, supra note 68, at 118; see ROC Civ. C. Art. 205.
73 See ROC Civ. C. Art. 205. Any amount over 20% would be considered usurious and, therefore, would be prohibited.
74 See Doing Business in Japan, supra note 68, at 118. The maximum allowable interest rate varies according to the amount of money involved. Id.
75 See Minpō Art. 405 (Japan); ROC Civ. C. Art. 207.
76 See Minpo Art. 405 (Japan).
77 See ROC Civ. C. Art. 207.
78 See Samir Saleh, The Recognition and Enforcement of Foreign Arbitral Awards in the States of the Arab Middle East, in Contemporary Problems in International Arbitration 340, 348–49 (Julian D. M. Lew ed., 1987) (noting that the prohibition of interest is stricdy enforced in Saudi Arabia, Qatar, Oman and North Yemen) [hereinafter Contemporary Problems].
79 See G. Gregory Letterman, Letterman’s Law of Private International Business 43, 46–48 (1990). It should be noted that Jewish law also prohibits the payment of interest among Jews. George Horowitz, The Spirit of Jewish Law 488–94 (1953). However, other than in areas reserved to religious jurisdiction, Jewish law is not per se binding. Ariel Bin-Nun, The Law of the State of Israel 11 (Daniel C. Furman ed. & Menachem Eichelberg trans., 1990). By contrast, Israeli law expressly authorizes the payment of interest. See Henry E. Baker, The Legal System of Israel 110–12 (1968).
80 See Mohsin S. Khan, Islamic Interest-Free Banking: A Theoretical Analysis, 33 Int’l Monetary Fund Staff Papers 5 (1986); Talib Siraaj Abdus-Shahid, Interest, Usury and the Islamic Development Bank: Alternative, Non-Interest Financing, 16 Law & Pol’y Int’l Bus. 1095, 1100 (1984). Riba has been defined as an “[u]nlawful gain derived from the quantitative inequality of the counter-values in any transaction purporting to effect the exchange of two or more species which belong to the same genus and are governed by the same efficient cause.” Nabil A. Saleh, Unlawful Gain and Legitimate Profit in Islamic Law 16 (2d ed. 1992).
81 Abdus-Shahid, supra note 80, at 1102–03 (quoting Ingo Karsten, Islam and Financial Mediation, 29 Int’l Monetary Fund Staff Papers 108, 111 (1982)).
82 See Chibli Mallat, The Debate on Riba and Interest in Twentieth Century Jurisprudence, in Islamic Law and Finance 69, 69–70 (Chibli Mallat ed., 1988).
83 See, e.g., Civil Code Arts. 226–32 (Egypt), translated in Commercial Laws of the Middle East 44–45 (Allen P. K. Keesee ed., 1981) [Egypt Civ. Code]; Civil Code Art. 171 (Iraq), translated in 3 Business Laws of Iraq 56 (Nicola H. Karam trans., 1990). In Kuwait, the Civil Code forbids the payment of interest, but the Commercial Code allows interest to be paid in commercial loans. Compare Civil Code Arts. 262, 547 with Commercial Code Art. 102 (Kuwait), translated inW. M. Ballantyne, Commercial Laws in the Arab Middle East 128–29 (1986).
There appears to be no consensus among Muslim scholars on the scope of the prohibition on the payment of interest. Some scholars argue that only usury is strictly prohibited and, therefore, that not all interest is forbidden. See Letterman, supra note 79, at 48. The traditional view is that all interest is forbidden by the Koran. See Abdus-Shahid, supra note 80, at 1102; [Ayatollah] Ruhollah Khomeini, Tawzih al-Masail (A Clarification of Questions) 238–39 (n.d.) (on file with author).
84 See Letterman, supra note 79, at 47–48; Norman Anderson, Law Reform in the Muslim World 100 (1976). But cf. Final Award of Nov. 20, 1987, as corrected Feb. 20, 1988, reprinted in 14 Y.B. Com. Arb. 47, 68 (1989) (refusing to award interest under Saudi law on ground that Shari’a “expressly forbids any charging of interest because it involves usury”).
85 Egypt Civ. Code Art. 226.
86 See Sayed H. Amin, Middle East Legal Systems 64 (1985).
87 Civil Code Art. 221 (Iran).
88 See Civil Procedure Act Arts. 719–26 (Iran).
89 Id., Art. 721.
90 See Const. Principles 1, 4 (Iran).
91 See id., Principle 4; see also Notice No. 1/1143 (Apr. 14, 1981), Official Gazette, No. 10,625, Aug. 20, 1981, at 1, reprinted in Iran Ministry of Justice, The Collection of Laws of the Year [Collection] 1360 [Mar. 21, 1981–Mar. 20, 1982], at 2–3.
92 See High Judicial Council, Circular Issued to the Courts and All Prosecutors’ Offices, Aug. 24, 1982 (stating that all previous laws inconsistent with Islamic principles were null and void) (on file with author); see also Int’l Iran Times, Aug. 27, 1982, at 1 (stating that laws considered to be contrary to the Shari’a had been repealed by Order of Ayatollah Khomeini and Circular of High Judicial Council) (on file with author).
93 Const. Principles 43, 49 (Iran).
94 The Guardian Council ruled that collecting damages for delay in payment, as specified in Articles 712 and 719 of the Civil Procedure Act, was against religious rules. Notice No. 1/26941, Aug. 22, 1983, Official Gazette, No. 11,316, Jan. 1, 1983, reprinted in Collection 1362 [Mar. 21, 1983–Mar. 20, 1984], at 436–38; see also Notice No. 3845, Official Gazette, No. 12,834, Mar. 16, 1989, reprinted in Collection 1367 [Mar. 21, 1988–Mar. 20, 1989], at 381.
95 See High Judicial Council, supra note 92; Int’l Iran Times, supra note 92.
96 See Chartab-Shargh v. Tolo-Eghbal, Chamber 39, Civil Court 1, reprinted in Official Gazette, No. 12,981, Sept. 26, 1989; Bank Keshavarzi Iran v. Birjandi, Chamber 4, Civil Court 1, reprinted in id., No. 12,958, Aug. 29, 1989.
97 Notice No. 53,018, Oct. 4, 1987, Official Gazette, No. 12,515, Feb. 7, 1988, reprinted in Collection 1366 [Mar. 21, 1987–Mar. 20, 1988], at 912.
98 Id.
99 Iran has routinely claimed interest in claims and counterclaims that it has filed with the Iran-U.S. Claims Tribunal. See John A. Westberg, International Transactions and Claims Involving Government Parties: Case Law of the Iran–United States Claims Tribunal 254 n.4 (1991). In addition, the Tribunal has awarded interest in contract claims brought by foreign parties against Iran. Id. at 253–64.
100 See Lillich, supra note 2, at 55.
101 Compare BGB Art. 288 (Ger.) (4% interest) wirt Finland Interest Act of 1982, supra note 17 (16% interest); see also text at and notes 17–85 supra.
102 See Final Award No. 7006 (ICC 1992), reprinted in 18 Y.B. Com. Arb. 58, 65 (1993); Final Award No. 6531 (ICC 1991), reprinted in 17 Y.B. Com. Arb. 221, 223–24 (1992); Final Award of May 27, 1991, reprinted in id. at 11, 26. For a discussion of private choices of substantive and procedural laws in international arbitration, see Julian D. M. Lew, Applicable Law in International Commercial Arbitration 75 (1978).
103 Craig M. Gertz, Comment, The Selection of Choice of Law Provisions in International Commercial Arbitration: A Case for Contractual Depeçage, 12 Nw. J. Int’l L. & Bus. 163, 163 (1991).
104 Grove-Skanska, supra note 10, at 933–37.
105 Id. at 934–36.
106 The arbitrators declined to award a specific rate of interest and instead gave the parries the opportunity to agree on the appropriate rate. Id. at 936–37.
107 4 Iran-U.S. CI. Trib. Rep. 263, 267–68 (1983).
108 Id. at 267 (quoting Art. 5 of the Declaration).
109 Id. at 268; see John R. Crook, Applicable Law in International Arbitration: The Iran-U.S. Claims Tribunal Experience, 83 AJIL 278, 287 n.38 (1989) (noting that the Tribunal’s decision in CMI was not unique).
110 Furthermore, even if the parties specifically set forth in the contract the law or laws to be applied to substantive and procedural issues, that clause may not provide die arbitrator widi sufficient guidance on the proper law to be applied to the interest claim because it may be unclear whether individual interest issues are governed by substantive or procedural laws. See text at notes 113–19 infra.
111 See generally Ole Lando, The Law Applicable to the Merits of the Dispute, in Contemporary Problems, supra note 78, at 101; W. Laurence Craig, William W. Park & Jan Paulsson, International Chamber of Commerce Arbitration 285 (2d ed. 1990). The above list is by no means exhaustive. Some tribunals have randomly selected a set of choice-of-law rules. See Carlo Croff, The Applicable Law in an International Commercial Arbitration: Is It Still a Conflict of Laws Problem?, 16 Int’l Law. 613, 630 (1982). Other tribunals have selected a substantive law without regard to any choice-of-law rule. See Vitek Danilowicz, The Choice of Applicable Law in International Arbitration, 9 Hastings Int’l & Comp. L. Rev. 235, 268 (1985–86).
112 Hans Smit, The Future of International Commercial Arbitration: A Single Transnational Institution?, 25 Colum. J. Transnat’l L. 9, 24 (1986). Furthermore, because the process is extremely complex, parties and arbitrators often spend considerable resources on resolving choice-of-law issues. Gary B. Born, International Commercial Arbitration in the United States 98–100 (1994).
113 Some commentators consider the liability to pay interest substantive and the rate of interest procedural. See Branson & Wallace, supra note 5, at 942. Another suggests that both issues should be considered as exclusively substantive. See Wetter, supra note 2, at 22. And another writes that “[t]he interplay between differing national laws dealing with interest, as well as national characterizations of interest rules, can be metaphysical in their complexity.” See Born, supra note 112, at 620–21.
114 Wetter, supra note 2, at 22.
115 Westberg, supra note 99, at 253.
116 Hunter & Triebel, supra note 30, at 19.
117 Id.
118 Id. at 13.
119 Id. at 19. It should be noted that there would be a different result under the United States case of Marie v. Garrison, 13 Abb. N. Cas. 210 (N.Y. Super. Ct. 1883). There, the plaintiff brought an action for breach of an oral agreement for the sale of land and the defendant asserted that the transaction was invalid because it violated the statute of frauds. The court determined that Missouri law governed the merits of the dispute and New York law applied to procedural matters. Because the New York statute of frauds was considered substantive, the court ruled that it was inapplicable. Similarly, because Missouri deemed its statute of frauds procedural, it also could not be applied to the dispute. In the end, although the statute of frauds in either state would have nullified the oral agreement, since neither was applicable, the agreement was deemed valid. Applying the court’s ruling in Marie to the hypothetical above, the arbitrator would award interest, but neither English nor German law would control the arbitrator’s decision as to the period for which interest would be awarded or the rate at which such interest should accrue, even though both countries have statutes addressing these issues.
120 Final Award in Case No. 5460 of 1987, reprinted in 13 Y.B. Com. Arb. 104, 106 (1988).
121 Id.
122 Id.
123 Id. at 109.
124 Award No. 2930 (ICC 1982), reprinted in 9 Y.B. Com. Arb. 105 (1984).
125 Id. at 105–07.
126 Id. at 108.
127 See generally Andreas F. Lowenfeld, The Two-Way Mirror: International Arbitration as Comparative Procedure, 7 MICH. Y.B. Int’l Legal Stud. 163, 182 (1985).
128 See generally Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals (1953). Encompassed within this body of law is the concept of lex meroatoria or merchants’ law. For a discussion of lex mercatoria, see Lord Justice Mustill, The New Lex Mercatoria: The First Twenty-five Years, 4 Arb. Int’l 86 (1988); Berthold Goldman, The Applicable Law: General Principles of Law—the Lex Mercatoria, in Contemporary Problems, supra note 78, at 113.
129 35 ILR 136 (1963); see also Final Award No. 3572 (ICC 1982), 14 Y.B. Com. Arb. Ill, 117 (1989) (selecting as the law to be applied to the merits of the dispute “internationally accepted principles of law governing contractual relations”).
130 35 ILR at 173.
131 Id. at 191.
132 Id.
133 Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 92 (1986).
134 See Note, General Principles of Law in International Commercial Arbitration, 101 Harv. L. Rev. 1816, 1824 (1988).
135 See, e.g., Final Award No. ARB/87/3 (International Centre for Settlement of Investment Disputes [ICSID], June 27, 1990), reprinted in 17 Y.B. Com. Arb. 106, 141 (1992); Sedco, Inc. v. National Iranian Oil Co., 15 Iran-U.S. CI. Trib. Rep. 23, 184 (1987). Related to this approach is the concept of amiable compositeur, which allows the arbitrator to decide the dispute on die basis of principles of equity and fairness, rather than die strict application of a given law. Use of this option is not permitted by most institutional rules unless specifically so agreed by the parties. See Redfern & Hunter, supra note 133, at 92.
136 11 Iran-U.S. CI. Trib. Rep. 3, 26–31 (1986).
137 Id. at 29.
138 Id. at 29–30.
139 Id. at 31. Applying this approach, the Tribunal awarded the claimant interest at a rate of 10%. Id. at 34.
140 Cf. McCollough, 11 Iran-U.S. CI. Trib. Rep. at 42–43 (Brower, J., dissenting).
141 See cases cited supra note 10.
142 See, e.g., Final Award (ICSID Jan. 6, 1988), reprinted in 14 Y.B. Com. Arb. 82, 90 (1989); Agip Co. v. Popular Republic of Congo, 21 ILM 728, 739 (1982); Arbitral Award of July 23, 1981, reprinted in 8 Y.B. Com. Arb. 89, 94 (1983).
143 See, e.g., Award Nos. 2977, 2978 and 3033 (ICC 1978), reprinted in 6 Y.B. Com. Arb. 133, 139 (1981); Libyan American Oil Co. [liamco] v. Government of the Libyan Arab Republic (1977), 20 ILM 1, 82–83 (1981).
144 See, e.g., Final Award No. 6283 (ICC 1990), reprinted in 17 Y.B. Com. Arb. 178, 185 (1992); Asian Agric. Prod., Ltd. v. Sri Lanka, 17 Y.B. Com. Arb. 106, 141 (1992).
145 See authorities cited supra note 11.
146 McCollough, 11 Iran-U.S. CI. Trib. Rep. at 28.
147 See, e.g., Renusagar Power Co. v. General Elec. Co., Award No. 19 (High Court Bombay, Oct. 12, 1989), reprinted in 16 Y.B. Com. Arb. 553, 561–66 (1991); AMINOIL, 21 ILM 976, 1042 (1982).
148 See Born, supra note 112, at 5–8 (discussing neutrality and predictability as essential aspects of arbitration); see also J. Gillis Wetter, The Internationalization of International Arbitration: Looking Ahead to the Next Ten Years, 11 Arb. Int’l 117, 122 (1995) (noting that the process of determining whether interest rules are governed by substantive or procedural laws has at times led to serious mistakes).
149 Branson & Wallace, supra note 5, at 921.
150 Id. at 919.
151 See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 636–37 (1985).
152 See Final Award No. 6162 (ICC 1990), reprinted in 17 Y.B. Com. Arb. 153, 162 (1992); Final Award No. 5485 (ICC 1987), reprinted in 14 Y.B. Com. Arb. 156, 158 (1989); see also cases cited supra note 102.
153 See ICC Rules, Art. 13(3), 28 ILM 231 (1989); UNCITRAL Arbitration Rules, Art. 33(1), 15 ILM 701 (1976); American Arbitration Association [AAA] International Rules, Art. 29(1), reprinted in 17 Y.B. Com. Arb. 310, 320 (1992).
154 See Croff, supra note 111, at 623; Danilowicz, supra note 111, at 236–37.
155 See Partial Award No. 3267 (ICC 1979), reprinted in 7 Y.B. Com. Arb. 96, 105 (1982).
156 See R.J. Reynolds Tobacco Co. v. Iran, 7 Iran-U.S. CI. Trib. Rep. 181, 192 (1984); Whiteman, supra note 11, at 1981, 1990. Cf. Born, supra note 112, at 121 (discussing limitations on the enforceability of choice-of-law agreements). In such situations, the arbitrator may resolve the interest claim in accordance with step two of the model or, if an award of interest is inappropriate (e.g., because it violates public policy), the arbitrator can simply deny the claim for interest.
157 Illinois Central R.R. Case, supra note 12, at 736; see Admin. Decision III (1923), [1925–26] Decision and Opinions 61, 63 (U.S.-Ger. Mixed CI. Comm’n), reprinted in pertinent part in Hackworfh, supra note 12, at 735.
158 See Iran v. United States, 16 Iran-U.S. CI. Trib. Rep. 285, 288 (1987); liamco v. Libya, 20 ILM 1, 83 (1981); see also supra text at notes 12–101.
159 See Lillich, supra note 2, at 55.
160 See Andreas F. Lowenfeld, Lex Mercatoria: An Arbitrator’s View, 6 Arb. Int’l 133, 145 (1990); Craig, Park & Paulsson, supra note 111, at 613–19.
161 See ICC Rules, supra note 153, Art. 13(5); uncitral Arbitration Rules, supra note 153, Art. 33(3); AAA International Rules, supra note 153, Art. 29(2); accord uncitral Model Law on International Commercial Arbitration, 24 ILM 1302 (1985), Art. 28(4).
162 See Whiteman, supra note 11, at 1981, 1990 (discussing cases).
163 See Christine D. Gray, Judicial Remedies in International Law 30 (1987) (discussing circumstances where it would not be appropriate to award interest). Cf. Malkin v. Wright, 407 N.Y.S.2d 36, 38 (1978) (stating that in a bifurcated trial, interest is to be calculated only from the judgment awarding damages and not from the date of the verdict assessing liability because the plaintiffs interlocutory appeal delayed the assessment of damages); National Bank of Can. v. Artex Indus. Inc., 627 F.Supp. 610, 616 (S.D.N.Y 1986) (denying prejudgment interest because the plaintiff’s error necessitated litigation and it would be unfair to charge the defendant for the lost interest).
164 It is generally accepted that interest accrues up to the date of payment. See, e.g., Final Award No. 6527 (ICC 1991), reprinted in 18 Y.B. Com. Arb. 44, 53 (1993); Final Award No. 6281 (ICC 1989), reprinted in 15 Y.B. Com. Arb. 96, 100–01 (1990).
165 See Antoine Biloune & Marine Drive Complex Ltd. v. Ghana Investments Centre & Government of Ghana (Awards of 1989 and 1990), reprinted in 19 Y.B. Com. Arb. 11, 31 (1994); see also Lillich, supra note 2, at 55.
166 See Final Award No. 5946 (ICC 1990), 16 Y.B. Com. Arb. 97, 118 (1991); Southern Pac. Properties Ltd. v. Arab Republic of Egypt (ICSID 1992), reprinted in 19 Y.B. Com. Arb. 51, 87 (1994).
167 See Final Award No. 4629 (ICC 1989), reprinted in 18 Y.B. Com. Arb. 11, 33 (1993); AVCO Corp. v. Iran, 19 Iran-U.S. CI. Trib. Rep. 200, 228–29 (1988).
168 Final Award No. 4629 (ICC 1989), reprinted in 18 Y.B. Com. Arb. 11, 33 (1993); Final Award No. 6531 (ICC 1991), reprinted in 17 Y.B. Com. Arb. 221, 224 (1992).
169 See supra note 20.
170 See supra text at notes 18–101.
171 Cf. Sylvania Tech. Sys. v. Government of Iran, 8 Iran-U.S. CI. Trib. Rep. 298, 321 (1985).
172 See supra note 101.
173 One arbitral tribunal has argued against using a uniform approach to awarding interest, viewing it as too rigid to compensate the claimant adequately in every case. See McColIough & Co. v. Ministry of Post, Tel. & Tel., 11 Iran-U.S. CI. Trib. Rep. 3, 28–31 (1986). As explained above, the model, through its use of rebuttable presumptions, gives the arbitrator the flexibility needed to reach a fair and just result in each case without sacrificing the advantages of a uniform approach.
174 See Branson & Wallace, supra note 5, at 943 (citing cases). In fact, it could encourage the debtor to delay resolution of the dispute. If the rate at which interest accrues is below the prevailing market rate, the debtor in essence can use the claimant’s money for less than the debtor would have to pay if it had borrowed the sum in question from an established lending institution. In this situation, there is little motivation for the debtor to resolve the dispute in a timely manner. See id.
175 See id.
176 See Sylvania Tech. Sys. v. Iran, 8 Iran-U.S. CI. Trib. Rep. 298, 321 (1985).
177 Lillich, supra note 2, at 57.
178 Wetter, supra note 2, at 22–23.
179 Southern Pac. Properties Ltd. v. Egypt (ICSID 1992), reprinted in 19 Y.B. Com. Arb. 51, 87 (1994). Of course, inflation is not the only factor that affects the value of currency. The use of a floating rate in the country of the currency of payment will largely account for devaluation of that currency, if the devaluation is driven by natural market conditions, namely inflation. David R. Kamerschen, Money and Banking 592–97 (9th ed. 1988). The interest rate alone, however, cannot account for the artificial valuation of a currency driven by nonmarket forces, such as governmental monetary and fiscal policies.
180 At the same time, in many cases parties would not need to assert a separate claim for devaluation caused by inflation.
181 Wetter, supra note 2, at 23.
182 See Final Award No. 4629 (ICC 1989), reprinted in 18 Y.B. Com. Arb. 11, 30 (1993); Branson & Wallace, supra note 5, at 945.
183 To illustrate this point, assume a debtor defaults on a $5 million payment to claimant. Assume further that claimant can invest at the 90-day Eurodollar deposit rate and borrow money at libor plus 3%. If claimant would not have to borrow additional money owing to the deprivation of capital caused by debtor, then claimant’s actual loss is the 90-day Eurodollar deposit rate (i.e., a savings rate). If the presumed rate was the borrowing rate, rather than the savings rate, claimant would be overcompensated for its loss, and debtor would essentially be forced to pay a penalty, which would be contrary to general principles of contract law, equity and fairness.
184 Sylvania Tech. Sys. v. Iran, 8 Iran-U.S. CI. Trib. Rep. 298, 321 (1985).
185 Id.
186 See, e.g., Award Nos. 3099 and 3100 (ICC 1979), reprinted in 7 Y.B. Com. Arb. 87, 93–94 (1982).
187 For cases where arbitrators have awarded interest at the prevailing rate in the country of the currency in which payment is to be made, see Final Award No. 6527 (ICC 1991), reprinted in 18 Y.B. Com. Arb. 44, 53 (1993); Award No. 2930 (ICC 1982), reprinted in 9 Y.B. Com. Arb. 105, 109 (1984).
188 Alternatively, an arbitrator could choose to award interest at a rate that is compounded daily or yearly. Daily compounding requires the arbitrator and the parties to engage in cumbersome calculations, especially if interest accrues over a significant time. Yearly compounding, while easy to compute, arguably may not adequately compensate the claimant because most readily available and commonly used investment vehicles are compounded on a more frequent basis. In addition, yearly compounding may not be as responsive to fluctuations in the financial market from the devaluation of currency or inflation as rates that are compounded daily or quarterly. Calculating quarterly compound interest is not unduly burdensome, see Appendix (illustrating the calculation of compound interest), and it accurately reflects what the claimant would have earned if the money had been timely repaid and invested in a generally accepted commercial investment vehicle.
189 See Decision of Oct. 21, 1988, High Court of Bombay, reprinted in 15 Y.B. Com. Arb. 465, 488 (1990); Wetter, supra note 2, at 22; Mann, supra note 39, at 44.
190 See Decision of Oct. 21, 1988, 15 Y.B. Com. Arb. at 488. The difference between awards of compound or simple interest could be significant. For example, $5 million invested for five years at 10% simple interest will yield approximately $7.5 million, while compounding the interest quarterly will yield approximately $8.2 million, or a difference of approximately $700,000.
191 June 10, 1958, 17 UST 1270, 575 UNTS 159 (codified at 22 U.S.C. §§201–209 (1988)). The New York Convention has been adopted by approximately 90 countries. For a discussion of the enforceability of arbitral awards under the Convention, see Peter D. Trooboff & Corinne A. Goldstein, Foreign Arbitral Awards and the 1958 New York Convention: Experience to Date in U.S. Courts, 17 Va. J. Int’l L. 469 (1977); Robert B. von Mehren, The Enforcement of Arbitral Awards Under Conventions and United States Law, 9 Yale J. World Pub. Ord. 343 (1983).
192 New York Convention supra note 191, Art. V.
193 See Decision of Oct. 21, 1988, 15 Y.B. Com. Arb. at 488; Sun Ship, Inc. v. Matson Nav. Co., 785 F.2d 59 (3d Cir. 1986); International Standard Elec. Corp. v. Bridas Sociedad Anonima, 745 F.Supp. 172, 182 (S.D.N.Y. 1990). The fact that step two of the model does not rely on a particular national law also should not in and of itself make the award of interest unenforceable. See David W. Rivkin, Enforceability of Arbitral Awards Based on Lex Mercatoria, 9 Arb. Int’l 67, 73–80 (1993) (discussing cases).
194 See generally Abdul Hamid El-Ahdab, Enforcement of Arbitral Awards in the Arab Countries, 11 Arb. Int’l 169, 173–79 (1995).
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