Oxford University Comparative Law Forum
Compound Interest in International Disputesi
by John Yukio Gotandaii
(2004) Oxford U Comparative L Forum 1 at ouclf.iuscomp.org | How to cite this article
Table of contents
One cannot imagine that a sophisticated businessman
invest his companies' funds in instruments yielding simple
rates of interest. Nor is it conceivable that ... [his] lenders
w[ould] provid[e] his companies with capital at simple rates of
today's economic world, compound interest, and not simple
interest, is the norm in both third-party financing and investment
vehicles. Yet, in disputes between transnational contracting
parties, simple interest awards are the norm.
odd disparity between awards of international tribunals and standard
business norms can have striking consequences. In disputes between
transnational contracting parties, awards of interest are often
significant and, in some cases, may even exceed the principal owed.2 For
example, in one recent arbitration, a panel awarded the claimant
approximately $4 million for the property expropriated by the
respondent and approximately $12 million in compound interest.3 With
interest awards of this magnitude, an award based on simple
interest would be far less than an award based on compound interest.
international disputes, the traditional view is that a tribunal may
award only simple interest.4
In fact, a federal district court in Washington, D.C. recently
opined in a dispute between an American contractor and the Government
of Iran that the prohibition on compound interest was so well settled
that it could be considered a principle of customary international
However, as the United States Court of Appeals for the District of
Columbia Circuit pointed out, this statement was incorrect.6 Yet, the
Court of Appeals declined to award the claimant compound
interest for the loss of the use of its money.7 This arguably left the
claimant without full compensation.
misunderstandings over the availability of compound interest stem
from the lack of comparative study of the issue.8 Indeed, some
commentators have simply presumed that compound
interest may not be paid because it is generally prohibited in many
This has led one authority to argue that laws simply have not kept
pace with modern financial practices and that tribunals should not
apply them when awarding interest.10
this article, I examine the laws of various countries on the awarding
of interest to learn whether there exists a prohibition on the
awarding of compound interest. I found that many countries do indeed
provide generally for the payment of only simple interest on damage
awards. However, my study also reveals that many countries have made
exceptions to this practice, and that these exceptions are
significant and allow for the awarding of compound interest in a
number of important circumstances. I conclude that, if utilized,
these exceptions may enable tribunals to fully compensate parties for
their loss of the use of money.
article is divided into seven parts. Part II provides an overview of
the payment of interest. Part III reviews the circumstances under
which interest may be awarded pursuant to the laws of various
countries in Europe, Oceania, Asia, and North and South America. My
study finds a divergent practice concerning awards of compound
interest; some prohibit it, others allow it in certain circumstances,
and a number of statutes are silent on the issue. Part IV reviews
the decisions of international tribunals on compound interest. I
determine that these tribunals have traditionally awarded only simple
interest, but that recently a few tribunals have granted compound
interest. Part V examines whether compound interest should be
awarded in disputes between transnational parties. I conclude that,
where an award of interest is warranted, in general, it would be more
appropriate for a tribunal to award compound, as opposed to simple,
interest. This is because today almost all financing and investment
vehicles involve compound interest. Thus, limiting interest awards
in all cases to simple interest would result in the claimant not
being made whole for its loss. In addition, it would confer a
windfall on the respondent, who likely had the use of the claimant's
money for less than the cost of borrowing it. Part VI sets forth the
circumstances under which awards of compound interest are
appropriate. I argue that there are three situations where such an
award is warranted: (1) when the parties have expressly agreed to
the payment of compound interest; (2) when the respondent's
failure to fulfill its obligations caused the claimant to incur
financing costs in which it paid compound interest; and (3) when the
claimant can prove that it would have earned compound interest in the
normal course of business on the money owed if the claimant had been
paid in a timely manner. Awarding compound interest in these
circumstances would be consistent with the laws of many countries and
would better achieve the goals of awarding interest than does the
traditional practice of granting only simple interest. Part
VII offers a brief conclusion.
II. Overview of Interest
is a sum paid or payable as compensation for the temporary
withholding of money.11
It has been distinguished from usury, which was considered to be a
form of unjust enrichment in that persons were receiving more than
what they had lent.12
Unlike usury, interest has been “considered the compensation
due to a creditor because of a loss which he had incurred through
Throughout history, the charging of interest has been regulated,
restricted, and prohibited: both Aristotle and Plato disapproved of
the Old Testament placed restrictions on the charging of interest
(but it did not absolutely bar it);15
and, until 1830, the Roman Catholic Church placed various
restrictions on, and often prohibited, the charging of interest.16
However, under Roman law, interest was well accepted as a sum “due
from a debtor who delayed or defaulted in repayment of a loan. The
measure of the [amount] due for the default or delay was ...the
difference between the creditor's current position and what it
would have been if the loan had been timely and fully repaid.”17
interest is a standard form of compensation for the loss of the use
In fact, it is often awarded without proof of actual loss. Courts
and tribunals presume that the delayed payment of money deprives the
injured party of the ability to invest the sum owed.19 The U.S. Supreme
Court justified this practice, noting:
It is the dictate of natural justice, and the law of every civilized
country, that a man is bound in equity, not only to perform his
engagements, but also to repair all the damages that accrue naturally
from their breach. ... Every one who contracts to pay money on a
certain day knows that, if he fails to fulfill his contract, he must
pay the established rate of interest as damages for his
non-performance. Hence, it may correctly be said that such is the
implied contract of the parties.20
are three reasons for requiring a respondent to pay interest to a
claimant that has succeeded on its damages claims. The first
rationale is to fully compensate the claimant by restoring it to the
position it would have enjoyed if the breach had not occurred.21 In this
context, the payment of interest recognizes that, by
refusing to pay the claimant immediately, the respondent has deprived
the claimant of the ability to invest the sum owed. Thus, interest
compensates the claimant for the loss of the use of its money because
of this delay.22
second reason for awarding interest is to prevent unjust enrichment
of the respondent.23
Respondents that retain the use of money owed to the claimants
during the resolution of the dispute are said to have unfairly
benefited from its use.24
They are receiving the earning capacity of the borrowed money
without compensating the claimants for the loss of its use.25 The
respondents thus should pay the opportunity cost of the money
withheld to the claimants.26
third reason for awarding interest is that it promotes efficiency.27 Without
interest, claimants will not be fully compensated for their
loss. As a result, respondents may be insufficiently deterred, may
not try to avoid future litigation, and, indeed, may even take steps
to delay the resolution of the dispute because respondents profit
from the use of claimants' money while the dispute is being
This possibility may also cause claimants to be over-deterred and to
take excessive precautions to avoid future litigation.29 Thus, interest awards
encourage parties both to avoid disputes and,
if they do occur, to resolve them in a timely manner.30
are two principal forms of interest: simple interest and compound
An award of compound interest means that the interest payment for a
certain period is added to the principal sum owed and that sum is
treated as a new principal for calculating the interest for the next
In other words, the creditor-claimant receives interest upon
By contrast, when only simple interest is awarded, the interest is
calculated only on the principal owed; the interest owed for a
certain period does not merge with the principal and become part of
the base upon which future interest is calculated.34 As more fully
explained below, there has been a tendency to award
only simple interest.35
III. National Laws and Compound Interest
countries, either by statute or by judicial decision, permit awards
of interest as “compensation for the use or detention of
A few countries prohibit the payment of interest, primarily because
it is inconsistent with their religious beliefs.37 However, even some of
these countries have allowed it in certain
Indeed, the practice has become so widespread, it can be said that
the liability to pay interest as part of an award of damages is an
accepted international legal principle.39 This unanimity does not, however,
extend to awards of compound
interest. Many countries either prohibit the payment of compound
interest or limit the circumstances in which it may be awarded.
following survey examines the laws in various countries on the
payment of interest to make two determinations: (1) what countries
permit an injured party entitled to damages to receive compound
interest; and (2) under what circumstances an injured party may
receive such interest.
1. Common Law System (England)
of interest in England are governed by both statute and common law.
Originally, the power to award interest was constrained to Lord
Tenterden's Act. This statute provided that interest was
payable on “all [d]ebts or [s]ums certain, payable at a certain
[t]ime or otherwise ...by virtue of some written [i]nstrument”
or otherwise if there was a demand of payment in writing giving
notice to the debtor that interest will be claimed.40 In 1934, the power to
award interest was modified in the Law Reform
(Miscellaneous Provisions) Act.41 The 1934 Act provided that “[i]n any
proceedings tried in any
court of record for the recovery of any debt or damages, the court
may, if it thinks fit, order that there shall be included in the sum
for which judgment is given interest at such rate as it thinks fit on
the whole or any part of the debt or damages for the whole or any
part of the period between the date when the cause of action arose
and the date of the judgment.”42 However, interest on interest was
In 1982, the Administration of Justice Act removed any application
of the 1934 Act to the Supreme Court and County Courts with respect
to the awarding of interest44
and added a section on interest to the Supreme Court Act, 1981.45 The
Supreme Court Act, 1981 now provides only for simple interest
general, there are four exceptions to the statutory prohibitions on
compound interest. The first two exceptions have been recognized in
England since the 1983 decision in London, Chatham & Dover
Railway Co. v. South Eastern Railway Co.47 In that case, the
House of Lords recognized that compound interest
can be awarded: (1) when the contract provides for it to be paid;48
and (2) when the course of dealing or usage of trade creates an
implied term for payment of compound interest.49
third exception is that compound interest may be awarded in equity.50 Equity
awards compound interest whenever a fiduciary, such as an
executor or a trustee, misuses money under his or her control and
benefits from it.51
Compound interest is also awarded in equity when “a wrongdoer
deprives a company of money which it needs for use in its business.”52
fourth exception, set forth in Wadsworth v. Lydall, allows
awarding compound interest as special damages.53 In Wadsworth,
the plaintiff agreed to sell a farm to the
defendant, and the plaintiff was to use the proceeds from the sale to
purchase another property.54 The defendant breached its
obligations and the plaintiff sued for
the principal owed as well as for interest that the plaintiff
incurred as additional financing charges.55 The court noted that the claim for
interest did not fall within the
exceptions set forth in London, Chatham & Dover.56
However, the court said that case applied only to claims for general
damages and thus did not prohibit awards of interest as special
damages. The court explained:
[T]he House of Lords [in London, Chatham & Dover] was not
concerned with a claim for special damages. The action was an action
for an account. The House was concerned only with a claim for
interest by way of general damages. If a plaintiff pleads and can
prove that he has suffered special damage as a result of the
defendant's failure to perform his obligation under a contract,
and such damage is not too remote on the principle of Hadley v.
Baxendale ... , I can see no logical reason why such special
damage should be irrecoverable merely because the obligation on which
the defendant defaulted was an obligation to pay money and not some
other type of obligation.57
The court held that,
“since the defendant knew or ought to have known that the
plaintiff would need to acquire another farm or smallholding, using
the £10,000 payable under the contract for the purpose, and
that if the £10,000 was not paid the plaintiff would be
compelled to incur expense in arranging alternative finance and
paying interest, the claims ... were not too remote and were
payable by the defendant.”58 The House of Lords approved of this
approach in President of
India v. La Pintada Cia Navegacion S.A.,59
where the court held that, in the absence of an agreement between the
parties regarding the payment of interest due on a debt, a creditor
could not claim interest as general damages when the debt was paid
late, but before proceedings for its recovery commenced.60 However, if special
damages were proved, such as interest paid on an
overdraft, a creditor could recover those damages.61
While English law carefully limits the authority of judges to award
compound interest, it permits arbitrators greater discretion. Section
49(3) of the Arbitration Act of 1996 provides:
The tribunal may award simple or compound interest from such dates,
at such rates and with such rests as it considers meets the justice
of the case -
(a) on the whole or part of any amount awarded by the tribunal, in
respect of any period up to the date of the award;
(b) on the whole or part of any amount claimed in the arbitration and
outstanding at the commencement of the arbitral proceedings but paid
before the award was made, in respect of any period up to the date of
arbitral tribunal has considerable latitude when it comes to the
question of interest.
should also be noted that The Late Payment of Commercial Debts
(Interest) Act, 1998, provides for simple interest on debts owed “for
the supply of goods or services where the purchaser and the supplier
are each acting in the course of a business.”63 This Act was
originally designed to protect only small businesses
against the late payment of commercial debts. In 2002, the scope of
the Act was broadened to comply with a 2000 European Union Directive
requiring member states to introduce measures to protect commercial
creditors against late payment. It now applies to claims for
interest by all commercial creditors who are owed money by commercial
The applicable interest rate is 8% above the Bank of England base
rate and interest accrues at a simple, as opposed to compound, rate.65 There
were two reasons for allowing only the payment of simple
interest. First, simple interest is easier to calculate than
compound interest. Second, the “Act is meant to protect
businesses that have been deprived of their money for months, rather
than years, so in most cases the difference between simple and
compound rates would be minimal.”66
2. Civil Law Systems
compound interest is permitted and, if so, when it may be paid,
varies greatly among civil law countries in Europe. Some codes
others allow it in certain circumstances,68
and some do not explicitly address the issue.69
France. In France, damages are limited to foreseeable losses
or to the
actual loss sustained or benefit deprived.70 Article 1153 of the
French Civil Code provides “[i]n
obligations which are restricted to the payment of a certain sum, the
damages resulting from delay in performance shall consist only in
awarding interest at the statutory rate, except for special rules for
commerce and suretyship. Those damages are due without the creditor
having to prove any loss.”71 However, article 1153 further
provides that where a
debtor in delay has caused, by his or her bad faith, harm independent
of such delay, the creditor may recover damages and interest
independent of the interest accruing on overdue payments.72 Thus,
in such circumstance, a creditor may be able to recover
interest exceeding the legal rate (which may include interest on
interest), provided that the creditor can prove this loss.
legal rate of interest is equal to the discount rate set by the Bank
of France on December 15th of the preceding year.73 Ordinarily, interest
is not paid on interest.74
However, under article 1154 of the French Civil Code, “[i]nterest
due upon capital may produce interest either by judicial demand or by
special agreement, provided that, either in the demand or in the
agreement, the interest in question has been due for at least a whole
This article has been held to authorize the payment of compound
interest in the circumstances set forth in the statute.76
Germany. In Germany, the failure to perform a duty arising
obligation may give rise to a claim for compensation for the loss
resulting from this breach.77 The circumstances under which a
creditor may be entitled to interest
on damages are set forth in both the Civil Code and the Commercial
Code section 246 fixes a statutory rate of interest at four percent
per annum for debts that bear interest by virtue of a statute or a
Where a debtor is delayed in payment, section 288 of the Civil Code
provides instead a default rate of five percent per annum above the
basic interest rate during the period of default, and, in cases where
a consumer is not a party, a claim for remuneration bears interest at
a rate of eight percent above the basic rate.79 Section 288 further
provides that an injured party “may claim
higher interest on a different legal basis” and that “the
right to claim additional loss is not excluded.”80 Commercial Code
section 352 fixes the statutory rate of interest at
five percent per year in commercial transactions.81 Both codes bar
with three notable exceptions. First, “[c]redit institutions
which have been authorized to issue interest-bearing bearer bonds in
the amount of loans made by them, may demand in advance on such loans
payment of interest on arrears of interest.”83 Second, compound
interest can be claimed as damages “if the
claimant has actually paid compound interest to his bank.”84 Third,
compound interest may be paid if the claimant “would
have received compound interest had he invested the principal sum
Italy. In Italy, article 1224 of the Civil Code provides that
due from the date that a debtor defaults on the payment of a sum of
money and accrues at the legal rate,86
which is ten percent per annum.87 However, if greater damages are
proven, additional compensation may
As in France, compensation is limited to those damages that were
foreseeable at the time the obligation arose.89 Compound interest is
available when there has been prior usage or a
prior agreement as long as interest has been due for at least six
Switzerland. The legal rate at which interest accrues in
Switzerland is five
percent per annum in the absence of an agreement, law, or custom to
However, where a debtor defaults on the payment of a money debt, the
debtor must pay five percent interest despite a lower contractual
The Swiss Code of Obligations explicitly provides that “interest
for default is not chargeable on interest for default.”93 For loans of money in
commercial transactions, interest is payable
even if the agreement fails to provide for interest; however, in
noncommercial transactions, interest is payable only if the agreement
provides for it.94
Unless agreed upon in the contract, the interest rate for loans of
money “correspond[s] to the usual rate of interest customary
for loans of [that type] at [that] time and place.”95 Article 314 of the
Code provides that “[a]greements
stipulating in advance that the interest shall be added to the
capital and shall bear compound interest are invalid; commercial
rules, however, regarding current account and similar commercial
customs where compound interest is computed, especially in the case
of savings-banks, shall not be affected hereby.”96
Spain. In Spain, liability for non-payment of money includes
either at an agreed upon rate or the legal rate.97 Compound interest is
permitted if judicially demanded, “even
if the obligation is silent on this point.”98
Belgium. In obligations that are limited to a sum certain,
provides that interest is due at the legal rate.99 Compound interest
may be paid pursuant to the parties'
agreement or judicial summons so long as the interest has been due
for at least one year.100
3. European Union
Economic Community constitutes a new legal order of international law
for the benefit of which the states have limited their sovereign
rights, albeit within limited fields, and the subjects of which
comprise not only the Member States but also their nationals.”101 The
European Court of Justice has been accorded the responsibility
“to ensure that in the interpretation and application of [the]
Treaty the law is observed.”102 The Court has jurisdiction over
two main types of cases: (1)
actions against Member States; and (2) actions against Community
And, in particular, the Court is authorized to serve as an
arbitrator pursuant to dispute settlement clauses of contracts
concluded by or on behalf of the Community.104 As contractual
liability is governed by the law applicable to the
contract in question, the national law of a Member State is usually
applied to resolve issues of contract law, including the application
of statutory interest rates.105 Where national law is not used to
resolve contractual issues, the
Court will generally resolve such issues according to general
principles of Member States, often arbitrarily choosing a rate of 6%
or 8% as a fair rate.106
Interest rates are also set by reference to the prevailing rate at a
European financial institution, such as the European Central Bank.107
Usually, simple interest is awarded, but the European Court of
Justice has noted “it does not appear that the legal systems of
the Member States include in general a fundamental principle opposed
to the charging of compound interest.”108
Australia, courts in each territory may award interest on money
recovered as debt or damages.109 Interest upon interest is
expressly prohibited in all territories
However, there is a significant exception to this rule: it does not
“apply in relation to any debt upon which interest is payable
as of right by virtue of an agreement or otherwise.”111 Thus, compound
interest may be available as of some other right,
such as by express agreement or special damages.
High Court of Australia discussed this exception in Hungerfords v.
In that case, the claimant sought the return of overpaid taxes and
compound interest as damages for the loss of the use of money.113 The
court held that, under the circumstances, compound interest
could be awarded even though section 30c of the Supreme Court Act of
South Australia expressly prohibited such interest.114 The court
explained that section 30c was not the exclusive authority
for the awarding of interest and did not preclude the development of
any common law principle permitting the recovery of damages for the
loss of the use of money.115 The court ruled that an award of
compound interest was needed
because simple interest would not fully compensate the claimant for
the loss of the use of the money owed.116
result is similar to the practice in England.117 However, in Hungerfords,
the court declined to adopt a
distinction between allowing recovery of compound interest as special
damages and not permitting it as general damages unless the statutory
requirements were satisfied (which is the practice in England).118 The
court in Hungerfords viewed such a distinction as
illogical and instead stated that compound interest could be awarded
whenever the loss of the use of money was foreseeable.119
interest is also available if the respondent's breach of its
obligations caused the claimant to borrow at compound interest rates. J.A.D.
International Pty. Ltd. v. International Trucks Australia
Ltd. illustrates this exception.120 There, the claimant sought
compound interest on damages resulting
from the respondent's rescission of a contract.121 The court ruled
that it was appropriate to award compound interest
because the respondent's actions forced the claimant to incur
third-party financing on a compound basis.122
with statutes on the payment of interest in judicial proceedings, the
arbitration acts of the various territories allow for the payment of
compensatory interest, but expressly prohibit compound interest.123
However, at least one court has ruled that the exceptions in court
proceedings that allow compound interest also apply to arbitrations.124
2. New Zealand
In New Zealand, awards of interest are governed by the Judicature
The Act provides:
In any proceedings in the High Court or the Court of Appeal for the
recovery of any debt or damages, the Court may, if it thinks fit,
order that there shall be included in the sum for which judgment is
given interest at such rate, not exceeding the prescribed rate, as it
thinks fit on the whole or any part of the period between the date
when the cause of action arose and the date of the judgment.126
statutory rate of interest is seven and a half percent.127 As in Australia,
the statute prohibits the payment of interest upon
However, it does not apply to debts where interest is payable as a
matter of right, including interest that is due under other rules of
Thus, compound interest is available if it is agreed upon.130
Additionally, compound interest is available as special damages131
and, in some circumstances, in equity.132
Civil Code of Japan provides that if a party does not perform its
obligations in a timely manner, it is responsible to the other party
for the resulting damages.133 The Code sets the rate of interest
at five percent per annum unless
the parties have agreed to a different rate of interest.134 If interest has
accrued for more than one year and the debtor has
failed to pay it despite being given a demand for payment by the
injured party, it may added to the principal and, therefore,
2. China and Hong Kong
In China, if a party breaches a contract, that party is liable for
any resulting damage,
A tribunal will ordinarily award interest at the contractually agreed
However, in the absence of an agreement between the parties it is
unclear what rate of interest would apply because the relevant
statutory provisions do not prescribe a rate of interest to be paid in
of a default or set forth a procedure to calculate such interest.138
In Hong Kong, compound interest may be awarded in equity, including,
for example, where the respondent
has breached its fiduciary duties. In addition, Hong Kong's Arbitration
arbitrators the discretion to award compound interest.139
Taiwan, in the absence of an agreed upon rate, the rate of interest
on a debt is five percent per annum.140 The rate of interest may not
exceed twenty percent.141
In addition, compound interest is prohibited, except when “the
parties have agreed upon in writing that the creditor may add to the
capital the interest which has been in arrears for more than one year
but has not been paid notwithstanding the demand of the creditor.”142
Korea, damages for failing to pay a monetary debt on time incur
interest at the legal rate.143 The legal rate of interest in
commercial activities is six percent
Otherwise, the legal rate of interest is five percent per annum.145
Parties may agree to a different rate of interest, so long as it
does not exceed the statutory ceilings.146
India, courts are given the authority to award interest pursuant to
the Code of Civil Procedure. It provides:
Where and in so far as a decree is for the payment of money, the
Court may, in the decree, order interest at such rate as the Court
deems reasonable to be paid on the principal sum adjudged, from the
date of the suit to the date of the decree, in addition to any
interest adjudged on such principal sum for any period prior to the
institution of the suit, with further interest at such rate as the
Court deems reasonable on the aggregate sum so adjudged, from the
date of the decree to the date of payment, or to such earlier date as
the Court thinks fit.147
payment of interest is also governed by the Interest Act of 1978,
which states that, “[i]n any proceeding for the recovery of any
debt or damages or in any proceedings in which a claim for interest
in respect of any debt or damages already paid is made, the court
may, if it thinks fit, allow interest to the person entitled to the
debt or damages or to the person making such claim, as the case may
be, at a rate not exceeding the current rate of interest, for the
whole or part of the following period ... .”148 In addition, the
Act prohibits the payment of compound interest.149 However, like
English courts, the Supreme Court of India, in
Renusagar Power Co. v. General Electric Co., has ruled that
this statutory prohibition on interest upon interest does not
preclude awards of compound interest under contractual provision,
usage, or statute.150
There, the court relied on this exception to uphold an arbitral
award of compound interest because it was “common knowledge
that provision is made for the payment of compound interest in
contracts for loans advanced by banks and financial institutions and
the said contracts are enforced by courts.”151
D. The Americas
In Mexico, the Civil Code provides that if a party is obligated to
perform and does not, that party is liable for resulting damages and
When the performance is an obligation to pay a specific amount,
damages and losses may not exceed the legal interest on the principal
In addition, if a buyer delays in the payment for goods, the “buyer
owes interest for the lapse of time between delivery and payment of
the purchase price in the following situations: I. If it was so
agreed; II. If the subject-matter of a sale was delivered and
generates profits or income; or, III. If, [inter alia,] the
purchaser defaults in payment [due at a certain time].”154
Commercial Code governs interest for the late payment of debt. In
the absence of an agreement, the rate of interest for the late
payment of debt is six percent per annum.155 Compound interest
is prohibited unless agreed upon.156
Argentine Civil Code provides that a debtor is not liable for damages
that are due to a fortuitous event unless the debtor has assumed that
liability or the liability (default) was due to the negligence of the
Obligations to pay a sum of money bear interest at the rate agreed
to by the parties.158
If there exists no such agreement, the obligation bears legal
interest or, if no legal interest is determined, the judge will fix
Compound interest may be awarded if its payment has been agreed to
by the parties or “when the debt having been judicially
liquidated with interest, the judge orders the resulting sum paid,
and the debtor defaults in payment.”160 In contracts for the sale of
goods, both a defaulting seller and a
defaulting buyer must pay interest, either on the sum of money
received by the seller or on the sum of money owed by the purchaser,
loans are governed by the Argentine Commercial Code.162 Any delay of
payment results in interest commencing from the date of
In the absence of stipulation, the parties are presumed to be bound
by the rate of interest charged by public banking institutions.164 In
addition, the Commercial Code provides that a debtor “who
litigates without a valid reason, shall be condemned to pay interest
up to two and a half times that which the public banks are
collecting, the courts duly adjusting the increase of the rate in the
decision attending to the greater or lesser malice with which the
debtor has litigated.”165
The Commercial Code also provides that “interest due may
produce interest, by action at law, or special agreement. In the
case of an action it is necessary that interest should be due for at
least a year.”166
Canada, awards of interest are governed by the applicable statute,
judicial law, or both. The Federal Court Act states that “the
laws relating to prejudgment interest in proceedings between subject
and subject that are in force in a province apply to any proceedings
in the Court in respect of any cause of action arising in that
The Federal Court Act gives the power to award interest to a “person
who is entitled to an order for the payment of money in respect of a
cause of action arising outside any province or in respect of causes
of action arising in more than one province.”168 Although interest
on interest is prohibited, the section does not
apply “where interest is payable by a right other than under
territories and provinces also have individual statutes allowing for
Most prohibit the award of compound interest.171 However, the
prohibition on compound interest typically does not
apply when the payment of interest or similar compensation is
otherwise provided by law.172 In general, compound interest may
be awarded pursuant to a court's
Courts have construed this authority narrowly, awarding compound
interest where fraud is apparent or where the wrongdoer is a
fiduciary who has stolen funds or wrongfully profited from the
retention of trust money.174 In addition, like in England,
Canadian courts allow compound
interest as special damages.175 In Quebec, interest is governed by
the Civil Code, which allows
compound interest only “where that is provided by agreement or
by law or where additional interest is expressly demanded in a
4. United States
most other countries, the United States has no federal statute
governing the payment of compensatory interest in all judicial
Individual states, however, have enacted laws providing for the
payment of interest.178
Most states either prohibit or limit awards of compound interest.179 For
example, in New York and California, compensatory interest is
calculated as simple interest.180 Nevertheless, in both states,
there are exceptions to the general
rule. In New York, compound interest may be awarded if the authority
to do so is expressly provided by statute or agreement of the
It may also be awarded when a fiduciary has acted in bad faith.182
Similarly, in California, compound interest may be awarded pursuant
to statute or the parties' agreement.183 In addition, pursuant to section
3288 of the California Civil Code,
a jury may award compound interest in actions not arising from a
Under this provision, compound interest has been awarded in actions
involving a willful breach of fiduciary duty.185
courts similarly follow the traditional rule that, absent either a
contract or express statutory provision authorizing compound interest
prior to judgment, only simple interest may be awarded.186 One such statute,
section 262(i) of the Delaware Code, gives courts
the discretion to award compound interest in actions when
shareholders seek the fair value of their shares in a merger.187
Pursuant to this provision, some Delaware courts have recently begun
to award compound interest on the grounds that the practice is
consistent with market realities.188 The rationale for this practice
was explained by the Delaware
Chancery Court in Onti, Inc. v. Integra Bank, Inc.:189
It is simply not credible in today's financial markets that a person
sophisticated enough to perfect his or her appraisal rights would be
unsophisticated enough to make an investment at simple interest –
in fact, even passbook savings accounts now compound their interest
daily. This fundamental economic reality strongly indicates to me
that, our litigants typically being at least as financially
sophisticated as passbook savings holders and seeking at least the
same return, interest on appraisal cases should be compounded daily,
not monthly. As for the defendant company in an appraisal action,
it is even harder to imagine a corporation today that would seek
simple interest on the funds it holds. One cannot imagine that a
sophisticated businessman ... would invest his companies' funds in
instruments yielding simple rates of interest. Nor is it
conceivable that [a businessman's] lenders w[ould] provid[e]
his companies with capital at simple rates of interest.190
also have allowed compound interest on the ground that the respondent
unjustly benefited from what amounted to an interest free loan by
failing to fulfill its obligations,191
or that the respondent's action deprived the claimant from
being able to invest the money and earn such interest.192
federal courts, absent specific statutory authority, issues
concerning the payment of compensatory interest are typically
resolved pursuant to the applicable state law.193 In diversity
the United States Supreme Court has ruled that, to determine which
state's compensatory interest law applies, a federal court must
use the choice of law rules that would be used by a state court in
which the federal court sits.195 Even in many federal question
suits, state law influences the
resolution of compensatory interest issues.196
federal courts approach compensatory interest issues without
consulting state law, district courts exercise broad discretion in
resolving claims for compensatory interest.197 As a result,
compound interest has been awarded more frequently.198 For example,
federal courts often award compound interest in
Further, they commonly award compound interest when calculating
compensatory interest on back pay in successful employment
In addition, compound interest has been awarded in patent
infringement actions, although the courts deciding such cases are not
unified in their approach.201 Federal courts have also awarded
compound interest when the claimant
incurred interest at a compound rate because of the respondent's
delay in paying the underlying obligation.202
In re Oil Spill by the Amoco Cadiz off the Coast of France on
March 16, 1978, the United States Court of Appeals for the
Seventh Circuit justified awarding compound interest as the best way
to compensate a claimant for the lost use of money.203
The court explained:
By committing a tort, the wrongdoer creates an involuntary creditor. It
may take time for the victim to obtain an enforceable judgment,
but once there is a judgment the obligation is dated as of the time
of the injury. In voluntary credit transactions, the borrower must
pay the market rate for money. (The market rate is the minimum
appropriate rate for prejudgment interest, because the involuntary
creditor might have charged more to make a loan.) Prejudgment
interest at the market rate puts both parties in the position
they would have occupied had compensation been paid promptly.204
in McKesson Corp. v. Iran, the United States District Court
for the District of Columbia refused to award compound interest to a
minority shareholder of an Iranian dairy company after Iran had
expropriated the shareholder's interest in the company.205 Relying on
commentary and Iran-U.S. Claims Tribunal decisions, the
district court found that only simple interest is awarded as a matter
of customary international law.206 Although it noted that
international tribunals have awarded compound
interest in a number of cases, the court stated that it was
“constrained to follow the custom, not the rare exception.”207
appeal, the United States Court of Appeals for the District of
Columbia Circuit stated that the district court had erred in
concluding that only simple interest may be awarded under
The D.C. Circuit stated that “most contemporary sources ...
take the view that '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.'”209
Nevertheless, the court upheld the award of interest because the
district court had not abused its discretion in awarding only simple
federal courts have generally enforced foreign awards of compound
Under the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (the New York Convention),212
arbitral awards rendered in signatory countries are enforceable in
all other signatory countries. This rule is subject to a narrow list
of defenses, the most relevant of which is that an award need not be
recognized and enforced if it “would be contrary to the public
policy of that country.”213 In general, domestic courts have
rejected claims that an award of
interest is not enforceable on public policy grounds simply because
the award was made under foreign law, the rate of interest exceeded
municipal rates, or compound interest was awarded even though local
law prohibits the payment of such interest.214
* * *
this survey discloses, very few countries that allow awards for
interest absolutely prohibit compound interest. It is true that in
most countries the payment of simple interest is the norm. Perhaps
some of these laws originate from the days when disputes were
resolved quickly and, therefore, the difference between simple and
compound interest would not have been significant.215 In addition, it
may have been difficult for courts to award compound
interest without the use of calculators and computers.
any event, the survey also shows that many countries allow for awards
of compound interest in limited circumstances. For example, the laws
of many countries permit compound interest if the contract between
the parties provides for it.216 In addition, compound interest may
be available when the
respondent's actions forced the claimant to borrow money at
Furthermore, compound interest may be awarded if it is part of the
course of dealing or usage or trade, or otherwise can be proven as
Some countries also allow awards of compound interest when a party
has breached a fiduciary duty.219 Finally, a few countries expressly
allow arbitral tribunals to award
IV. Tribunal Decisions
typically use one of three methods to resolve claims for interest.
Ordinarily, they will turn first to the agreement for guidance. When
the agreement contains a provision addressing the payment of
interest, the tribunal usually resolves the interest claim
However, agreements usually fail to deal with the payment of
interest and, when they do, the provision is often ambiguous.222 In
such circumstances, the tribunal may turn to the second method: it can
select a law to resolve the interest claim by applying one of
numerous choice-of-law rules.223 Finally, the tribunal can decide
the issue in accordance with
general principles of law224
or on the basis of fairness and reasonableness.225
deciding disputes between transnational contracting parties
traditionally have awarded only simple interest.226 For example, in R.J.
Reynolds Tobacco Co. v. Iran, the
Iran-U.S. Claims Tribunal noted “[t]here are few rules within
the scope of the subject of damages in international law that are
better settled than the one that compound interest is not
of Maritime Arbitrators (“SMA”) panels also typically
award only simple compensatory interest.228 SMA panels have awarded compound
interest when the contract
expressly provided for it.229 They have also granted it in a few
cases without providing reasons
for the award.230
four arbitral panels deciding cases under the auspices of the
International Centre for the Settlement of Investment Disputes
(“ICSID”) departed from tradition and awarded compound
interest to the successful parties. In Metalclad Corp. v. United
Mexican States, the claimant sought damages for the breach of
certain articles of the North American Free Trade Agreement (“NAFTA”)
and compound interest on any monetary award. The tribunal awarded
claimant a total of U.S.$16,685,000.231
With respect to the claim for interest, the tribunal noted that the
authority to award interest was conferred by article 1135(1) of
NAFTA, which states that a tribunal may award “monetary damages
and any applicable interest.”232 The tribunal determined that an
award of six percent interest,
compounded annually, was appropriate because it would restore the
claimant to a “reasonable approximation of the position in
which it would have been if the wrongful act had not taken place.”233 The
Supreme Court of British Columbia later set aside the award of
interest on the ground that the tribunal had erred in selecting the
date from which it calculated the amount of compensatory interest. The
Court, however, did not discuss the award of compound interest.234
Maffezini v. Spain, the claimant sought the return of money
lent to a corporation affiliated with the Kingdom of Spain as well as
The tribunal awarded in principal damages 30 million Spanish Pesetas
and in compound interest 27.6 million Spanish Pesetas.236 The tribunal
explained that interest should be compounded on an
annual basis “[s]ince the funds were withdrawn from [the
claimant's] time-deposit account,” which would have
enabled the claimant to earn compound interest.237
Compania del Desarrollo de Santa Elena v. Costa Rica, the
claimants sought damages and compound interest after Costa Rica
expropriated its property in 1978.238 The tribunal first determined that
the property was worth U.S.$4.15
million when it was expropriated. With respect to the claim for
compound interest, the tribunal acknowledged that there exists “a
tendency in international jurisprudence to award only simple
After surveying the cases and commentary on compound interest, the
tribunal determined that an award of such interest was not prohibited
by international law.240
In fact, the tribunal recognized that other tribunals deciding
disputes between transnational parties had awarded compound
In addition, it noted that international tribunals tended to award
only simple interest in cases of injury or simple breach of
but they have awarded compound interest in cases relating to the
valuation of property or property rights.243 The tribunal
awarded claimants approximately U.S.$11.85 million in
compound interest, concluding that this award was needed to provide
the claimants with the full present value of the property that was
taken twenty-two years ago.244
Wena Hotels Ltd. v. Arab Republic of Egypt, an ICSID
tribunal ruled that the respondent expropriated the claimant's
property and failed to protect the claimant's investment and,
as a result, it awarded the claimant U.S.$8,061,896.55 in damages.245
Although the claimant sought interest on this amount, it neither
specified the interest rate at which interest should accrue nor
addressed whether the interest should be compounded. Nevertheless,
the tribunal determined that: (1) it was appropriate to award
interest, (2) interest should accrue at a rate of 9%, and (3) the
interest should be compounded quarterly.246 The tribunal explained the reasons
for the award of compound
interest, which totaled U.S.$11,431,386.88:
[A]n award of compound (as opposed to simple) interest is generally
appropriate in most modern, commercial arbitrations. ... “[A]lmost
all financing and investment vehicles involve compound interest. ... If
the claimant could have received compound interest merely by
placing its money in a readily available and commonly used investment
vehicle, it is neither logical nor equitable to award the claimant
only simple interest.”247
Final Award in Case No. 1930 of 12 October 1999, a Netherlands
Arbitration Institute (NAI) panel issued an award that included
There, the panel ruled that the claimant was entitled to damages
based on respondent's deceit in the misappropriation of funds.249
Turning to the claim for interest, the tribunal noted that the
substantive law was Dutch law, but that the law governing arbitration
was the law of the place of arbitration, London, England. Applying
England's Arbitration Act of 1996, which gives arbitral
tribunals the power to award compound interest,250
and Dutch law, which allows interest upon interest, 251
the NAI panel awarded the claimant interest at the statutory rate in
the Netherlands, compounded annually.252
* * *
sum, the traditional practice is not to award compound interest in
international arbitrations. However, in recent years, tribunals have
sometimes departed from this practice and have granted successful
claimants compound interest.
V. Should Compound Interest Ever Be Awarded?
This study confirms that most countries and tribunals deciding
transnational disputes follow the traditional practice of awarding
only simple interest. However, this practice may not fully
compensate the claimant and may result in an inefficient dispute
practice of awarding interest as an element of damages has become so
widespread that it is an accepted international legal principle.253 And,
as noted in section II, one of the primary purposes of awarding
interest is to make the claimant whole by compensating “for the
delay with which the payment to the successful party is made.”254
Awarding only simple interest as a general rule undermines this goal
because a business engaged in transnational activities is likely to
be sophisticated in financial matters and would have done one of two
things had the respondent not caused a monetary loss to the claimant:
(1) it would have paid off any debt used to finance its operations,
which may have included a finance charge of compound interest; or (2)
it would have invested the sum owed in a financial vehicle that would
have had a compounding effect.
Iran-U.S. Claims Tribunal Judge Howard Holtzmann pointed out in his
dissent in Starrett Housing Corp. v. Iran, many businesses
today “operate on the basis of back-to-back loans and a
substantial line of credit with their banks. It is normal commercial
practice that banks customarily charge compound interest.”255 An
award of compound interest in this circumstance would be
necessary to make the claimant whole as respondent's delayed
payment would have increased on a compounded basis the claimant's
financing costs. Moreover, there is no unfairness to the respondent
in requiring it to pay compound interest in this situation, provided
that the claimant can show that it is entitled to receive such
interest because it incurred additional costs. It is well accepted
that “parties dealing knowingly and rationally at arm's
length provide compensation for the use of money in every deferred
payment transaction, and compute the amount of this compensation by
the techniques of interest compounding.”256
if the respondent had paid punctually, the claimant could have
invested the money in an investment vehicle, such as a certificate of
deposit or a money market account, that paid compound interest.257
Thus, awarding the claimant only simple interest would result in the
claimant receiving less than it could have earned by investing the
funds owed in an established commercial investment vehicle.258
Furthermore, simple interest fails to achieve the goal of restoring
claimant to its pre-injury condition by compensating it for the
opportunities lost by not being able to earn a return on the sum owed
by the respondent.
is important to point out that the difference between awards of
compound interest and simple interest can be significant.259 For
example, in Kuwait v. American Independent Oil Co.
the arbitral tribunal awarded interest, compounded annually, at a
rate of seventeen and one half percent for a period of five years.261 This
amounted to U.S.$96.7 million in interest on an award of
U.S.$83 million. If the tribunal had
awarded simple interest instead of compound interest, the total
amount of interest would have been U.S.$72.6 million. Thus, an award
of simple interest would have resulted in the claimant receiving
U.S.$24.1 million less than it did.262
tribunal's decision in Compania del Desarrollo de Santa
Elena, S.A. v. Costa Rica263
provides another example where the difference between awards of
simple and compound interest is significant. There, the tribunal
ruled that the claimant was entitled to a total of U.S.$16 million
for property that it determined had a value of U.S.$4.15 million when
it was expropriated by the respondent twenty-two years earlier.
The tribunal noted that it calculated the U.S.$11.85 million
interest award based on a rate that was compounded semi-annually.264 By
contrast, if the tribunal had awarded simple interest, it would
have totaled U.S.$5.7 million, which is less than half the actual
the payment of compound interest can result in a large award of
interest, and, as was the case in Compania del Desarrollo de Santa
Elena, even exceed the principal awarded, some tribunals have
been reluctant to award such interest.266 This concern was expressed by
Chamber III of the Iran-U.S. Claims
Tribunal in Anaconda-Iran, Inc. v. Government of Iran:
The mathematical result of a full application of [compound interest],
particularly in view of delays that any adjudication of a dispute
involves, is that interest due could, by far, exceed the principal
awards awarded. ... Consequently, to [award compound interest]
would cause a benefit, and indeed a profit, to accrue to the
successful party, which would be wholly out of proportion to the
possible loss that the successful party might have incurred by not
having the amounts due at its disposal.267
The payment of compound
interest, however, does not result in a windfall to the claimant –
it simply restores the claimant to the position it would have been in
had it been paid in a timely manner. As Professor F.A. Mann pointed
[I]t is completely wrong to attach any significance to the fact that
the award of interest or compound interest may lead to the payment of
a sum exceeding the capital due from the wrongdoer. This may happen
in many cases as a result of the wrongdoer's delaying tactics
or the court's work load. But during that period the wrongdoer
has enjoyed the fruits of the money withheld.268
Moreover, the claimant
has been deprived of the opportunity to invest the money owed. In
view of the readily available investment vehicles paying compound
and the accepted practice of investing in them,270
it is inconceivable that if the claimant had been timely paid, it
would have placed the money in an investment vehicle paying only
also is important to recognize that some businesses choose not to
invest profits earned in investment vehicles offered by financial
institutions, such as certificates of deposits. Instead, they may
put these funds back into the business itself or distribute the money
to their shareholders.272
In both situations, there would be a compounding effect.
If the claimant business chooses to pay
dividends, the dividends would compound for both the payee and the
payor. The payee (investor) has the immediate earning capacity of
the money and can reinvest the dividend payment into any common
commercial savings device that would pay a compound rate of return.273 The
payor (business) would earn a compound rate of return because it
would be increasing the intrinsic value of the business and be
increasing its stock price.
If, however, the business chose to reinvest its
earnings in its own company, a compound rate of return would still
result. This is because the business would be accelerating its
growth, which would also increase the business' intrinsic value
and increase its stock price.274
In short, in the modern world of international
commerce, almost all financing and investment vehicles involve
compound, as opposed to simple, interest. Thus, it is neither
logical nor equitable to award a claimant only simple interest when
the respondent's failure to perform its obligations in a timely
manner caused the claimant either to incur finance charges that
included compound interest or to forego opportunities that would have
had a compounding effect on its investment.275
VI. Circumstances Warranting Awards of Compound
compensatory interest is recoverable without proof of actual loss;
damages are presumed because the delay in payment deprives the
claimant of the ability to invest the sum owed.276 As shown by the
study in Part III, however, this practice appears to
apply only to claims for simple interest. The laws of many countries
provide for the awarding of compound interest if the claimant can
prove that it is entitled to such interest. This is also the
approach used by some arbitral tribunals.277 There appears to
be no consensus, however, on what claimants
need to show in order to be entitled to an award of compound
are three situations when it would be appropriate for a tribunal
deciding a transnational dispute to award compound interest: (1) when
the parties have expressly agreed to the payment of compound
interest; (2) when the respondent's failure to fulfill its
obligations caused the claimant to incur financing costs in which it
paid compound interest; and (3) when the claimant can prove that it
would have earned compound interest in the normal course of business
on the money owed if it had been paid in a timely manner.279
A. Enforcing the Parties' Agreement on the
Payment of Compound
the agreement between the parties addresses the subject of the
payment of interest (or precludes it), the tribunal ordinarily should
enforce that contractual provision. This approach is consistent with
the laws of many countries.280 It is also in accord with the
general practice of arbitral
Moreover, it gives effect to the intent of the parties and furthers
one of the fundamental characteristics of international commercial
arbitration—the parties' freedom to agree upon the rules that
will govern the resolution of their dispute.282 In addition, it
encourages parties to predetermine the consequences
of a breach of the agreement and facilitates settlements because the
parties will be able to forecast accurately the amount of interest
that an arbitrator would award. If arbitration is necessary, it also
eliminates the need to engage in the often lengthy and complex
process of determining which national law should be applied to the
interest claim and thus reduces the cost of the proceedings.
the parties contract for a rate of interest in the event of a breach,
tribunals are more willing to apply the agreed rate rather than a
For example, in Petra Jamaica v. Ocean Logistics Corp., a
dispute arose over the charter of a vessel, and an SMA panel awarded
the owners of the vessel approximately $58,000.284 The owners sought
interest pursuant to the contract between the
parties. The SMA panel noted that the contract provided:
Interest on any amount due but not paid on the
due date shall accrue from the day after that date up to and
including the day when payment is made, at a rate per annum which
shall be 1% above the U.S. Prime Interest Rate as published by the
Chase Manhattan Bank in New York at 12:00 New York time on the due
date, or, if no such interest rate is published on that day, the
interest rate published on the next preceding day on which such rate
was so published, computed on the basis of a 360 day year of twelve
30-days months, compounded semi-annually.285
this provision, the panel awarded the owners approximately
U.S.$15,000 in interest.286
should be noted that a tribunal should not enforce a clause calling
for the payment of compound interest if to do so would violate an
applicable fundamental public policy rule, or be clearly against the
parties' true intentions, or result in extreme prejudice or
injustice to one party.287
It does not appear that awards of compound interest would violate a
fundamental public policy rule of a country that allows awards of
B. Awarding Compound Interest When Respondent
Caused Claimant to
Incur Charges of Such Interest
claimant should also be entitled to an award of compound interest if
the respondent's failure to fulfill its obligations caused the
claimant to incur financing costs on which it paid compound interest.
businesses do not possess an unlimited amount of operating capital.289 As
noted, many companies today finance their operations through
lines of credit from financial institutions or through other
third-party financing arrangements, which typically charge compound
If the claimant operated on such a basis and was paying compound
interest, the claimant should be entitled to the cost of any
additional financing charges caused by the respondent's breach
of its obligations because such payments directly resulted from
Similarly, an unexpected loss that results from the respondent's
failure to fulfill its obligations may cause the claimant to borrow
money to cover its loss. This will likely be either in the form of a
loan or an extension in the business' line of credit.292 In some
situations, a business utilizes other resources to finance
its operations. For example, a business may issue equity to gain the
financing it requires because of the loss.293 In any case, if a
claimant borrows to cover its loss, then the most
appropriate way to fully compensate it is to award the claimant its
cost of borrowing. Furthermore, if that cost amounted to claimant
paying compound interest, the claimant should receive that amount.294
arbitral tribunal's decision in Award of May 30, 1979 in ICC
Case Nos. 3099 and 3100 illustrates the practice of allowing the
claimant to recover interest paid to a third-party on money that the
claimant had to borrow because respondent failed to fulfill its
There, claimant sold the respondent refined oil products and crude
oil and the respondent failed to pay some of the invoices for the
goods delivered. The arbitral tribunal ruled that the respondent was
liable to the claimant for the principal sum owed, as well as
interest that accrued pursuant to the rates set forth in the various
The claimant also asserted that, because the respondents failed to
pay the invoices in a timely manner, it had to borrow U.S.$26 million
from an American bank, bearing interest that totaled 8.273% per
The tribunal recognized that the respondent's action caused
this loss to the claimant, but it also noted that the claimant was
entitled to receive interest under the contract. To make the
claimant whole (and to avoid overcompensating the claimant), the
tribunal awarded claimant, inter alia, the interest due under
the contracts and the difference between the interest paid to the
bank and the interest due under the contracts.298
short, awarding a claimant compound interest is appropriate if it can
show that it incurred the interest as a result of the respondent's
action. This proposal is based on the principle of fully
compensating the claimant for all damages directly resulting from the
respondent's wrongful actions. It is a well accepted practice
that is recognized both in many national laws and by international
C. Awarding Compound Interest Based on the
if the claimant did not incur finance charges of compound interest to
cover its loss from the respondent's breach of its obligations,
the claimant still may be entitled to an award of compound interest.
The claimant must show that, if it had been timely paid, it would
have invested the money owed in a vehicle that would have had a
is a settled principle that a respondent is liable to repair all
damages that have accrued naturally as a result of the failure to
perform its obligations.300 This includes the obligation to
pay the claimant interest for its
lost opportunity cost, which may be in the form of interest.301
However, the opportunity cost in a commercial enterprise is a
forgone investment opportunity.302 Thus, awarding compound interest
at the claimant's opportunity
cost would be the most appropriate way to compensate it for the loss
of the use of its money.
business has a vast number of investment opportunities that can
consist of, for example, an investment in a standard financial
investment like a certificate of deposit or other interest bearing
account. If a claimant can prove that in its regular course of
business it would place funds, such as those owed by the respondent,
into such vehicles and that it would have earned compound interest
from this investment, it should be entitled to such interest.303
noted above, businesses also may reinvest their earnings in their
business or pay the excess cash out to their shareholders in the form
This reinvestment may have a compounding effect. The claimant
should be entitled to this amount if it can prove its lost
opportunity cost. How a claimant does so may be a difficult, but not
For example, a claimant could produce historical financial records
and expert testimony to show the rate of its return on investment
during the relevant time period.306 In appropriate cases, this could
provide the basis for the compound
rate because it illustrates profit the business could have earned if
it been paid the money owed in a timely manner.307
problems with this approach include: (1) it could be speculative,
(2) it could increase the cost to resolve interest issues, and (3) it
could result in awards of interest being unpredictable.308
These potential problems may be minimal. First, the problem of
speculative awards could be reduced by requiring the claimant to
provide sufficient evidence to prove that it would have earned
compound interest on the principal owed.309 If the claimant cannot prove this,
it still should be entitled to
simple interest (unless there are other circumstances that would
preclude an award of interest altogether). Second, it is true that
this approach could be expensive and time consuming. As noted above,
however, in some cases, the difference between simple and compound
interest may be millions of dollars, and, thus, a thorough
examination of the issue may be justified.310 Also, if it is not
significant, a claimant may decide that it is not
worth the effort to pursue compound interest. Third, awards of
interest are already very unpredictable and this approach will not
significantly add to an already chaotic situation.311 More importantly,
however, an award at the claimant's
opportunity cost more accurately approximates a full and fair
compensation for delay damages.312 It may also facilitate settlements
because it would remove the
incentive for the respondent to delay the resolution of the dispute.313
awarding compound interest in this circumstance would be consistent
with the various approaches that tribunals use to award interest,
including relying on procedural rules or substantive laws, general
principles of law, and the principles of fairness and
arbitral rules give the tribunal broad discretion to award interest,
then the tribunal clearly has the authority to award compound
interest unless to do so would violate some fundamental rule of
public policy. For example, the rules for the arbitration of
international disputes of the London Court of International
the American Arbitration Association,316
the Center for Public Resources Institute for Dispute Resolution
Rules for Non-Administered Arbitration of International Disputes,317
and the World Intellectual Property Organization Arbitration Rules318
expressly grant tribunals the authority to award compound interest;
thus, it would be appropriate for a tribunal deciding a case under
any of those rules to award such interest.319 Even when the
rules are silent on the awarding of compound interest,
they rarely prohibit it and instead give tribunals broad authority in
compound interest when the claimant can prove that it would have been
able to earn a compound rate of return on the principal had it had
the opportunity to do so would be consistent with the laws of many
countries. As illustrated in part III, civil law systems, while
providing for the payment of simple interest without any proof of
loss where damage results from delay in performance, often allow the
recovery of compound interest if the claimant is able to prove that
that it would have received such money independent of the delay.321 In
common law countries, awarding compound interest in this
circumstance would essentially be awarding the claimant a form of
special damages to compensate it for its loss.322 This would mean
that the party claiming interest would have the
burden of proof on the issue, including the burden in some countries
to show that compound interest was in the contemplation of the
In view of the sophistication of businesses engaging in
transnational commerce and modern financial practices, it is clear
that the delay in payment would result in the loss of compound as
opposed to simple interest.324 Moreover, because the practice of
awarding compound interest in this
circumstance would result in making the claimant whole for its loss,
it would accord with the principles of fairness and reasonableness.
legal systems award simple interest to compensate a claimant for the
loss of the use of money. By contrast, today most financing and
investment vehicles available to parties in transnational business
involve compound interest. Thus, if the goals of interest are to
promote compensation and restitution, then simple interest falls
short of attaining those goals. Fortunately, there is no rule of
international law prohibiting compound interest. Furthermore, many
legal systems and rules under which parties often resolve
international commercial disputes allow for awards of compound
interest in certain circumstances. These circumstances include
awarding compound interest when the parties have agreed for it to be
paid, when the respondent's breach of its obligations causes
the claimant to incur financing costs at a compound rate, and when
the claimant proves that it would have earned compound interest if
the money had been paid in a timely manner. Applying these
principles would better compensate a claimant for the loss of the use
of money than the traditional practice of awarding only simple
interest. Such an approach would also reconcile the practice of
awarding interest with modern economic practices.
This article revises and develops my previous article published in 34
Law & Policy in International Business 393 (Winter 2003).
Associate Dean for Faculty Research, Professor of Law, and Director,
J.D./M.B.A. Program, Villanova University School of Law.
Onti, Inc. v. Integra Bank, 751 A.2d 904, 926-27 (Del. Ch. 1999).
e.g., Am. Bell Int'l Inc. v. Iran, 12 Iran-U.S. Cl. Trib. Rep. 170,
229-32 (1986) (awarding approximately $28 million in interest on
damages of approximately $50 million); Gov't of Kuwait v. Am. Indep.
Oil Co., Mar. 24, 1982, 21 I.L.M. 976, 1042 (awarding $97 million in
interest on $83 million in damages).
Compañía del Desarrollo de Santa Elena v. Costa Rica,
15 ICSID (W. Bank) 169, 200, 202 (2000).
R.J. Reynolds Tobacco Co. v. Iran, 7 Iran-U.S. Cl. Trib. Rep. 181,
191-93 (1984); Marjorie M. Whiteman, 3 Damages in International Law
McKesson Corp. v. Iran, 116 F. Supp. 2d 13, 41 (D.D.C. 2000).
McKesson HBOC, Inc. v. Iran, 271 F.3d 1101, 1111-12 (D.C. Cir. 2001).
id. at 1112.
F.A. Mann, Further Studies in International Law 377 (1990)
[hereinafter Further Studies] (“[T]he problem of compound interest
apparently has never been fully analysed. Most learned writers ignore
it or fail to give any reason for their conclusions that compound
interest is or is not payable.”).
Whiteman, supra note 4, at 1997; Charles Rousseau, Droit
International Public V § 242 (1983).
See Further Studies, supra note 8, at 384-85.
See McCollough & Co. v. Ministry of Post, Tel. & Tel.,
11 Iran-U.S. Cl. Trib. Rep. 3, 29 (1986); Green Haywood Hackworth, 5
Digest of International Law 735 (1943) (citing Illinois Central
Railroad Co. (United States v. Mexico), Opinions of the Commissioners
(1927) 187, 189); Dan B. Dobbs, 1 Dobbs Law of Remedies § 3.6(1)
(2d ed. 1993). This article concerns the awarding of compensatory or
pre-award interest, as opposed to moratory or post-award interest,
which is interest on the award.
See Sidney Homer & Richard Sylla, A History of Interest
Rates 73 (3d ed. 1991). The authors explain that interest and usury are
[The ancient and biblical] prohibition[s] [were]
against usury, “where more is asked than is given.” The Latin noun usura
means the “use” of anything, in this case the use of borrowed
capital; hence, usury was the price paid for the use of money. The
Latin verb intereo means “to be lost”; a substantive form interisse
developed into the modern term “interest.” Interest was not profit
See Catholic Encyclopedia: Usury, available at
http://www.newadvent.org/cathen/15235c.htm (last visited Nov. 2,
2002) (stating that Plato and Aristotle “considered interest as
contrary to the nature of things”).
In particular, the Book of Deuteronomy prohibits loans with interest to
brothers but not to strangers. Deuteronomy 23:19-20 (“Thou
shalt not lend upon usury to thy brother; usury of money; usury of
victuals, usury of any thing.... Unto a stranger thou mayest lend upon
usury; but unto thy brother thou shalt not lend upon usury.”); see
also Benjamin Nelson, The Idea of Usury 3-4 (2d ed. 1969)
(examining the biblical prohibition against charging interest in
See Clyde G. Reed & Cliff T. Bekar, Religious Prohibitions
Against Usury 9 (Aug. 18, 1999) (unpublished manuscript, at
http://www.lclark.edu/~bekar/usury.pdf) (stating that usury
prohibitions were under theological attack and prohibition ended in
1830); see also Homer & Sylla, supra note 12, at
70-72 (describing the Catholic Church's restrictions on usury from the
first century to the twelfth century). For example, St. Thomas Aquinas
disapproved of usury, stating that “'[t]o take usury from any man is
simply evil ... .'” Id. at 71.
Over the years, this restriction has been subjected
to inconsistent and evolving interpretations. See Nelson, supra
note 15, at xix-xxv (noting how Deuteronomy's restriction has been
interpreted throughout history); see also Homer & Sylla, supra
note 12, at 71 (describing how groups interpreted Deuteronomy's usury
prohibition). During the Protestant Reformation, Martin Luther
campaigned against usury. See generally Nelson, supra note
15, at 29-72 (describing Luther's campaign against usury). On the other
hand, John Calvin reasoned that usury was not inherently evil and was
“permissible only if it is not injurious to one's brother.” Homer &
Sylla, supra note 12, at 80 (describing Calvin's
interpretation of biblical rules regarding usury).
Library of Cong. v. Shaw, 478 U.S. 310, 315 n.2 (1986) (citations
See Richard B. Lillich, Interest in the Law of
International Claims, in Essays in Honor of Voitto Saario
and Toivo Sainio 53 (1983); Restatement (Second) of Contracts §
354 cmt. a (1981); see also Dobbs, supra note 11,
See McCollough & Co., 11 Iran-U.S. Cl. Trib. Rep. at 29;
Wena Hotels Ltd. v. Arab Republic of Egypt, 41 I.L.M. 896, 919 (2002). See
also Dobbs, supra note 11, § 3.6(3); Whiteman, supra
note 4, at 1991-92. While interest is commonly awarded for
the loss of the use of money, there is no consensus as to the time from
which interest is calculated and the rates at which interest should
accrue, and whether the interest awarded should be compounded. See
John Y. Gotanda, Awarding Interest in International Arbitration,
90 Am. J. Int'l L. 40, 55 (1996).
Spalding v. Mason, 161 U.S. 375, 396 (1896) (quoting Curtis v.
Innerarity, 47 U.S. 146, 154 (1848)).
See generally John C. Keir & Robin C. Keir, Opportunity
Cost: A Measure of Prejudgment Interest, Bus. Law., Nov. 1983, at
129; Karin L. Kizer, Minding the Gap: Determining Interest Rates
Under the U.N. Convention for the International Sale of Goods, 65
U. Chi. L. Rev. 1279 (1998); Michael S. Knoll, A Primer on
Prejudgment Interest, 75 Tex. L. Rev. 293 (1996); Robert L. Haig, 3
Bus. & Com. Litig. Fed. Cts. § 39.3; Restatement (Second) of
Contracts § 344(a) (1981) (defining the creditor's expectation
interest as “his interest in having the benefit of his bargain by being
put in as good a position as he would have been in had the contract
See Robert Sergesketter, Interesting Inequities: Bringing
Symmetry and Certainty to Prejudgment Interest Law in Texas, 32
Hous. L. Rev. 231, 240-41 (1995) (recognizing that an inequitable
result will occur between plaintiffs if one plaintiff financially
recovers immediately after injury and another plaintiff must litigate
to recover); see also Keir & Keir, supra note 21,
at 133 (recognizing that the fundamental principle of damages is that
compensation be adequate and full and that interest is allowed in order
that damages be adequate in light of the delay in payment by the
defendant). In one case, the award of interest was 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,
summarized in 10 Y.B. Com. Arb. (Int'l Council for Com. Arb.)
39, 41 (1985).
See Prejudgment Interest as Damages: New Application of an
Old Theory, 15 Stan. L. Rev. 107, 109 (Dec. 1962) (“To divest
defendant of this unjustified benefit is not to penalize him, for it
has been determined by the trial that it was never rightfully his.”).
See Sergesketter, supra note 22, at 240-41 (recognizing
that “defendants are paying 'yesterday's debt with tomorrow's dollars'”
by delaying payment to plaintiff).
See Keir & Keir, supra note 21, at 136 (recognizing
that the defendant has had the earning capacity of the money at his
disposal, the injured party has not had use of the money owed during
the delay before the trial, and while the delay might not be the fault
of either party, the defendant is clearly receiving a benefit by having
use of the money).
In general, a claimant is entitled to receive in damages and interest
only the amount that would restore it to the position in which it would
have been had the respondent fulfilled its obligations in a timely
manner. See Susan K. Freund, William E. McDonnell, Jr. &
Hugh J. Cadden, Prejudgment Interest in Commodity Futures Litigation,
40 Bus. Law. 1267, 1268-69 (1985) (recognizing that the theory behind
unjust enrichment is often applied when punishing defendants in breach
of trust cases involving fiduciary misconduct).
See Knoll, supra note 21, at 296-97.
See id. at 297 (stating that without prejudgment interest,
“defendants would have a powerful incentive to stretch out
litigation.”); see also Sergesketter, supra note 22,
See Knoll, supra note 21, at 296 (recognizing that
prejudgment interest will encourage both parties to take the
appropriate level of precaution before engaging in a contractual
See id. at 296-97; see also Louis B. Sohn & Richard
R. Baxter, Convention on the International Responsibility of States for
Injuries to Aliens § 83(1), Explanatory Note, at 242 (Draft No. 12
with Explanatory Notes, 1961) (“[R]unning of interest from the date of
injury offers an inducement to the [respondent] to make prompt
settlement of legitimate claims or to comply speedily with any award.”).
Other types of interest include, inter alia, conventional
interest, gross interest, nominal interest, ordinary interest, and
See Eugene F. Bringham & Joel F. Houston, Fundamentals of
Financial Management 207 (8th ed. 1998). Compound interest is
calculated through the use of the following formula: FV = PV (1+i)n,
where FV is the future value of the total award, including interest, PV
is the present value of the award (i.e., not including
interest), i is the interest rate per compounding period, and n is the
number of compounding periods.
See Stovall v. Ill. Cent. Gulf R.R. Co., 722 F.2d 190, 192 (5th
Cir. 1984); Mariculture Prod. Ltd. v. Lloyd's of London, No.
CV980163762S, 2002 WL 1446763, at *5 (Conn. Super. Ct. June 4, 2002);
Richard A. Brealey & Stewart C. Meyers, Principles of Corporate
Finance 36 (3d ed. 1988).
See Spodek v. Park Prop. Dev. Assoc., 759 N.E.2d 760, 761 (N.Y.
2001); Brigham & Houston, supra note 32, at 675.
See, e.g., Compañía del Desarrollo de Santa Elena
v. Costa Rica, 15 ICSID (W. Bank) 169, 200 (2000) (noting the tendency
in international law “to award only simple interest . ... in relation
to cases of injury or simple breach of contract”); McKesson
Corp. v. Iran, 116 F. Supp. 2d 13, 41 (D.D.C. 2000) (finding that
“international courts have over a period of decades followed the custom
of granting only simple interest”); 2 Chitty on Contracts 619 (27th ed.
1994) (“Compound interest is payable either by agreement or custom, but
not otherwise.”); Further Studies, supra note 8, at 378
(stating that international tribunals generally do not grant compound
interest); Paolo Cerina, Interest as Damages in International
Commercial Arbitration, 4 Am. Rev. Int'l Arb. 255, 261 (1993)
(assuming that the majority of arbitral tribunals do not “award
compound interest in order to avoid engaging in presumably complex (and
expensive) calculations and the substantial sums involved”); Knoll, supra
note 21, at 306 (“The traditional, common-law rule is that prejudgment
interest is not compounded.”).
See generally John Yukio Gotanda, Supplemental Damages in
Private International Law 12 (1998) [hereinafter Supplemental Damages]
(containing a survey of countries on the awarding of compensatory
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
DM Lew ed., 1986) (noting that interest is prohibited in Qatar, Oman,
and North Yemen).
See Gotanda, supra note 19, at 48-50 (discussing
circumstances where interest may be awarded under Iranian law).
See Asian Agric. Prod., Ltd. v. Sri Lanka, June 27, 1990, 30
I.L.M. 580, 625; see also McCollough & Co.v. Ministry of
Post, Tel. & Tel., 11 Iran-U.S. Cl. Trib. Rep. 3, 26-31 (1986);
Lillich, supra note 18, at 55.
Civil Procedure Act, 1833, 3 & 4 Will. 4, c. 42, § 28 (Eng.).
See Law Reform (Miscellaneous Provisions) Act, 1934, 24 & 25
Geo. 5, c. 41, § 3 (Eng.).
Id. § 3(1).
See id. § 3(1)(a).
See Administration of Justice Act, 1982, c. 53, § 15(5)(a)
See id. § 15(1).
See Supreme Court Act, 1981, c. 54, § 35A (Eng.). The Act
Subject to rules of court, in proceedings ... before
the High Court for the recovery of a debt or damages there may be
included in any sum for which judgment is given simple interest, at
such rate as the court thinks fit or as rules of court may provide, on
all or any part of the debt or damages in respect of which judgment is
given, or payment is made before judgment, for all or any part of the
period between the date when the cause of action arose and [the date of
the payment or judgment, whichever came first].
London, Chatham & Dover Ry. Co. v. S. E. Ry. Co.,  A.C. 429,
See id. at 440; see also Page v. Newman, 109 Eng. Rep.
140 (K.B. 1829); President of India v. La Pintada Cia
Navegacion S.A.,  All E.R. 773, 778 (H.L.); Tim Lawson-Cruttenden
& Nicholas Phillips, Compound Interest, 146 New L.J. 1391
See London, Chatham & Dover Ry. Co.,  A.C. at 440; see
also Nat'l Bank of Greece S.A. v. Pinios Shipping Co. (No. 1),
 1 AC 637 (H.L.) (holding that bank was entitled to capitalize
interest due to implied usage of bankers); Lawson-Cruttenden
& Phillips, supra note 52, at 1391.
See Westdeutsche Landesbank Girozentrale v. Islington London
Borough Council,  A.C. 669, 702 (H.L.); Wallersteiner v. Moir,
 1 Q.B. 373 (Eng. C.A.).
The rationale for this principle is that one in a fiduciary position
must not be allowed to profit from the trust. Wallersteiner,
 1 Q.B. at 388.
Id. (explaining that an award of compound interest in this
situation is appropriate because it is presumed that wrongdoer
benefited from use of the plaintiff's money and that, had the plaintiff
been paid, the plaintiff would have made the most beneficial use out of
Wadsworth v. Lydall,  1 W.L.R. 598, 603 (Eng. C.A.).
See id. at 599-601.
See id. at 601.
See id. at 603.
Id. (internal citation omitted).
Id. at 598-99.
President of India v. La Pintada Cia Navegacion S.A.,  All E.R.
773, 787 (H.L.); see also President of India v. Lips Mar.
Corp.,  3 W.L.R. 572, 576 (H.L.) (stating that “interest could be
recovered as damages for late payment if it was special damage which
could be brought within the second part of the rule in Hadley v.
See La Pintada,  All E.R. at 774.
See id. One commentator stated that there is a three-part test
for awarding compound interest as special damages: (1) the claim for
interest must be based on the actual loss sustained by the plaintiff;
(2) the defendant must have had special knowledge before the contract
was entered into; and (3) because of the special knowledge, the
defendant ought to have foreseen that the loss claimed was likely in
the event of a breach of contract. See Lawson-Cruttenden &
Phillips, supra note 52, at 1391.
Arbitration Act, 1996, c. 23, § 49(3) (Eng.). The Law Commission
of England and Wales notes that this is the “only statute to provide
specifically for compound interest.” LAW COM No. 287, supra
note 50, § 2.44, at 16.
Late Payment of Commercial Debts (Interest) Act, 1998, c. 20, §
Late Payments of Commercial Debts Regulations 2002, Statutory
Instrument 1674 (Eng.), available at
new regulations apply only to contracts made on or after August 7,
Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002,
Statutory Instrument 2002 No. 1675 (Eng.), available at
Law Comm'n, LAW COM No. 287, Pre-Judgment Interest on Debts and Damages
§ 2.38, at 15 (Feb. 23, 2004), available at
http://www.lawcom.gov.uk/files/lc287.pdf [hereinafter LAW COM No.
See Handelsgesetzbuch [HGB] § 353 (Ger.), translated in
Simon L. Goren, The German Commercial Code 152 (2nd ed. 1994)
(“Merchants are entitled among themselves to demand interest for claims
arising from mutual commercial transactions from the date they fall
due. Compound interest may not be demanded by virtue of this
provision.”); Polgári Törvénykönyv [Ptk] §
232(1) (Hung.), translated in Ministry of Justice of the
Hungarian People's Republic, Civil Code of the Hungarian People's
Republic 130 (1982) (“Unless exception is made by a provision of law in
contractual relationships, interest is due. In contractual
relationships of private persons among themselves interest is due only
when it was stipulated. Compound interest cannot be validly
See Code Civil [C. civ.] art. 1154 (Fr.), translated in George
A. Bermann & Vivian Grosswald Curran, French Law: Constitution and
Selective Legislation 4-70 (1998) (stating that in France “[i]nterest
due upon capital may produce interest either by judicial demand or by
special agreement, provided that, either in the demand or in the
agreement, the interest in question has been due for at least a whole
year”); Civil Code art. 482(1) (Pol.), translated in The
Polish Civil Code 87 (Danuta Kierzkowska et al. eds., Olgierd A.
Wojtasiewicz trans., 2000) (“One may demand interest for delay from the
interest due only from the moment of filing the suit for it unless
after the interest in arrear had become due the parties agreed to add
the interest to the sum of the debt.”).
See Interest Act §§ 5 (Swed.) (stating that, in
Sweden, interest accrues upon debts due to breach of contract at a rate
established by the Central Bank of Sweden plus two percentage points),
6 (stating that interest accrues on other overdue debts and debts for
damages at a rate established by the Central Bank of Sweden plus eight
percentage points), translated in Swedish Commercial
Legislation § 5 RteL:1-3 (1995); The Finnish Legal System 128
(Jaakko Uotila ed., Leena Lehto trans., 2d ed. 1985) (stating that,
under the Interest Act of 1982, interest accrues on debts due to breach
of contract at a rate established by the Bank of Finland; interest on
overdue payments or interest for default is 16% unless the rate of
interest paid before the due date had been higher); Grazhdanskii Kodeks
RF [GK RF] art. 395(1) (Russ.), translated in Civil Code of
the Russian Federation 186 (W.E. Butler trans., 1997) (“For the use of
another's monetary means as a consequence of unlawful withholding,
avoidance of the return thereof, other delay in the payment thereof or
the unjustified receipt or savings thereof at the expense of another
person interest shall be subject to payment on the amount of these
means.”). The Civil Code of Russia further provides:
The amount of interest shall be determined as the
rate of bank interest on the day of performance of the monetary
obligation or respective part thereof which existed at the place of
residence of the creditor, and if the creditor is a juridical person,
at the place of its location. In the event of the recovery of a debt in
a judicial proceeding the court may satisfy the demand of the creditor
by proceeding from the bank interest rate on the date of presenting the
suit or on the date of rendering the decision. These rules shall apply
unless another amount of interest has been established by a law or by
GK RF art. 395(1) (Russ.).
See C. civ. arts. 1150, 1151 (Fr.), translated at
(“The obligor is liable only for the damages foreseen or
which could have been foreseen at the time of the contract, so long as
it is not due to his fraud that the obligation has not been performed.
Even in the case where nonperformance of the agreement is due to the
fraud of the obligor, the damages may include only that portion of the
loss sustained by the obligee and of the benefit of which he was
deprived, which is the immediate and direct consequence of the
nonperformance of the agreement.”).
C. civ. art. 1153 (Fr.).
Id. (“Le créancier auquel son débiteur en retard a
causé, par sa mauvaise foi, un préjudice
indépendant de ce retard, peut obtenir des dommages et
intérêts distincts des intérêts
moratoires de la créance.”) (emphasis added). Interestingly, the
emphasized text in the previous parenthetical (“et
intérêts”) does not appear in many of the English
translations of the French Civil Code. See, e.g., C. civ. art.
1153 (Fr.), translated in George A. Bermann & Vivian
Grosswald Curran, French Law: Constitution and Selective Legislation
4-70 (1998) (“An obligee whose defaulting obligor has caused him injury
independent of this delay, by his bad faith, may obtain damages [and
interest] in addition to the interest for delay in performance.”)
(bracketed text added to show omission); Legifrance, French Civil
(“A creditor to whom his debtor in delay has caused, by his bad faith,
a loss independent of that delay may obtain damages [and interest]
distinct from the interest on arrears of the debt.”) (translated by
Georges Rouhette, Professor, University of Clermont-Ferrand I, with the
co-operation of Anne Berton, Professor, University of Clermont-Ferrand
II) (bracketed text added to show omission). This discrepancy in
translation may derive from the fact that the word
“dommages-intérêts,” comprising the words “dommages”
(damages) and “intérêts” (interest(s)), is translated
simply as “damages” in English. Article 1153 of the French Civil Code
does, however, allow recovery of “dommages et
intérêts” (damages and interest), not
See Law No. 75-619 of July 11, 1975, art. 1, translated in
Bermann & Curran, surpa note 64, at 4-162 . Article 2 of
Law No. 75-619 states: “If the discount rate set by the Bank of France
on June 15th differs by three points or more from the discount rate set
on the preceding December 15th, the legal interest rate is equal to the
new discount rate for the six final months of the year.” Id. at
art. 2. Two months after a judgment, the legal interest rate is
increased by five points. See id. at art. 3.
See Moquet et al., 1 Doing Business in France § 6.03
(rel. 27, 2002).
C. civ. art. 1154 (Fr.); see also supra text accompanying note
72 (discussing circumstances under which creditors may be able to
recover interest exceeding legal rate under article 1153).
See Gabrielle Kaufmann-Kohler & Antonio Rigozzi, Correction
and Interpretation of Awards in International Arbitrations Held in
Switzerland, Mealey's Int'l Arb. Rep., Apr. 2001, at 25, 27
(summarizing a case from the Swiss Supreme Court dealing with an ICC
arbitration in which the tribunal held that an amount awarded would
bear compound interest under article 1154 of the French Civil Code);
Moquet et al., supra note 74, § 15.03 (stating that
interest accrued on the principal amount of a loan may itself accrue
interest under article 1154 when the interest payable has been due for
at least a year); see also Final Award in Case No. 6962 of
1992, in Collection of ICC Arbitral Awards 1991-1995 299, 307
(Jean-Jacques Arnaldez et al. eds., 1997) (“Compound interest was
neither provided for in the contract nor claimed in the request for
arbitration and is therefore not to be awarded pursuant to Art. 1154
See Bürgerliches Gesetzbuch [BGB] § 280 (Ger.), translated
in: Geoffrey Thomas & Gerhard Dannemann, German Civil Code
- Bürgerliches Gesetzbuch (2002), German Law Archive, at:
http://www.iuscomp.org/gla/statutes/BGB.htm. Section 280 provides:
- If the obligor fails to comply with a duty arising
under the obligation, the obligee may claim compensation for the loss
resulting from this breach. This does not apply if the obligor is not
liable for the failure.
- The obligee may demand compensation for delay in performance only if
the additional requirement in § 286 is satisfied.
- The obligee may demand compensation in lieu of performance only if
the additional requirements of § 281,§ 282 or § 283 are
See BGB § 246.
See BGB § 288(1), (2).
BGB § 288(3), (4).
See HGB § 352 (Ger.).
See HGB § 353 (Ger.) (“Merchants are entitled among
themselves to demand interest for claims arising from mutual commercial
transactions from the date they fall due. Compound interest may not be
demanded by virtue of this provision.”); BGB § 248(1) (Ger.) (“An
agreement made in advance to the effect that arrears of interest shall
again bear interest is void.”); BGB § 289 (Ger.) (“Interest shall
not be paid upon interest in default.”).
BGB § 248(2) (Ger.).
Martin Hunter & Volker Triebel, Awarding Interest in
International Arbitration, 6 J. Int'l Arb. 7, 18 (1989).
Section 289 of the Civil Code states that “[t]he right of the creditor
to compensation for any damage arising from the default remains
unaffected [by the prohibition of interest on interest].”
Hunter & Triebel, supra note 84, at 18. The authors also
point out that, although traditionally an arbitral tribunal's award of
compound interest would have been void as against German public policy,
today “a German court or arbitral tribunal is empowered to order
payment of compound interest if the relevant foreign proper law so
provides, and would not be restrained by German public policy.” Id.
See Codice Civile [C.c.] art. 1224 (Italy), translated in The
Italian Civil Code 323 (Mario Beltramo et al. trans. 1969) (“In
obligations having as their object a sum of money. ... , legal interest
... is due from the day of the default even if it was not due
previously and even if the creditor does not prove that he has suffered
any damage. If interest was due at higher than the legal rate before
the default, interest after default shall be due at the same rate.”).
See C.c. art. 1284 (It.). Prior to 1990, the legal rate of
interest was 5% per annum. See id.; see also Final
Award in case no. 1795 of 1 December 1996, reprinted in XXIV
Y.B. Com. Arb. 196, 205 (1999) (awarding interest at the rate of 10%
under article 1284 of the Italian Civil Code); Final Award in Case 8716
of February 1997, reprinted in 11 ICC Int'l Court Arb. Bulletin
61, 63 (Fall 2000) (awarding interest at a rate of 5% under Italian
See C.c. art. 1224 (It.). However, additional compensation “is
not due if the rate of interest to be paid after default was agreed.” Id.
See C.c. art. 1225 (It.). This is true only “[i]f the
non-performance or delay is not caused by the fraud or malice of the
See C.c. art. 1283 (It.).
Schweizerisches Obligationenrecht [OR] art. 73 (Switz.), translated
in Simon L. Goren, The Swiss Federal Code of Obligations 14 (1987).
See OR art. 104 (Switz.). Nevertheless, an agreed upon rate
higher than the legal rate may be claimed. See id. In the
absence of an agreed upon date, a debtor is put in default when the
creditor demands performance. See OR art. 102 (Switz.).
“Where a certain date has been agreed upon for the performance, or
where such a date results from a stipulated notice duly given, the
debtor is in default on the expiration of such date.” Id.
OR art. 105 (Switz.).
See OR art. 313 (Switz.).
OR art. 314 (Switz.).
See Código Civil [C.C.] art. 1108 (Spain), translated
in Civil Code of Spain 275 (Julio Romanach, Jr. trans., 1994).
C.C. art. 1109 (Spain).
See Code Civil [Belg. C. Civ.] art. 1153 (Belg.), translated
in The Constitution of Belgium and the Belgian Civil Code 223
(John H. Crabb trans., 1982).
See Belg. C. Civ. art. 1154 (Belg.).
NV Algemene Transport- en Expeditie Onderneming van Gend & Loos v.
Netherlands Inland Revenue Administration,  ECR 3. The Court
Independently of the legislation of Member States,
Community law not only imposes obligations on individuals but is also
intended to confer upon them rights which become part of their legal
heritage. These rights arise not only where they are expressly granted
by the Treaty but also by reason of obligations which the Treaty
imposes in a clearly defined way upon individuals as well as upon the
Member States and upon the institutions of the Community.
EC art. 220.
See generally K.P.E. Lasok, Law and Institutions of the European
Union 297 (7th ed. 2001). The Court of First Instance was established
by Council Decision 88/591/EEC of November 25, 1988, as amended. Its
jurisdiction “consists of categories of action which have been
transferred to it from the Court of Justice by act of the Council from
time to time.” Lasok, supra, at 323. For a discussion of the
Court of Justice and the Court of First Instance, see European Courts
Practice & Precedent (Richard Plender gen ed., 1997).
See Treaty of Nice Amending the Treaty on European Union, the
Treaties Establishing the European Communities and Certain Related
Acts, 2001 O.J. (C 80) 1 art. 238 [hereinafter Treaty of Nice] (“The
Court of Justice shall have jurisdiction to give judgment pursuant to
any arbitration clause contained in a contract concluded by or on
behalf of the Community, whether that contract be governed by public or
See, e.g., Case 30/03, Commission of the European Communities v.
Instituto Tecnologico para a Europa Comunitaria (ITEC), 2003 E.C.R. __
(applying Luxembourg law to determine rate of default interest award
where contract governed by Luxembourg law); Case 426/85, E.C.
Commission v. Zoubek, 1988 E.C.R. 4057, 1 C.M.L.R. 257 (E.C.J. 1986)
(applying Belgian law to determine applicable statutory rates of
interest in breach of contract claim).
See Case 21/86, Samara v. Commission of the European
Communities, 1987 E.C.R. 795 (ordering Commission to pay default
interest on arrearage of remuneration of Commission official, noting
“in order to put the applicant back in the position which should
lawfully have been hers, account be taken of the loss which she has
incurred by reason of the fact that she was restored to that position
only after an appreciable lapse of time and that she could not have the
use of the sums to which she was entitled on the dates on which they
would normally have fallen due. To that end the applicant should be
awarded default interest at a flat rate of 8% per annum, running from
the date on which each instalment [sic] became due until final
settlement”); see also Case T-17/89, Lualdi v. Commission of
the European Communities, 1992 E.C.R. II-293 (ordering Commission to
pay compensatory interest for loss of purchasing power during arrearage
of remuneration of the Commission officials with interest amount to be
negotiated by parties). The court ordered the parties to negotiate a
calculated interest amount based on official statistics of Community
concerning changes in purchasing power in various Member States. See
id. If the parties could not agree on an amount of interest to be
paid, the parties were to resubmit to the court for a determination of
the amount. See id.; Case 63 & 64/79, Boizard v. E.C.
Commission, 1980 E.C.R. 2975, c C.M.L.R. (E.C.J. 1980) (awarding
interest at rate of 8% on deductions from pensions improperly held by
Commission); see also K.P.E. Lasok, The European Court of
Justice Practice & Procedure 549 (1994) (stating that the rate of
interest awarded in cases involving claims for default interest “tends
to be 6%[,]” and that “[n]o reason has been given why this should be
General principles of Member States are also used to
determine interest issues in non-contractual liability cases. See
Case C-152/88, Sofrimport SARL v. E.C. Commission, 1990 E.C.R. I-2477,
3 C.M.L.R. 80 (E.C.J. 1990) (“As the claim relates to the
non-contractual liability of the Community under the second paragraph
of Article 215, it must be considered in the light of the principles
common to the legal systems of the Member States to which that
provision refers. According to those principles a claim for interest
is, as a general rule, permissible. On the basis of the criteria
adopted by the Court in similar cases, the obligation to pay interest
arises on the date of this judgment inasmuch as it establishes the
obligation to make good the damages . ... The rate of interest which it
is proper to apply is 8 per cent.”); Case 169/83, Leussink v.
Commission of the European Communities, 1986 E.C.R. 2801 (awarding
interest at rate of 8% on damages award in occupational accident case);
Case 256/81, Pauls Agriculture Limited v. E.C. Council and Commission,
1983 E.C.R. 1707, 3 C.M.L.R. 176 (E.C.J. 193) (“As the claim relates to
the non-contractual liability of the Community under the second
paragraph of Article 215, it must be considered in the light of the
principles common to the legal systems of the Member States to which
that provision refers. It follows that a claim for interest is, as a
general rule, permissible. On the basis of the criteria adopted by the
court on numerous occasions, the obligation to pay interest arises on
the date of this judgment, inasmuch as it establishes the obligation to
make good the damage. The rate of interest which it is proper to apply
See Pietro Del Vaglio v. Commission of the European Communities,
2003 O.J. (C 184) 33 (basing interest award on rate set by European
Central Bank for capital refinancing operations); Case T-171/99, Corus
UK Ltd. v. E.C. Commission, 2001 E.C.R. II-2967, 5 C.M.L.R. 34 (C.F.I.
2001) (awarding damages based on proof of loss of investment accruing
quarterly compounded interest, with award of simple interest based on
interest rate set by European Central Bank for capital refinancing
Case 67/69, Societa industriale metallurgica di Napoli (Simet) v.
Commission of the European Communities, 1971 E.C.R. 197 (awarding
compound interest at rate set out by Article 91 of general staff
Regulations of the European Coal and Steel Community); see also
Case T-171/99, Corus UK Ltd. v. E.C. Commission, 2001 E.C.R. II-2967, 5
C.M.L.R. 34 (C.F.I. 2001) (noting that in claim for unjust enrichment,
“where the loss consists of the loss of use of a sum of money over a
period of time, the amount recoverable is generally calculated by
reference to the statutory or judicial rate of interest, without
compounding,” and awarding damages based on proof of loss of investment
accruing quarterly compounded interest, with award of simple interest
based on interest rate set by European Central Bank for capital
See Supreme Court Act, 1933, § 69(1) (Austl. Cap. Terr.);
Supreme Court Act, 1970, § 94(1) (N.S.W.); Supreme Court Act,
1979, § 84(1) (N. Terr. Austl.); Supreme Court Act, 1995, §
47(1) (Queensl.); Supreme Court Act, 1935, § 30C(1) (S. Austl.);
Supreme Court Civil Procedure Act, 1932, § 34(1) (Tas.); Supreme
Court Act, 1986, § 60(1) (Vict.).
See Supreme Court Act, 1933, § 69(2)(a) (Austl. Cap.
Terr.); Supreme Court Act, 1970, § 94(2)(a) (N.S.W.); Supreme
Court Act, 1979, § 84(2)(a) (N. Terr. Austl.); Supreme Court Act,
1995, § 47(3)(a) (Queensl.); Supreme Court Act, 1935, §
30C(4)(a) (S. Austl.); Supreme Court Act, 1986, § 60(2)(a) (Vict.).
Supreme Court Act, 1933, § 69(2)(b) (Austl. Cap. Terr.); see
also Supreme Court Act, 1970, § 94(2)(b) (N.S.W.); Supreme
Court Act, 1979, § 84(2)(b) (N. Terr. Austl.); Supreme Court Act,
1995, § 47(3)(b) (Queensl.); Supreme Court Act, 1935, §
30C(4)(b) (S. Austl.); Supreme Court Act, 1986, § 60(2)(b) (Vict.).
Hungerfords v. Walker (1989) 84 A.L.R. 119.
See id. at 121.
See id. at 131.
Id. at 133. Also important to the court was the principle of restitutio
in integrum, under which the plaintiff is entitled to full
compensation for the loss that it sustains as a consequence of a wrong.
Id. at 128.
See supra notes 40-53 and accompanying text.
See Hungerfords, 84 A.L.R. at 127.
See id. at 127-28. The effect of this is to allow the
awarding of compound interest under the first “limb” of Hadley v.
Baxendale. Australia v. Chessell (1991) 101 A.L.R. 182, 189 (“It is
to be observed that the High Court in Hungerfords' case has
decided that it is, in appropriate cases, correct to include in awards
of damages for breach of contract an amount for the loss of use of
money and that such an award may be made in reliance upon the first
limb of the decision in Hadley v. Baxendale. One is not
restricted to the second limb ... .”).
J.A.D. Int'l Pty. Ltd. v. Int'l Trucks Australia Ltd. (1994) 50 F.C.R.
See id. at 391.
See id. The court also stated that compound interest would be
warranted when the plaintiff has incurred the opportunity cost by
having its own funds tied up. Id. at 392. (“There is no reason
why interest awarded by way of such an indemnity should not be compound
interest, where the evidence shows that the purchaser, in order to pay
the purchase money has had to borrow on that basis, or has incurred the
opportunity cost of compound interest, foregone by having his own funds
tied up in the purchase moneys.”); see also Commonwealth Bank
of Austl. v. Smith (1991) 102 A.L.R. 453, 479 (awarding compound
interest at rates similar to that which plaintiff had been charged by
See Commercial Arbitration Act, 1986, § 31
(Austl.Cap.Terr.); Commercial Arbitration Act, 1984, § 31
(N.S.W.); Commercial Arbitration Act, 1985, § 31 (N. Terr.
Austl.); Commercial Arbitration Act, 1990, § 31 (Queensl.);
Commercial Arbitration Act, 1986, § 31 (S. Austl.); Commercial
Arbitration Act, 1986, § 31 (Tas.); Commercial Arbitration Act,
1984, § 31 (Vict.); Commercial Arbitration Act, 1985, § 31
(W. Austl.); see also International Arbitration Act, 1974,
§ 25 (Austl.).
See Leighton Contractors Pty. Ltd. v. Kilpatrick Green Pty. Ltd.
(1992) 2 V.R. 505 (App. Div.). But see Codelfa Constr. Pty.
Ltd. v. State Rail Auth. of N.S.W. (1982) 41 A.L.R. 367 (holding that
the arbitrator's power to award interest was referable to the Supreme
Court Act 1970 (N.S.W.), which precluded compound interest under
section 94(2)(a)). This case, however, was decided before Hungerfords,
84 A.L.R. at 119. In Leighton Contractors Pty. Ltd., the
arbitrator had awarded the subcontractor in a construction contract
compound interest as damages for financing costs resulting from delays.
The contractor challenged the award on the basis of section 31(2)(a) of
the Commercial Arbitration Act which disallows an award of interest
upon interest. The court disagreed with the argument that the Act
provided the exclusive remedy in terms of interest. The court
determined that the legislature could not have intended to exclude
common law damages. Instead, it determined that if another judicial
remedy allowed for compensation, as under Hungerfords, there
was no need for the arbitrator to exercise his discretion to award
statutory interest, as that would constitute double compensation.
Finally, the court pointed out that the damages set forth in Hungerfords
are payable as of right under English common law. Leighton
Contractors Pty. Ltd., 2 V.R. at 512-13.
See Judicature Act, 1908, (N.Z.).
Id. § 87(1).
See id. at § 87(3).
See id. at § 87(1)(a).
See id. at § 87(1)(b).
See Alington Group Architects Ltd. v. Attorney Gen.  2
N.Z.L.R. 183 (awarding compound interest as interpreted in the contract
and concluding that there is no presumption of simple interest).
See Dods v. Coopers Creek Vineyards Ltd.  1 N.Z.L.R. 530
(awarding interest at commercial rates as special damages under Wadsworth
v. Lydall); Broadbank Corp. v. Mosgiel Ltd.  1 N.Z.L.R. 257
(holding that the principles of awarding interest as special damages
under Wadsworth v. Lydall apply to New Zealand courts); Krehic
v. Clark  1 N.Z.L.R. 703, 710 (awarding a higher interest rate
than the statutory rate as special damages); Fletcher v. Nat'l Mut.
Life Nominees Ltd.  3 N.Z.L.R. 641 (awarding interest as damages
under special damage exception of Wadsworth v. Lydall). In Dods
v. Coopers Creek Vineyards Ltd., the court awarded interest as
special damages for the late payment of debt at the same bank rates
paid by the plaintiff. The court reasoned that it was appropriate to
award such interest if the evidence established and proved a
quantifiable loss and if the damage could reasonably have been in the
contemplation of both parties when they made the contract. See Dods,
1 N.Z.L.R. at 537.
See Equiticorp Indus. Group v. The Crown  3 N.Z.L.R. 690 ,
701 (recognizing compound interest as recoverable in equity but not
applying it in this case as The Crown was not engaged in making a
profit but in running the country for the public good); Gen.
Communications Ltd. v. Dev. Fin. Corp. of N.Z..  3 N.Z.L.R. 406,
407 (awarding compound interest against a trustee who had profited at a
compound rate). But see Day v. Mead  2 N.Z.L.R. 443, 462
(refusing to exercise equitable jurisdiction and denying a claim for
compound interest because the claimant had elected to bring his claim
under the legal remedy of the Judicature Act rather than state his
claim as one of equity).
See Minpô (Civil Code) art. 412 (Japan), translated in
Doing Business in Japan (Statute Volume) app. 4A.(2003), provides:
1. Where a time certain is fixed for the performance
of an obligatory duty the obligor shall be responsible for delay beyond
2. If a time uncertain is agreed upon for the performance of an
obligatory duty, the obligor shall be responsible for delay from the
time when such obligor became aware of the arrival of the time for
3. If no time is fixed for the performance of an obligatory duty, the
obligor shall be responsible for delay as from the time demand for
performance has been made upon him.”).
See Minpô art. 404 (Japan). The legal rate of interest for
commercial agreements is six percent per annum. Shôhô
(Commercial Code) art. 514 (Japan), translated in Doing
Business in Japan (Statute Volume) app. 5A (2003).
See MinpD; art. 405 (Japan); see also Risoku Seigen
Hô (Interest Rate Restriction Act) (Law No. 100, 1954) art. 1
(Japan), translated in Doing Business in Japan app. 4B (2001)
(stating that interest may not exceed certain statutory ceiling).
See Contract Law art. (P.R.C.) (Adopted and Promulgated by the
Second Session of the Ninth
National People's Congress March 15, 1999), available at http://www.novexcn.com/contract_law_99.html
(unofficial English translation); see also Foreign Economic
Contract Law art. 23 (P.R.C.).
See Contract Law arts. 114, 207 (P.R.C.); see also
Foreign Economic Contract Law art. 23 (P.R.C.); Civil Code [PRC Civ.
C.] art. 112
The new Unified Contract Law does provides that in the case of a
contract for loan
of money between natural persons, if payment of interest was not
prescribed or clearly prescribed, the loan is deemed interest free. See
Contract Law art. 221. It also states that the interest rate on a loan
provided by a financial institution engaged in lending operation shall
be prescribed between the minimum and maximum rates mandated by the
People's Bank of China. See
Contract Law art. 204.
See China Everbright - IHD Pac. Ltd. v. Ch'ng Poh,  HKEC
(“Where fraud or breach of trust or some similar equitable obligation
is involved, compound interest may be awarded on the basis that the
defendant must not be allowed to make any profit from his trust.”). See
also Arbitration Ordinance, ch. 341, ¶ 2GH(1) (H.K.),
translated in 2 H. Smit & v. Pechota, National Arbitration Laws
¶ HKG V(1)-1 (2001) (“An arbitral tribunal may, in arbitration
proceedings before it, award simple or compound interest from such
dates, at such rates, and with such rests as the tribunal considers
appropriate for any period ending not later than the date of
payment.”). Singapore's arbitration laws also give arbitrators the
authority to award
compound interest. Arbitration Act, 2001, ¶ 35(1) (Sing.), available
http://www.siac.org.sg/2_ArbAct.htm (“The arbitral tribunal may
award interest, including interest on a compound basis, on the whole or
any part of any sum that (a) is awarded to any party; or (b) is in
issue in the arbitral proceedings but is paid before the date of the
award, for the whole or any part of the period up to the date of the
award or payment, whichever is applicable.”); International Arbitration
Act, 1994, ¶ 12(4)(b) (Sing.), translated in 2A World Arb.
Rep. 2404.6 (Issue 12) (arbitral tribunals “may award interest
(including interest on a compound basis) on the whole or any part of
any sum which (i) is awarded to any party, for the whole or any part of
the period up to the date of the award; or (ii) is in issue in the
arbitral proceedings but is paid before the date of the award, for the
whole or any part of the period up to the date of payment.”).
See Civil Code [ROC Civ. C.] art. 203 (Taiwan), translated in
4 Commercial, Business and Trade Laws, Taiwan (C.V. Chen & Allan
P.K. Keesee eds., 1983).
See ROC Civ. C. art. 205 (Taiwan) (“If the rate of interest
agreed upon exceeds twenty per cent (20%) per annum, the creditor is
not entitled to claim any interest over and above twenty per cent
ROC Civ. C. art. 207 (Taiwan). But see ROC Civ. C. art. 233
(“Interest shall not be paid upon interest in default.”).
See Civil Act [Kor. Civ. Act.] art. 397(1) (S. Korea), translated
in 3 Statutes of the Republic of Korea 69 (Korea Legis. Res. Inst.
ed., 1997). Responsibility for delay in performance begins on the
specified due date. See Kor. Civ. Act art. 387(1) (S. Korea). If
no time for performance has been specified, responsibility for delay
commences when performance is demanded. See Kor. Civ. Act art.
387(2) (S. Korea). One may only claim compensation for ordinary damages
or for damages arising from special circumstances if they were foreseen
or foreseeable. See Kor. Civ. Act art. 393 (S. Korea) (“(1) The
compensation for damages arising from the non-performance of an
obligation shall be limited to ordinary damages. (2) The obligor is
responsible for reparation for damages that have arisen through special
circumstances, only if he had foreseen or could have foreseen such
See Commercial Act [Kor. Comm. Act] art. 54 (S. Korea), translated
in 4 Statutes of the Republic of Korea 12 (Korea Legis. Res. Inst.
See Kor. Civ. Act art. 379 (S. Korea).
See Kor. Civ. Act art. 397(1) (S. Korea).
Code of Civil Procedure [India Code Civ. Proc.] art. 34(1) (India).
Interest Act, 1978, § 3(1) (India). Interest runs from the date
when the debt is payable if the debt is payable by virtue of a written
instrument and at a certain time. See id. § 3(1)(a).
Otherwise, interest will run from the date of written notice that
interest will be claimed by the creditor to the debtor. See id.
§ 3(1)(b). The “current rate of interest” is the highest rate at
which interest may be paid on certain classes of deposits by certain
classes of banks under the Banking Regulation Act. See id.
See id. § 3(3)(c).
See Renusagar Power Co. v. Gen. Elec. Co. (1993) Supp. 3 S.C.R.
87-88; see also Indian Supreme Court Upholds ICC Award to
General Electric, Int'l Arb. Rep., Nov. 1993, at 3, 4. In that
case, General Electric entered into a contract to sell Renusagar
equipment and power services for the erection of a thermal power plant.
Under the agreement, promissory notes were to bear interest on
outstanding principal, subject to certain government tax exemptions. A
dispute arose over withheld taxes, and an arbitral panel ruled that
Renusagar had wrongfully withheld approximately $2.13 million. The
panel determined the amount of compensatory damages owed by applying
the average prime rate in the United States during the relevant period
to the amounts withheld, compounded annually. The panel stated
“[c]ompounding is essential in computing compensatory damages, because
the Claimant would have had to pay compound interest if it had replaced
the improperly withheld funds by borrowing.” Id. at 3-4.
See Renusagar Power Co., (1993) Supp. 3 S.C.R. at 88.
See Código Civil para el Distrito Federal [C.C.D.F.] art.
2104 (Mex.), translated in Mexican Civil and Commercial Codes
481 (Abraham Eckstein & Enrique Zepeda trans., 1995). Liability
begins on the due date if the obligation is due at a specified date.
C.C.D.F. art. 2104(I) (Mex.). However, if no due date is specified and
the obligation is for the payment of money, the creditor may demand
performance after giving thirty days notice. If the obligation is for
the performance of an act, it must be performed on demand, “as long as
sufficient time has elapsed.” C.C.D.F. art. 2080 (Mex.). “Damages and
losses must be a direct and immediate consequence of the failure to
comply with the obligation.” C.C.D.F. art. 2110 (Mex.). “No one shall
be held liable for a fortuitous event, unless caused or contributed to
by him, or expressly assumed or imposed by law.” C.C.D.F. art. 2111
See C.C.D.F. art. 2117 (Mex.).
C.C.D.F. art. 2296 (Mex.).
See Código de Comercio [Cód.Com.] art. 362 (Mex.),
translated in Mexican Civil and Commercial Codes 773 (Abraham
Eckstein & Enrique Zepeda trans., 1995).
See Cód.Com. art. 363 (Mex.). Consequences of delay
begin, in circumstances where no due date is specified, from the day
the creditor demands payment. See Cód.Com. art. 85(II)
(Mex.). However, the creditor may not actually pursue payment until
thirty days after a demand has been made. Cód.Com. art. 360
Código Civil [Cód. Civ.] art. 513 (Arg.), translated
in Civil Code of Argentina 83 (Julio Romanach, Jr. trans., 2001).
Under Argentine law, a fortuitous event is defined as “one which could
not have been foreseen, or which, having been foreseen, could not have
been avoided.” Cód. Civ. art. 514 (Arg.). In the absence of an
agreed upon date, default commences upon the receipt of a judicial or
extrajudicial demand. Cód. Civ. art. 509 (Arg.).
Cód. Civ. art. 621 (Arg.).
Cód. Civ. art. 622 (Arg.).
Cód. Civ. art. 623 (Arg.).
Cód. Civ. art. 1420 (Arg.) (“When the thing sold is a movable,
and the vendor does not make tradition thereof, the purchaser, if he
has already paid the price in whole or in part, or has purchased on
credit, has the right … to dissolve the contract, and demand the return
of whatever he may have paid, with interest on account of the delay and
indemnity for damages . . . .”), Cód. Civ. art.1429 (Arg.) (“If
the purchaser does not pay the price of a movable thing sold on credit,
the vendor shall … be entitled to recover interest on account of a
Código de Comercio [Cód. Com.], translated in
Commercial Laws of the World: Argentina (1998).
Cód. Com. art. 560 (Arg.).
Cód. Com. art. 565 (Arg.).
Id. The Commercial Code further provides “[w]henever local
interest or current interest is spoken of in the law or in an
agreement, the interest which the National Bank obtains is meant.” Id.
Cód. Com. art. 569 (Arg.).
Federal Court Act, R.S.C., ch. 8, § 36(1) (1990) (Can.).
Id. § 36(2).
Id. § 36(4)(f).
See Courts of Justice Act, R.S.O., ch. C.43, § 128(1)
(1990) (Can.) (“A person who is entitled to an order for the payment of
money is entitled to claim and have included in the order an award of
interest thereon at the prejudgment interest rate, calculated from the
date the cause of action arose to the date of the order.”); Court Order
Interest Act, R.S.B.C. ch. 79, pt. 1, § 1(1) (1996) (Can.) (“[A]
court must add to a pecuniary judgment an amount of interest calculated
on the amount ordered to be paid at a rate the court considers
appropriate in the circumstances from the date on which the cause of
action arose to the date of the order.”); The Pre-judgment Interest
Act, S.S., ch. P-22.2 § 5(1) (1985) (Can.) (“The court shall award
interest on a judgment for damages or for the recovery of a debt
calculated in accordance with this Act.”); Court of Queen's Bench Act,
R.S.M. ch. C280, pt. XIV, § 80(1) (1993) (Can.) (“Subject to
sections 81 and 82, an order [of the court for the payment of money or
an order that money is owing] shall include an award of interest at the
prejudgment rate on the principle sum calculated, (a) where the order
is made on a liquidated claim, from the date the cause of action arose
to the date the order is made; and (b) where the order is made on an
unliquidated claim, from the date the successful party gives written
notice of the claim to the party liable for payment to the date the
order is made.”); Judgment Interest Act, R.S.A., ch. J-1, § 2(1)
(2000) (Can.) (“Where a person obtains a judgment for the payment of
money or a judgment that money is owing, the court shall award interest
in accordance with this Part from the date the cause of action arose to
the date of the judgment.”).
See, e.g., Court of Justice Act, R.S.O., ch C.43, §
28(4)(b); Court Order Interest Act, R.S.B.C. ch. 79, § 1(2)(c);
The Pre-judgment Interest Act, S.S. ch. P-22.2 § 5(2)(b); Judgment
Interest Act, R.S.A., ch. J-1, § 2(2)(b). The Court of Queen's
Bench Act, R.S.M. ch. C 280, pt. XIV, does not appear to prohibit
interest upon interest. Although the act is silent on whether compound
or simple interest can be awarded, “[t]he normal practice in the
Manitoba courts is to calculate simple interest rather than compound
interest.” Provincial Drywall Supply Ltd. v. Toronto Dominion Bank,
 W.W.R. 74-75 (Can.).
See, e.g., Courts of Justice Act R.S.O. ch. C.43, §
28(4)(1)(g); Prejudgment Interest Act, S.S. 1986, ch. P-22.2, §
5(2)(1); Court of Queen's Bench Act, R.S.M. ch. C280, pt. XIV, §
82(c); Judgment Interest Act, R.S.A., ch. J-1, § 2(2)(1). The
Court Order Interest Act, R.S.B.C. ch. 79, pt. 1, § 2(c), does not
appear to have a similar exception.
See, e.g., Bank of Am. Can. v. Mut. Trust Co., 
184 D.L.R. (4th) 1,10 (Ont. Ct. App.) (Can.) (stating that although the
Court of Justice Act did prohibit compound interest, power to award
compound interest arose from court's equitable jurisdiction and was
therefore "payable by right other than [§ 128 of the Act]"); Bank
of Am. Can. v. Clarica Trust Co.,  211 D.L.R. (4th) 385, 397
(Can.) (reinstating award of compound interest under equitable
principles); Villa Verde L.M. Masonry Ltd. v. Pier One Masonry Inc.,
No. 93-CQ-38804, at *7,  A.C.W.S.J. LEXIS 53970 (awarding
compound interest under equitable principles).
See, e.g., Bank of Am. Can. v. Mut. Trust Co., , 184
D.L.R. (4th) 1, 13 (Can.) (“Hence I think the general equitable
jurisdiction of the court to award compound interest extends to a
successful claim and restitution for the return of monies from a party
who has retained them knowing that to be wrongful.”); K.L.B. et. al v.
The Queen in Right of British Columbia,  197 D.L.R. (4th) 431
(Can.) (reversing award of compound interest but stating that compound
interest can be awarded in cases where money is misused by executor or
trustee or anyone else in fiduciary position who has misapplied money
and made wrongful beneficial use of it); Costello v. Calgary, 
152 D.L.R. (4th) 453, 496 (Can.) (awarding simple interest because
claim did not meet requirements for jurisdiction to award compound
interest under equitable principles).
See, e.g., Clarica Trust Co.,  211 D.L.R. (4th) at
399-400 (Can.) (“Where two parties have made a contract which one of
them has broken, the damages which the other party ought to receive in
respect of such breach of contract should be such as may fairly and
reasonably be considered either arising naturally, i.e., according to
the usual course of things, from such breach of contract itself, or
such as may reasonably be supposed to have been in the contemplation of
both parties, at the time they made the contract, as the probable
result of the breach of it.”) (quoting Hadley v. Baxendale, 156 Eng.
Rep. 145, 151 (Ex. 1854)); Costello, 152 D.L.R. (4th) at 490
(“Compound interest is available under the common law in certain cases,
including ... 'special circumstances.'”); see also Leddicote v.
Nova Scotia, No. CA170962, 2002 A.C.W.S.J. LEXIS 1257, 63 (N.S. Ct.
Civil Code Quebec, ch. C.64, § 1620 (1991) (Can.), translation
available at http://www.tldb.com.
See Section 1961 of Title 28 of the United States Code provides
for the payment of monetary interest in civil cases brought in federal
courts. See 28 U.S.C. § 1961 (2000) (“Interest shall be
paid on any money judgment in a civil case recovered in a district
court.”); see also Jarvis v. Johnson, 668 F.2d 740, 741 n.1 (3d
Cir. 1982) (stating that § 1961 makes no provision for prejudgment
interest); accord La. & Ark. Ry. Co. v. Export Drum Co.,
359 F.2d 311, 317 (5th Cir. 1966). 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. Nat'l Grange Mut. Ins. Co., 866 F.2d 11, 14-15 (1st Cir. 1989);
Stroh Container Co. v. Delphi Indus., Inc., 783 F.2d 743, 752 (8th Cir.
1986); In re Arbitration Between Waterside Ocean Navigation Co.
& Int'l Navigation Ltd., 737 F.2d 150, 153 (2d Cir. 1984); Nat'l
Oil Corp. v. Libyan Sun Oil Co., 733 F. Supp. 800, 821 (D. Del. 1990); In
re Arbitration Between Reefer Express Lines Pty. Ltd. & Gen.
Auth. for Supply Commodities, 714 F. Supp. 699, 699 (S.D.N.Y. 1989);
Larsen v. A.C. Carpenter, Inc., 620 F.Supp. 1084, 1125 (E.D.N.Y. 1985),
aff'd, 800 F.2d 1128 (2d Cir. 1986).
See Anthony E. Rothschild, Comment, Prejudgment Interest:
Survey and Suggestion, 77 Nw. U. L. Rev. 192, 193 n.6 (1982)
(citing state statutes providing for payment of prejudgment interest).
For a discussion of the practice of awarding interest in the United
States, see generally Richard T. Apel, Comment, Interest as
Damages in California, 5 UCLA L. Rev. 262 (1958); Knoll, supra
note 21, at 302; Sergesketter, supra note 22; Joel A. Williams,
Comment, Prejudgment Interest: An Element of Damages Not To Be
Overlooked, 8 Cumb. L. Rev. 521 (1977).
See, e.g., Bogosian v. Woloohojian, 158 F.3d 1,8 (1st Cir. 1998)
(noting that Rhode Island law does not generally allow an award of
compound interest); Allen & O'Hara, Inc. v. Barrett Wrecking, Inc.,
964 F.2d 694, 696 (7th Cir. 1992) (stating that prejudgment interest in
diversity action should not have been calculated on a compound basis
because, under Wisconsin law, simple interest is used in contract cases
unless the contract specifies otherwise); Ryan v. Tad's Enters., Inc.,
709 A.2d 682, 705 (Del. Ch. 1996) (stating that the normal practice is
to calculate prejudgment interest awarded at the statutory rate as
simple interest); Weinberger v. UOP, Inc., 517 A.2d 653, 657 (Del. Ch.
1986) (ruling that Section 2301 of Delaware Code, which provides for
payment of interest at a rate of five percent greater than Federal
Reserve discount rate, is to be calculated as simple interest); Coggan
v. Coggan, 183 So. 2d 839, 841 (Fla. Dist. Ct. App. 1966) (holding that
compound interest cannot be awarded); Dezen v. Slatcoff, 65 So. 2d 484,
485 (Fla. 1953) (holding that interest on twenty-year-old foreign
judgment should be calculated as simple rather than yearly compound
interest); D'Annolfo v. D'Annolfo Constr. Co., 654 N.E.2d 82, 85 (Mass.
App. Ct. 1995) (holding that prejudgment interest on a promissory note
not expressly providing for compound interest bears simple interest
because “[w]ithout express agreement interest is not due on overdue
interest”); Johnson & Higgins of Tex., Inc. v. Kenneco Energy,
Inc., 962 S.W.2d 507, 532-33 (Tex. 1998) (holding that, in Texas,
awards of prejudgment interest not governed by statute are to be
calculated as simple interest); see also Tex. Fin. Code Ann.
§§ 304.101-08 (Vernon 1998) (providing that in wrongful
death, personal injury and property damage cases, prejudgment interest
awards are to be calculated only as simple interest). But see
Stovall v. Ill. Cent. Gulf R.R. Co., 722 F.2d 190, 191 (5th Cir. 1984)
(ruling in a diversity action that prejudgment interest accrued at the
legal rate of interest, which was specified by § 75-17-1(1) of the
Mississippi Code as “six percent (6%) per annum, calculated according
to the actuarial method,” which meant that such interest was to be
compounded annually. The rate is now eight percent per Miss. Code Ann.
§75-17-1(1) (2000)); Moeller v. Am. Guar. & Liab. Ins., 812
So. 2d 953, 959 (Miss. 2002) (same).
Epstein v. Kalvin-Miller Int'l, Inc., 139 F. Supp. 2d 469, 486
(S.D.N.Y. 2001) (“Under New York law, prejudgment interest is
calculated on a simple interest basis.”); Levine v. U.N. Cleaners, 167
N.Y.S.2d 801, 802 (App. Div. 1957) (“The general rule is that interest
should not be compounded.”); State v. Day, 173 P.2d 399, 410 (Cal.
Dist. Ct. App. 1946) (“The general rule is that interest may not be
computed on accrued interest unless by special statutory provision, or
by stipulation of the parties, and in the latter event the amount may
not be fixed in conflict with statutory provisions.”); Robertson v.
Dodson, 129 P.2d 726, 728 (Cal. Dist. Ct. App. 1942) (“[T]he
compounding of interest has never been looked upon with favor in this
See Young v. Hill, 67 N.Y. 162, 167 (1876) (“The exacting or
reserving of compound interest has not met with favor in the courts,
but the right to retain it when voluntarily paid is not disputed, and a
recovery of it upon express contract, made after the interest has
accrued and upon a sufficient consideration, is allowed.”); Rourke v.
Fred H. Thomas Assocs., 627 N.Y.S.2d. 831, 832 (App. Div. 1995) (“It is
established law that 'in the absence of an express agreement for either
compound interest or interest on interest, or statutory authority, such
interest is not recoverable.'”) (quoting 72 N.Y. Jur. 2d, Interest
and Usury § 12 (1995)); In re Schuster's Will, 3
N.Y.S.2d 702, 704 (Sur. Ct. 1938) (stating that compound interest is
not allowed “in the absence of an express contract or statutory
See Litchfield v. Bank of N.Y., No. 99-97-B, 2000 WL 1449843, at
*1 (D. Me. Aug. 8, 2000) (noting that under New York law, “an award of
compound interest against a fiduciary is usually reserved for cases
involving egregious breaches of trust.”); Wilson v. Great Am. Indus.,
Inc., 763 F. Supp. 688, 691 (N.D.N.Y. 1991), aff'd in part and
rev'd in part on other grounds, 979 F.2d 924 (2d Cir. 1992)
(finding that under New York law, upon a determination that defendants
acted in bad faith, minority shareholders were entitled to compound
post-judgment interest in their successful challenge against the
legality of the joint proxy and prospectus issued in connection with
the merger); Brown v. Knapp, 79 N.Y. 136, 145 (1879) (noting that
“[c]ompound interest at some rate is sometimes allowed against trustees
who have been guilty of bad faith or some other wrong to the
beneficiaries of the trust”); In re Revson, 447 N.Y.S.2d 297,
302 (App. Div. 1982) (explaining that compound interest may be awarded
in a case on trust where the trustee has acted in bad faith) (citing Brown,
79 N.Y. at 145)).
See Ferrellgas v. Am. Premier Underwriters, Inc., 79 F. Supp. 2d
1160, 1168 (C.D. Cal. 1999) (holding that plaintiffs in a breach of
contract case were entitled to simple prejudgment interest absent
statutory or contractual provision to the contrary); Day, 173
P.2d at 410; see also Exxon Corp. v. Crosby-Miss. Res., Ltd., 40
F.3d 1474 (5th Cir. 1995) (awarding compound interest where parties
agreed to its payment); Texon Energy Corp. v. Dow Chem. Co., 733 S.W.2d
328, 331 (Tex. App. 1987) (same).
See Cal. Civ. Code § 3288 (West 1997) (“In an action for
the breach of an obligation not arising from contract, and in every
case of oppression, fraud, or malice, interest may be given in the
discretion of the jury.”); see also Michelson v. Hamada, 36
Cal. Rptr. 2d 343, 354 (Ct. App. 1994) (“When the jury is the trier of
fact, it is the jury which is vested with discretion to award
prejudgment interest under section 3288, including compound
interest.”). But cf. Westbrook v. Fairchild, 9 Cal. Rptr. 2d
277, 279 (Ct. App. 1992) (holding that the jury does not have
discretion to compound post-judgment interest awards).
See Baker v. Pratt, 222 Cal. Rptr. 253, 261 (Ct. App. 1986)
(holding that a jury may award compound prejudgment interest where
fiduciary is guilty of positive misconduct or willful violation of
duty). The Baker court noted:
When a trustee wilfully [sic] converts trust property
to his own use, he is liable for interest, even though it may not have
been prayed for in the complaint. The circumstances of the case
determine whether the interest awarded is simple or compound. In cases
of mere negligence, no more than [simple] interest is ever added to the
loss or damage resulting therefrom, but if the trustee is guilty of
some positive misconduct or wilful [sic] violation of duty, the court
may award compound interest.
Id. (citing Katz v. Enos, 68 Cal. App. 2d 266,
278-79 (Ct. App. 1945)); see also Piercy v. Piercy (In re
Piercy's Estate), 145 P. 91, 91-92 (Cal. 1914); Wheeler v. Bolton, 28
P. 558, 561-62 (Cal. 1891); McNulty v. Copp, 271 P.2d 90, 99-100 (Cal.
Dist. Ct. App. 1954); Douglas v. Westfall, 248 P.2d 68, 72 (Cal. Dist.
Ct. App. 1952); West v. Stainback, 240 P.2d 366, 374 (Cal. Dist. Ct.
See Charlip v. Lear Siegler, Inc., No. 5178, 1985 WL 11565, at
*4 (Del. Ch. July 2, 1985). The court in Charlip explained:
“[W]hile the compounding of interest is a fact of
life with which anyone dealing today with savings banks and similar
institutions has experience, nevertheless, in law, it is not usually
allowed.” The rule has thus evolved that, absent either a contract or
express statutory provision authorizing compounding interest prior to
judgment, only simple interest may be recovered.
Id. (quoting Fox v. Kane-Miller Corp., 398 F.
Supp. 609, 652 (D. Md. 1975)); see also Devex Corp. v. Gen.
Motors Corp., 569 F. Supp. 1354, 1368 (D. Del. 1983) (“What the
plaintiffs actually seek is interest on interest, i.e., compound
interest, which is not permitted under Delaware law.”); Summa Corp. v.
Trans World Airlines, Inc., 540 A.2d 403, 410 (Del. 1988) (“The
Delaware courts have traditionally disfavored the practice of
compounding interest ... .”); Weinberger, 517 A.2d at 657
(“Although compound interest may be the type of interest generally
obtained by investors, it is not generally favored in the law.”).
See Del. Code Ann. tit. 8, § 262(i) (2001) (“The Court
shall direct the payment of the fair value of the shares, together with
interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as
the Court may direct.”). Prior to the amendment of this statute in
1987, Delaware courts deciding appraisal actions awarded only simple
interest. See Charlip, 1985 WL 11565, at *4 (“The
ability to receive compounded interest, and this Court's ability to
award compound interest, must also be statutorily based. Such authority
is not found in § 262(h), which merely provides for 'interest' and
does not expressly state that such interest may be compounded.”); see
also Onti, Inc. v. Integra Bank, 751 A.2d 904, 927 (Del. Ch. 1999)
(“Before the amendment of section 262(i) in 1987 … this Court only had
authority to award simple interest.”); Grimes v. Vitalink
Communications Corp., No. 12334, 1997 WL 538676, at *13 (Del. Ch. Aug.
28, 1997) (“Prior to the 1987 amendment of section 262(i), this Court
held that it did not have authority to award compound interest.”), aff'd,
708 A.2d 630 (Del. 1998).
See Brandin v. Gottlieb, 2000 WL 1005954, at *29 (Del. Ch. July
13, 2000) (justifying its compound interest award as being consistent
with “market realties”); Onti, Inc., 751 A.2d at 928 (remarking
on a “new pattern” or “developing trend” of decisions awarding compound
interest); Grimes, 1997 WL 538676, at *13 (stating that
interest should be compounded monthly to “reflect the interval
available to the petitioners had they the use of their funds as well
as, if possible, the interval actually received by the corporation”).
751 A.2d at 929. In Onti, Inc., the surviving corporation of a
cash-out merger of several companies owning cancer treatment facilities
brought an action for declaratory judgment that the price paid to
minority shareholders was fair. The shareholders filed a counterclaim
seeking appraisal of their shares and alleging unfair dealing and
breach of contract. The Delaware Court of Chancery dismissed the breach
of contract claim and, considering the unfair dealing claim, ultimately
appraised the shares at a value greater than that offered by the
corporation. The court awarded the shareholders the difference between
the appraised price and the price paid by the corporation, with
interest compounded monthly accruing from the date of the merger. See
id. at 927.
Id. at 926-27; see also Brandin, 2000 WL
1005954, at *29 (“In view of the market realities, [plaintiff]'s
financial sophistication, [defendant]'s multiple breaches of duty, and
the probability that [defendant] earned more than the legal rate of
interest on the moneys he owes to [plaintiff], fairness dictates that
the pre-judgment interest awarded to [plaintiff] be compounded.”). By
contrast, the Texas Supreme Court, in ruling that awards of prejudgment
interest should be computed as simple interest, stated that compound
interest awards were often greater than what the plaintiff could have
received by investing himself and thus it was not an accurate valuation
of damages for loss of the use of money. See Johnson &
Higgins, 962 S.W.2d at 532-33; see also Robert H.
Pemberton, A Guide to Recent Changes and New Challenges in Texas
Prejudgment Interest Law, 30 Tex. Tech L. Rev 71, 101 (1999).
See Brandin, 2000 WL 1005954, at *29; Grimes,
1997 WL 538676, at *13; see also Saulpaugh v. Monroe Cmty.
Hosp., 4 F.3d 134, 145 (2d Cir. 1993); Lexington Ins. Co. v. Abington
Co., 621 F.Supp. 18, 22 (E.D. Pa. 1985).
See Le Beau v. M.G. Bancorporation, No. CIV. A. 13414, 1998 WL
44993, at *12 (Del. Ch. Jan. 29, 1998); Lomberk v. Lenox, 19 Phila. Co.
Rptr. 562, 580 (1989); see also Wilson, 979 F.2d at
690-91; Allen Archery, Inc. v. Browning Mfg. Co., 898 F.2d 787, 789
(Fed. Cir. 1990); Fishman v. Estate of Witz, 807 F.2d 520, 556 (7th
Cir. 1986); ETS Gustave Brunet, S.A. v. M.V. “Nedlloyd Rosario,” 929 F.
Supp. 694, 714 (S.D.N.Y. 1996); Todd Shipyards Corp. v. Turbine Serv.,
Inc., 592 F. Supp. 380, 384-85 (E.D. La. 1984).
This result follows from the United States Supreme Court's decision in
Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938) (stating that “[e]xcept
in matters governed by the Federal Constitution or by acts of Congress,
the law to be applied in any case is the law of the State”).
See U.S. Const. art. III § 2 (authorizing federal court
jurisdiction for suits between citizens of different states); 28 U.S.C.
§ 1332 (2000) (“The district courts shall have original
jurisdiction of all civil actions where the matter in controversy
exceeds the sum of $75,000, exclusive of interest and costs, and is
between ... citizens of different States.)
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941) (holding
that the federal district court in Delaware hearing a case interpreting
a New York contract based on diversity jurisdiction must apply Delaware
choice-of-law rules to determine which law governs the payment of
prejudgment interest); see also, e.g., Bogosian, 158 F.3d at 8
(stating that in diversity cases, federal courts look to state law to
resolve prejudgment interest issues and, applying Rhode Island law,
simple, rather than compound, interest should have been awarded); Allen
& O'Hara, 964 F.2d at 696 (stating that prejudgment interest in
diversity action should not have been calculated on a compound basis
because, under Wisconsin law, simple interest is used in contract cases
unless the contract specifies otherwise); Stovall, 722 F.2d at
191 (ruling in diversity action that prejudgment interest accrued at
the legal rate of interest, specified by Mississippi Code of 1972,
§ 75-17-1(1) as “six percent (6%) per annum, calculated according
to the actuarial method,” which meant such interest was to be
compounded annually); Barry v. Atkinson, No. 96 CIV 84436 PKL, 1999 WL
605422, at *9 (S.D.N.Y. Aug. 10, 1999) (stating that “[I]n diversity
actions, the awarding of prejudgment interest is considered a
substantive issue and is, therefore, governed by the law of the
relevant state, in this case, New York” and that “New York's generally
applicable statutory rate of interest is 9% per annum, which accrues on
a simple, rather than a compound, basis” (citing N.Y. C.P.L.R. §
5001(a) (1992)); Teate v. Mut. Life Ins. Co. of N.Y., 965 F. Supp. 891,
894 (E.D. Tex. 1997) (stating that “[t]o calculate the applicable
prejudgment interest, the court must apply the relevant Texas law[,]”
which provides for simple interest of six percent per annum on all
accounts and contracts ascertaining sum payable).
See Towerridge, Inc. v. T.A.O., Inc., 111 F.3d 758, 764 (10th
Cir. 1997) (noting that where federal law is silent on prejudgment
interest issues, "[i]t therefore seems appropriate to look to state law
'as a matter of convenience and practicality'") (quoting United States ex.
rel. Ga. Elec. Supply Co. v. U.S. Fidelity & Guar. Co., 656
F.2d 993, 997 (5th Cir. 1981)); Smith v. Am. Int'l Life Assurance Co.
of N.Y., 50 F.3d 956, 957 (11th Cir. 1995) (“[A]lthough the
determination of the appropriate pre-judgment interest rate under [a
federal statute] is a matter of federal law, federal courts often look
to state law for guidance.”); Colon Velez v. Puerto Rico Marine Mgmt.,
Inc., 957 F.2d 933, 941 (1st Cir. 1992) (holding that where federal
statute "is silent as to pre-judgment interest and the granting of
pre-judgment interest falls under the equitable powers of the district
court, the court may look to state law in setting the pre-judgment
interest rate"); Hansen v. Continental Ins. Co., 940 F.2d 971, 983-84
(5th Cir. 1991) (holding that in a federal question case where the
relevant federal statute is silent regarding prejudgment interest, the
court may look to state law for guidance). It should be noted that, in
cases where jurisdiction is based on a federal question, the federal
courts have ruled that the manner of resolving prejudgment interest
issues is at their discretion and that they are not compelled to
consult state law. See Ford v. Uniroyal Pension Plan, 154 F.3d
613, 619 (6th Cir. 1998) ("Because we conclude that the federal courts
need not incorporate state law as the federal common law rule for the
applicable prejudgment interest rate, we reaffirm our earlier decisions
leaving the determination of the prejudgment interest rate within the
sound discretion of the district court."); Cottrill v. Sparrow, Johnson
& Ursillo, Inc., 100 F.3d 220, 225 (1st Cir. 1996) ("Although
federal courts sometimes have looked to state rates for guidance, they
have done so as a matter not of compulsion, but of discretion.")
(internal citations omitted).
See Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1030
(4th Cir. 1993) ("[A]bsent a statutory mandate the award of
pre-judgment interest is discretionary with the trial court."); see
also Whitfield v. Lindemann, 853 F.2d 1298, 1306 (5th Cir. 1988);
Katsaros v. Cody, 744 F.2d 270, 281 (2d Cir. 1984); Bricklayers'
Pension Trust Fund v. Taiariol, 671 F.2d 988, 990 (6th Cir. 1982).
See In re Oil Spill by the Amoco Cadiz off the Coast of
France on March 16, 1978, 954 F.2d 1279, 1332 (7th Cir. 1992)
("[C]ompound prejudgment interest is the norm in federal litigation.")
(citing Gorenstein Enters., Inc. v. Quality Care-USA, Inc., 874 F.2d
431 (7th Cir. 1989)).
See, e.g., Mentor Ins. Co. v. Brannkasse, 996 F.2d 506, 520 (2d
Cir. 1993) (awarding prejudgment interest compounded annually); China
Union Lines, Ltd. v. Am. Marine Underwriters, Inc., 755 F.2d 26, 30-31
(2d Cir. 1985) (awarding prejudgment interest compounded annually);
ECDC Envtl., L.C. v. N.Y. Marine & Gen. Ins. Co., No. 96 Civ. 6033
(BSJ), 1999 WL 777883, at *8 n.29 (S.D.N.Y. Sept. 29, 1999) (awarding
prejudgment interest compounded monthly); ETS Gustave Brunet,
929 F. Supp. at 714 (awarding prejudgment interest compounded
annually). More than one court deciding a case in admiralty has
reasoned that compound interest is appropriate because prejudgment
interest "'should be measured by interest on short-term risk-free
obligations.'" ETS Gustave Brunet, 929 F. Supp. at 714
(quoting Indep. Bulk Transp., Inc. v. Vessel "Morania Abaco," 676 F.2d
23, 27 (2d Cir. 1982)); see also Ingersoll Milling Mach. Co. v.
M/V Bodena, 829 F.2d 293, 311 (2d Cir. 1987); Int'l Ore &
Fertilizer Corp. v. SGS Control Servs., Inc., 828 F. Supp. 1098,
1104-05 (S.D.N.Y. 1993), aff'd, 38 F.3d 1279 (2d Cir. 1994);
Nittetsu Shoji Am., Inc. v. M.V. "Crystal King," No. 90 Civ. 2082 (KMW)
1992 WL 116430, at *13 (S.D.N.Y. May 21, 1992); M. Prusman Ltd. v. M/V
Nathaniel, 684 F. Supp. 372, 374 (S.D.N.Y. 1988).
See Sands v. Runyon, 28 F.3d 1323, 1328 (2d Cir. 1994) (awarding
compound prejudgment interest on back pay in a successful employment
discrimination suit). The Sands court noted that prejudgment
interest on back pay should be calculated as compound interest to
compensate plaintiff for delay of final resolution through dilatory
tactics and administrative lag. See id. In Saulpaugh v.
Monroe Cmty. Hospital, the Second Circuit found that the district
court's failure to award compound prejudgment interest on back pay was
an abuse of discretion because without compounding interest plaintiff
would not be made whole and defendant would enjoy an interest-free loan
for the time it delayed paying back wages. See Saulpaugh,
4 F.3d at 145 ("Given that the purpose of back pay is to make the
plaintiff whole, it can only be achieved if interest is compounded.").
In Merk v. Jewel Food Stores, Inc., the District Court for the
Northern District of Illinois justified the annual compounding of
prejudgment interest on back pay as being consistent with common
practice in labor disputes. See Merk v. Jewel Food Stores,
Inc., 813 F. Supp. 1324, 1330-31 (N.D. Ill. 1992) (noting that the
common practice in labor disputes is to compound interest not more
often than annually).
See Allen Archery, 898 F.2d at 789 (affirming an award
of prejudgment interest based on the annualized yield of the
three-month United States Treasury Bill, compounded quarterly, because
such a bill represented the shortest term, risk-free investment
available to ordinary investors); Dynamics Corp. of Am. v. United
States, 766 F.2d 518, 520 (Fed. Cir. 1985) (reversing and remanding an
award of simple prejudgment interest for the court to determine if
compound interest was not more appropriate to compensate plaintiff
fully); Fromson v. W. Litho Plate & Supply Co., No. 82-0354C(6),
1989 WL 149268, at *9-10 (E.D. Mo. Dec. 6, 1989) ("[A]n award of
compound rather than simple [prejudgment] interest assures that the
patent owner is fully compensated."), aff'd mem., 909 F.2d 1495
(Fed. Cir. 1990); Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc.,
633 F. Supp. 1047, 1057 (D. Del. 1986) (“Daily compounding of
prejudgment interest on a damages award for patent infringement ...will
conform to commercial practice and provide the patent holder with
adequate compensation for foregone royalty payments ... .”); see
also Laitram Corp. v. NEC Corp., 115 F.3d 947, 955 (Fed. Cir.
1997); R.R. Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506, 1510 n.1
(Fed. Cir. 1984); Schering Corp. v. Precision-Cosmet Co., 614 F. Supp.
1368, 1384 (D. Del. 1985). But see Rite-Hite Corp. v. Kelley
Co., 56 F.3d 1538, 1555 (Fed. Cir. 1995) (finding that the
determination of whether to award simple or compound interest is within
the discretion of district court and an award of simple interest was
not an abuse of discretion); Gyromat Corp. v. Champion Spark Plug Co.,
735 F.2d 549, 557 (Fed. Cir. 1984) (recognizing the broad discretion of
district court and declining to hold that prejudgment interest must be
compounded as a matter of law); see also Nickson Indus. v. Rol
Mfg. Co., 847 F.2d 795, 801 n.2 (Fed. Cir. 1988); Bio-Rad Labs., Inc.
v. Nicolet Instrument Corp., 807 F.2d 964, 969 (Fed. Cir. 1986).
See Sun Studs, Inc. v. ATA Equip. Leasing, Inc., No. 78-114-RE,
1990 WL 293886, at * 4 (D. Or. Sept. 19, 1990); Colunga v. Young, 722
F. Supp. 1479, 1488 (W.D. Mich. 1989); Hughes Aircraft Co. v. United
States, 31 Fed. Cl. 481, 493 (1994); ITT Corp. v. United States, 17 Cl.
Ct. 199, 242-43 (1989).
Amoco Cadiz, 954 F.2d at 1331-32. Amoco Cadiz involved a
consolidated appeal of cases arising from an oil spill caused by the
grounding of a supertanker off the coast of Brittany. Deciding numerous
issues involving jurisdiction, liability, and damages in claims by and
against parties of several nations, the United States Court of Appeals
for the Seventh Circuit affirmed the trial court's award of compound
interest on damages owed to French claimants. The court found that
interest accruing on damages awarded pursuant to English law, however,
was to be calculated as simple interest because English law did not
allow for compound interest. See id.
See McKesson Corp. v. Iran, 116 F. Supp. 2d 13, 41 (D.D.C.
2000) (holding that compound interest should not be awarded). In this
case, Iran, acting through its agents, withheld dividends during a
two-year period. See id. at 21 (discussing plaintiff's claims
and the procedural history of case). Consequently, the shareholder's
interest in the dairy was expropriated. See id. at 38-41.
See id. at 41 (finding that generally only simple interest is
awarded under customary international law) (citations omitted).
Id. Shortly after the district court's decision, an
International Centre for Settlement of Investment Disputes (ICSID)
tribunal stated that compound interest is not excluded under
international law and that “[n]o uniform rule of law has emerged from
the practice in international arbitration as regards the determination
of whether compound or simple interest is appropriate in any given
case.” Compania del Desarrollo de Santa Elena v. Costa Rica, 15 ICSID
(W. Bank) 169, 202 ¶ 103 (2000). As a result of the ICSID
tribunal's decision in Santa Elena, the McKesson plaintiff
moved for reconsideration. The district court again refused to grant
compound interest, finding that “even if customary international law
authorizes an award of compound interest at the discretion of the
awarding body, . . . the almost uniform practice of awarding only
simple interest is a relevant and compelling consideration in the
exercise of that discretion.” McKesson Corp., 116 F. Supp. 2d
at 49. The district court stated that it was unclear whether the Santa
Elena interpretation of international law was correct. See id.
See McKesson HBOC, Inc. v. Iran, 271 F.3d 1101, 1112 (D.C. Cir.
2001) (stating that customary international law does not require simple
interest awards, although it favors them).
Id. (quoting James Crawford, Third Report on State
Responsibility Submitted to the International Law Commission of the
United Nations, 2 Y.B.I.L.C. 50 (2000)).
See McKesson HBOC, 271 F.3d at 1112 (reviewing a motion
for reconsideration under the abuse of discretion standard and finding
that the district court did not abuse its discretion).
See, e.g., Employers Ins. of Wausau v. Banco Seguros del Estado,
34 F. Supp. 2d 1115 (E.D. Wis. 1999) (confirming an arbitral award
including compound interest); Int'l Standard Elec. Corp. v. Bridas
Sociedad Anonima Petrolera Industrial y Comercial, 745 F. Supp. 172
(S.D.N.Y. 1990) (confirming an arbitral award including compound
interest after finding that such award was not penal in nature). But
see Laminoirs-Trefileries-Cableries de Lens, S.A. v. Southwire Co.,
484 F.Supp. 1063, 1069 (N.D. Ga. 1980) (refusing to increase the
interest rate by five percent two months after judgment pursuant to
applicable French law because doing so would be penal rather than
compensatory). For cases enforcing arbitral awards of interest under
foreign law, see Peoples Sec. Life Ins. Co. v. Monumental Life Ins.
Co., 991 F.2d 141 (4th Cir. 1993); Sun Ship, Inc. v. Matson Navigation
Co., 785 F.2d 59 (3d Cir. 1986); Am. Constr. Mach. & Equip. Corp.
v. Mechanised Constr. of Pak., Ltd., 659 F. Supp. 426 (S.D.N.Y. 1987), aff'd
828 F.2d 117 (2d Cir. 1987); Brandeis Intsel Ltd. v. Calabrian Chem.
Corp., 656 F. Supp. 160 (S.D.N.Y. 1987). Federal courts have also
awarded compound post-award, prejudgment interest on foreign arbitral
decisions not otherwise providing for such interest. See Al
Haddad Bros. Enter., Inc. v. M/S Agapi, 635 F. Supp. 205, 210 (D. Del.
1986) (“Federal courts have the power to grant such post-award,
pre-judgment interest when enforcement of foreign arbitral awards is
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 [hereinafter New
York Convention] (codified at 22 U.S.C. §§ 201-209 (1998)).
The New York Convention has been adopted by approximately ninety
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).
New York Convention, supra note 212, art. V.
See Sun Ship, 785 F.2d at 61-62; Int'l Standard
Elec. Corp., 745 F. Supp. at 182; Gen. Elec. Co. v. Renusagar Power
Co., Decision of Oct. 21, 1988 (Bombay H.C. 1988), 25 Y.B. Com. Arb.
465, 488-89 (1990).
It should be noted, however, that the difference between awards of
simple and compound interest may be de minimis if the time
period in which interest accrues is of very short duration. For
example, an award that accrues interest for three years at a rate of
5%, compounded yearly, will only be 0.66% greater than an award that
accrues interest for the same period at a rate of 5% simple interest.
The rate at which interest accrues, as well as the number of
compounding periods, also could have an effect on the difference
between an award of compound as opposed to simple interest. The size of
the principal may also affect the significance of the difference
between an award of simple and compound interest from a monetary
standpoint (although it will not change the statistical difference).
See C. civ. art. 1154 (Fr.); Minpô (Civil Code) art. 404
See ITT Corp., 17 Cl. Ct. at 242; Hunter & Triebel, supra
note 80, at 18.
See OR art. 314 (Switz.) translated in Simon L. Goren,
The Swiss Federal Code of Obligations 69 (1987); Hungerfords, 84
A.L.R. at 119; Wadsworth v. Lydall, 1 W.L.R. 598, 602-603 (Eng. C.A.,
1981); Renusagar Power Co. (1993) Supp. 3 S.C.R. at 88.
See Wallersteiner v. Moir,  Q.B. 373, 387-88 (Eng. C.A.);
Gen. Communications Ltd. v. Dev. Fin. Corp. of N.Z. Ltd.  3
See Arbitration Act, 1996, c. 23, § 49 (Eng.); Arbitration
Ordinance, ch. 341, § 2GH(1) (H.K.).
See, e.g., Anaconda-Iran Inc. v. Iran, 18 Iran-U.S. Cl. Trib.
Rep. 199, 233, 238-9 (1988) (awarding interest at the prime rate
charged by Chase Manhattan National Bank plus two percent as indicated
in the contract); R.J. Reynolds Tobacco Co. v. Iran, 7 Iran-U.S. C.
Trib. Rep. 181, 191-92 (1984) (awarding interest at the rate stipulated
in the contract, which was LIBOR plus two percent).
See Gotanda, supra note 19, at 50. It should be noted
that, in a few instances, the arbitral rules under which the parties
agree to resolve their dispute may also provide the tribunal with the
authority to award interest. See London Court of International
Arbitration Rules, Clauses, & Costs art. 26.6 (1998) (“The Arbitral
Tribunal may order that simple or compound interest shall be paid by
any party on any sum awarded at such rates as the Arbitral Tribunal
determines to be appropriate, without being bound by legal rates of
interest imposed by any state court, in respect of any period which the
Arbitral Tribunal determines to be appropriate ending not later than
the date upon which the award is complied with.”); World Intellectual
Property Organization Arbitration Rules art. 60(b) (1994), reprinted
in 20 Y.B. Com. Arb. 340, 361 (1995) (“The Tribunal may award
simple or compound interest to be paid by a party on any sum awarded
against that party. It shall be free to determine the interest at such
rates as it considers to be appropriate, without being bound by the
legal rate of interest, and shall be free to determine the period for
which interest shall be paid.”).
See Gary B. Born, International Commercial Arbitration in the
United States 905-66 (1994); Carlo Croff, The Applicable Law in
International Commercial Arbitration: Is It Still a Conflicts of Laws
Problem?, 16 Int'l Law. 613, 624-31 (1982); Vitek
Danilowicz, The Choice of Applicable Law in International
Arbitration, 9 Hastings Int'l & Comp. L. Rev. 235, 259-68
(1986); Steven J. Stein, Drafting Effective Choice of Law Clauses,
8 J. Int'l Arb. 69, 71-73 (Sept. 1991).
See Andreas F. Lowenfeld, The Two-Way Mirror: International
Arbitration as Comparative Procedure, 7 Mich. Y.B. Int'l Legal
Stud. 163, 182 (1985); Stein, supra note 223, at 73.
See, e.g., ARB/87/3 (AAPL v. Sri Lanka), ICSID (1990), reprinted
in XVII Y.B. Com. Arb. 106, 141 (1992); Phillips Petroleum Co.
Iran v. Iran, 21 Iran-U.S. Cl. Trib. Rep. 79, 161 (1989); Parguin
Private Joint Stock Co. v. United States, 13 Iran-U.S. Cl. Trib. Rep.
262 at 268-69; Award No. 154 (322-154-3) (Iran-U.S. Cl. Trib. Oct. 28,
1987), reprinted in XIII Y.B. Com. Arb. 311, 314 (1988); Am.
Bell Int'l, Inc. v. Iran, 12 Iran-U.S. Cl. Trib. Rep. 170, 229 (1986);
McCollough & Co. Inc. v. Ministry of Post, 11 Iran-U.S. Cl. Trib.
Rep. 3, 29 (1986).
See Whiteman, supra note 4, at 1997 (citing cases);
Droit International Public V § 242 (1983) (stating that arbitral
tribunals generally do not award compound interest unless its payment
has been agreed to by the parties).
R.J. Reynolds Tobacco Co. v. Iran, 7 Iran-U.S. Cl. Trib. Rep. 181, 191
(1984) (quoting Whiteman, supra note 4, at 1997); see also
Starrett Hous. Corp. v. Iran, 16 Iran-U.S. Cl. Trib. Rep. 199, 234-35
(1987) (stating that the tribunal has never awarded compound interest);
Anaconda-Iran v. Iran, 13 Iran-U.S. Cl. Trib. Rep. 199, 234-35 (1986);
Sylvania Technical Sys., Inc. v. Iran, 8 Iran-U.S. Cl. Trib. Rep. 298,
320 (1985) (stating that “the Tribunal has never awarded compound
See Cargoport Transp., C.A., v. Siderurgica Del Orinoco, C.A.,
Soc'y Mar. Arb. No. 3701 at *9 (2001), available at LEXIS,
Admiralty (“Although compounding of interest may be acceptable and
practiced in certain areas, the SMA, under whose rules these
proceedings were held, has not yet adopted this procedure.”); Sheridan
Towing Co. Inc. v. E.C.D.C. Envtl., L.C., Soc'y Mar. Arb. No. 3569 at
*18 (1999), available at LEXIS, Admiralty; Blystad Shipping and
Trading Inc. v. Global Petroleum Corp., Soc'y Mar. Arb. No. 3421 at
*3-4 (1998), available at LEXIS, Admiralty; Canpotex Shipping
Servs. Ltd. v. Frit Indus. Inc., Soc'y Mar. Arb. No. 3282 at *7 (1996),
available at LEXIS, Admiralty; Ertoil, S.A. v. Amoco Transp.
Co., Soc'y Mar. Arb. No. 2985 at *4 (1993), available at LEXIS,
Admiralty; Atlantic Marine Agencies, Inc. v. Compagnie Marocaine de
Navigation, Soc'y Mar. Arb. No. 2736 at *5 (1990), available at
LEXIS, Admiralty; J. Laurutzen A/S v. Thyssen, Inc., Soc'y Mar. Arb.
No. 2563 at *3 (1989), available at LEXIS, Admiralty; Oy
Nielsen Bulk Ab v. Bomar Resources Inc., Soc'y Mar. Arb. No. 2443 at *6
(1987), available at LEXIS, Admiralty; Transocean Transp. Ltd.
v. Chemoil Corp., Soc'y Mar. Arb. No. 2432 at *9 (1987), available
at LEXIS, Admiralty; Canadian Transp. Co. v. Lelakis Shipping Co.,
Soc'y Mar. Arb. No. 1969 at *8 (1984), available at LEXIS,
Admiralty; Grand Bassa Tankers v. Tenneco, Inc., Soc'y Mar. Arb. No.
1656 *14 (1982), available at LEXIS, Admiralty (“The award of
interest on Owner's damages is computed as simple interest. The Panel
finds no basis for deviating from general practice in this respect.”).
In a few cases, the SMA panels have also ordered compound interest to
accumulate when an award was not paid within thirty days. See
Pan Oceanic Mar., Inc. v. Hill Plenty and Gatewest Shipping Co., Soc'y
Mar. Arb. No. 3678 (2001), available at LEXIS, Admiralty; Asia
N. Am. Eastbound Rate Agreement et al, v. Fireworks of Am., Soc'y Mar.
Arb. No. 3511 at * 3 (1999), available at LEXIS, Admiralty;
Ertoil, S.A. v. Amoco Transp. Co., Soc'y Mar. Arb., No. 2985, supra;
Transamerican Steamship Corp. v. Riviana Int'l, Inc., Soc'y Mar. Arb.
No. 2054 at *11 (1985), available at LEXIS, Admiralty.
See Petro Jamaica v. Ocean Logistics Co., Soc'y Mar. Arb., No.
3495 at *5 (1998), available at LEXIS, Admiralty; August
Trading Inc. v. Continental Grain Co., Soc'y Mar. Arb., No. 3552 at *3
(1999), available at LEXIS, Admiralty; Spencer Boat Co., Inc.
v. M/V One More Time, Soc'y Mar. Arb., No. 3370 at *3-4 (1997); Pelagos
Corporation v. Ingenieria Subacuatica S.A., Soc'y Mar. Arb., No. 3164
at *3 (1995).
See Universal Transp. Ltd. v. Republic of Angola, Soc'y Mar.
Arb. No. 3394 at *8 (1997); Amoco Trading Int'l Ltd. v. Oswego
Steamship Corp., Soc'y Mar. Arb. No. 1270 at *57 (1978).
See Metalclad Corp. v. United Mexican States, ARB (AF)/97/1, 26
Y.B. COM. ARB. 99, ¶ 131 (2001). This amount included interest.
Id. ¶ 128; see also North American Free Trade
Agreement, Dec. 17, 1992, U.S. - Can. - Mex., art 1135(1), 32 I.L.M.
289, 646 (entered into force Jan. 1, 1994) [hereinafter “NAFTA”].
Metalclad Corp., 26 Y.B. COM. ARB. ¶ 128.
See Metalclad Corp. v. United Mexican States, 89 B.C.L.R.3d
359, ¶¶ 136-36 (British Columbia S. Ct. 2001).
See ARB/97/7, 16 ICSID (W. Bank 2001) 1, available at
The claimant argued that this amounted to a breach of its obligations
to protect investments under article 3(1) of the Argentine-Spain
Bilateral Investment Treaty. See id. ¶ 83.
See id. ¶¶ 95-96.
See 15 ICSID (W. Bank) ¶ 96 (2000).
Id. ¶ 97.
See d. ¶¶ 100, 102 (citing Further Studies, supra
note 8, at 380 and Gaetano Arangio-Ruiz, Special Rapporteur, State
Responsibility,  2 Y.B. Int'l Comm'n 1, 29, U.N. Doc.
See id. ¶¶ 100-102. The tribunal cited Fabiani's
case (Moore's Digest of International Laws 4878-4915 (1905)), the Affaire
des Chemins de Fer Zeltweg-Wolfsberg (U.N. Reports of International
Arbitral Awards, vol. 3, 1795, at 1808 (1934)) and Kuwait v. Aminoil
(66 International Law Reports 518, 613 (1924)). Id. n.55. The
tribunal also cited to decisions where the possibility of an award of
compound interest was acknowledged but the circumstances were not
appropriate in the particular situation. Santa Elena, 15 ICSID
(W. Bank) ¶ 99. The tribunal cited Norwegian Shipowners' Claims
(U.N. Reports of International Arbitral Awards, vol. 1, 307, at 341
(1922)), the observations of Max Huber in Great Britain v. Spain
(Spanish Zone of Morocco) (U.N. Reports of International Arbitral
Awards, vol. 2, 615, 650 (1924)).
See Santa Elena, 15 ICSID (W. Bank) ¶ 97.
See id. ¶¶ 105-07. The tribunal stated: “In other
words, while simple interest tends to be awarded more frequently than
compound, compound interest certainly is not unknown or excluded in
international law. No uniform rule of law has emerged from the practice
in international arbitration as regards the determination of whether
compound or simple interest is appropriate in any given case. Rather,
the determination of interest is 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 by this Tribunal.” Id. ¶ 103.
See Wena Hotels Ltd. v. Arab Republic of Egypt, 41 I.L.M. 896,
See id. at 919. It appears that the tribunal based this award on
the interest rates for long term government bonds in the host country
during the relevant time period. See id at n.289.
Id. at 919 (quoting Gotanda, supra note 19, at 61). The
tribunal also noted that Professor F.A. Mann has written that “it is a
fact of universal experience that those who have a surplus of funds
normally invest them to earn compound interest. On the other hand, many
are compelled to borrow from banks and therefore must pay compound
interest. This applies, in particular to business people whose funds
are frequently invested in brick and mortar, machinery and equipment,
and whose working capital is obtained by way of loans or overdrafts
from banks.” Wena Hotels Ltd., 41 I.L.M. at 919 n. 293 (quoting
F.A. Mann, Compound Interest as an Item of Damage in International
Law, 21 U.C. Davis L.J. 577, 585 (1988)).
See Case no. 1930, Final Award of Oct. 12 1999 (Hunter, arb.),
26 Y.B. Com. Arb. 181, 183 (2001).
See id. at 182-83.
See supra note 66 and accompanying text.
Article 119 of Book six of the Dutch Civil Code provides:
1. Compensation owed for delay in the payment of a sum
of money consists of legal interest on that sum over the period that
the debtor has been in default of payment.
2. At the end of every year, the amount on which legal interest is
calculated is increased by the amount owed over that year.
3. Stipulated interest which is higher than that which would be owed
pursuant to the preceding paragraphs applies instead of legal interest,
after the debtor has come into default.
26 Y.B. Com. Arb. at 195, n.8, citing Burgerlijk
Wetboek [BW] art. 119 (Neth.).
See Case No. 1930, 26 Y.B. Com. Arb. at 182-83.
See Asian Agric. Prods., Ltd. v. Sri Lanka,6 ICSID (W.Bank) No.
ARB/87/3 (June 27, 1990) ¶ 113; McCollough & Co. Inc. v.
Ministry of Post, 11 Iran-U.S. Cl. Trib. Rep. 3, 26-31 (1986); see
also Lillich, supra note 18, at 55.
McCollough & Co. Inc., 11 Iran-U.S. Cl. Trib. Rep. at 29.
Starrett Hous. Corp. v. Iran, 16 Iran-U.S. Cl. Trib. Rep. 112, 252
(1987) (Holtzmann, J., dissenting); see also Rees & Kirby
Ltd. v. Swansea City Counsel, 30 Building L.R. 1, 16 (1985) (stating in
awarding compound interest that contractors, “like (I imagine) most
building contracts, operated over the relevant period on the basis of a
substantial overdraft at their bank, and their claim in respect of
financing charges consists of a claim in respect of interest paid by
them to the bank on the relevant amount during that period” and “[i]t
is notorious that banks do themselves, when calculating interest on
overdrafts, operate on the basis of period rests”); see also
LAW COM No. 287, supra note 50, § 2.19, at 10-11
(“Commercial lenders usually include provisions for compound interest
in their contracts. In fact, so common is this arrangement that the
[English] courts have accepted that bankers are entitled to compound
interest even in the absence of a specific contractual term, on the
basis of an implied trade usage.”). Some institutions charge only
simple interest on business loans. See Brigham & Houston, supra
note 32, at 675. However, loans that charge simple interest are
typically short-term and of known duration. See Knoll, supra
note 21, at 307; see also supra note 215 (noting that the
difference between simple and compound interest is de minimis
when the loan is of short duration). The problem of over-compensating a
claimant in this circumstance could easily be avoided by requiring it
to provide documents showing that it relied on third-party financing to
operate and that such party charged compound interest. Even if the
claimant cannot do so, that should not automatically preclude it from
receiving compound interest for the reasons discussed infra.
See Lawrence Lokken, The Time Value of Money Rules, 42
Tax L. Rev. 9, 10 (1986); see also Knoll, supra note 21,
at 307 (noting that the payment of compound interest is consistent with
common usage and commercial practices).
See Peter Canellos & Edward Kleinbard, The Miracle of
Compound Interest: Interest Deferral and Discount After 1982, 38
Tax L. Rev. 565 (1983).
See Gotanda, supra note 19, at 59-61.
See Sergesketter, supra note 22, at 255-57 (recognizing
that “compounding can result in significant additional interest
revenue, especially when sizeable principle is involved”). As noted,
the difference between awards of simple and compound interest may be de
minimis if the time period in which interest accrues is of very
short duration. See supra note 215.
See Gov't of Kuwait v. Am. Indep. Oil Co., Mar. 24, 1982, 21
I.L.M 976, 1042.
The arbitrator recognized a reasonable rate of interest to be seven and
one half percent and also adjusted for inflation by adding another ten
percent to the judgment. See id. at 1042.
This difference equates to a fifteen percent change as compared to the
total judgment and a thirty-three percent change when comparing to the
difference in simple versus compound interest.
See Compania del Desarrollo de Santa Elena S.A. v. Costa Rica,
15 ICSID (W.Bank) 169 (2000).
The tribunal's decision did not provide the rate at which interest was
compounded. Based on a principal of $4.15 million, $11.85 million in
interest, a period of 22 years, and a semi-annual compounding period
(as provided by Costa Rican law), the interest rate would be
The difference between awards of simple and compound interest is
approximately $6.1 million. Thus, the award of compound interest
increased the total award by nearly 63%.
See Keir & Keir, supra note 21, at 145 (stating
that possibility of great accumulation by compounding is of some
concern to courts since it will almost always result in judgments that
exceed statutory rate of interest).
Anaconda-Iran, Inc. v. Iran, 13 Iran-U.S. Cl. Trib. Rep. 199, 235
Further Studies, supra note 8, at 384-85.
For example, a business engaged in transnational activities could
invest the money in a short-term investment vehicle, such as a
ninety-day Eurodollar deposit rate.
See Onti, Inc., 751 A.2d at 926-27 (recognizing that
business persons seek to earn maximum amount of return on their money,
which is usually achieved by compounding interest); Cannelos &
Kleinbard, supra note 257, at 556 (1983) (recognizing that
financial accounting generally follows the compound interest model and
in particular Accounting Principles Board Opinion 12, which authorizes
the “interest method” for amortizing discounts and premiums on bonds).
See Further Studies, supra note 8, at 384; Onti
Inc., 751 A.2d at 926 (stating that only unsophisticated investors
would invest at simple interest because even “passbook savings
accounts” accrue compound interest daily).
See Brealey & Myers, supra note 33, at 279.
It is important to note that shareholders/investors have an
interest in the business and, in effect, can be part of the business in
this circumstance. Thus, paying the payee is effectively paying the
Cf. Carl Loomis, Warren Buffet on the Stock Market, Fortune,
Dec. 10, 2001, 80, 86-88 (“Well-managed industrial companies, do not as
a rule, distribute to shareholders the whole of their earned profits.
In good years, if not in all years, they retain a part of their profits
and put them back in the business. Thus there is an element of compound
interest operating in favor of a sound industrial investment.”).
See Decision of the High Court of Bombay dated Oct. 21, 1988, reprinted
in XV Y.B. Com. Arb. 465, 488 (1990); F.A. Mann, On Interest,
Compound Interest and Damages, 101 L.Q. Rev. 30, 44 (1985); J.
Gillis Wetter, Interest as an Element of Damages in the Arbitral
Process, Int'l Fin. L. Rev., Dec. 1986, at 22. Prohibiting awards
of compound interest also would thwart one of the important goals of
interest—to promote an efficient dispute resolution process. Awarding
only simple interest would provide an incentive for the respondent to
delay the resolution of the dispute because it likely would be unable
to obtain a loan from a third party on a simple interest basis or it
could place the money owed in an investment vehicle that would provide
compound returns in excess of what it would have to pay in simple
interest. See Keir & Keir, supra note 21, at 145;
Knoll, supra note 21, at 308. Thus, if simple interest is
awarded, the respondent has no incentive to pay the claim and settle
the case. See Sergesketter, supra note 22, at 241.
Compound interest would also protect expectation interests, thereby
promoting efficiency. If the claimant could not receive compound
interest and, thus, not be fully compensated for its losses in the
event of a breach, it “might find it necessary to expend time and money
to arrange other kinds of assurance, [such as] by investigating
prospective contractors intensively or by securing expensive
collateral, or by dealing only with persons inside the promisee's
intimate circle,” or by securing insurance. 3 Dobbs, supra note
11, § 12.2(1); see also Robert Cooter & Melvin Aron
Eisenberg, Damages for Breach of Contract, 73 Cal. L. Rev.
1432, 1468 (1985) (stating that when expectation and reliance damages
diverge, “expectation damages are preferable because they better assure
that reliance will be compensated, better facilitate planning, provide
better incentives for efficient performance, and precaution and provide
no worse incentives for over-reliance); E. Allan Farnsworth, Legal
Remedies for Breach of Contract, 70 Colum. L. Rev. 1145, 1147
(1970) (stating that the American legal system encourages parties to
keep promises by protecting injured parties' expectation interests—that
is to put promisees in the position in which they would have been had
promise been performed).
See McCollough & Co. Inc., 11 Iran-U.S. Cl. Trib. Rep. at
29. However, in order 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 4, at 1991-92; Charles McCormick, Damages § 54, at 213-16
(1935); see also Dobbs, supra note 11 (“When the
plaintiff's underlying loss is liquidated or ascertainable, interest is
awarded whether or not the plaintiff has realized any losses as a
result of the delay in payment. For example, the plaintiff is not
required to show that he had to borrow money and pay interest.”).
See Christopher S. Gibson, Awards & Other Decisions,
9 Am. Rev. Int'l Arb. 181, 191 (1998) (stating that international
arbitral tribunals may award compound interest when the party seeking
interest shows that “[it] has actually paid compound interest to [its]
bank – or would have received compound interest had [it] invested the
principal amount claimed.”); see also ITT Corp., 17 Cl.
Ct. at 242 (stating that “compounding may only be appropriate if the
record reflects facts and circumstances justifying its application”).
See supra notes 36-220. In fact, in Wena Hotels Ltd. v. Arab
Republic of Egypt, 41 I.L.M. 896, 191 (2002), the tribunal awarded
interest at a rate of 9%, compounded quarterly, even though the
claimant neither specified at what rate interest should be awarded nor
whether the interest should be compound.
See Westdeutsche Landesbank Girozentrale v. Islington London
Borough Council,  A.C. 669, 732 (H.L.). It also may be
appropriate to award compound interest where a fiduciary acts in bad
faith. See China Everbright – IHD Pac. Ltd. v. Ch'ng Poh 
HKEC 218 (H.K.); Bank of Am. Can. v. Mut. Trust Co.,  184 D.L.R.
(4th) 1,13 (Ont. Ct. App.).
See Cód. Civ. art. 621 (Arg.); C. civ. art. 1154 (Fr.);
C.c. art. 1283 (It.); Minpô (Civil Code) art. 404 (Japan);
London, Chatham & Dover Ry. Co. v. S. E. Ry. Co.,  A.C. 429,
440 (H.L.); see also Young v. Hill, 67 N.Y. 162, 167 (1876).
See, e.g., Anaconda-Iran Inc. v. Iran, 18 Iran-U.S. Cl. Trib.
Rep. 199, 233, 238-9 (1988) (awarding interest at prime rate charged by
Chase Manhattan National Bank plus two percent as indicated in the
contract); R.J. Reynolds Tobacco Co. v. Iran, 7 Iran-U.S. Cl. Trib.
Rep. 181, 192 (1984) (awarding interest at the rate stipulated in the
contract of London Interbank Offered Rate (LIBOR) plus two percent)
(“Under generally accepted principles of contract law, a contractually
stipulated rate of interest is normally binding on the parties.”);
Richard H. Kreindler, Transnational Litigation: A Basic Primer 292
(1998) (“When an action is based on contract, and interest at a
stipulated rate has been provided for in the contract, the judgment
will reflect that agreement unless it is usurious.”); Alan Redfern
& Martin Hunter, Law and Practice of International Commercial
Arbitration 402 (3d ed. 1999) (advocating that if the terms for the
payment of interest are set forth in the terms of the contract,
tribunals should follow them “unless there is some provision in the law
governing the arbitration (the lex arbitri) which forbids the
award of interest”).
Cf. Carlo Croff, The Applicable Law in International
Commercial Arbitration: Is It Still a Conflicts of Laws Problem?,
16 Int'l Law. 613, 623 (1982); Vitek Danilowicz, The Choice of
Applicable Law in International Arbitration, 9 Hastings Int'l &
Comp. L. Rev. 235, 236-37 (1986).
See R.J. Reynolds Tobacco Co., 7 Iran-U.S. Cl. Trib.
Rep. at 192 (“Under generally accepted principles of contract law, a
contractually stipulated rate of interest is normally binding on the
parties.”); Transnational Litigation: A Practitioner's Guide Intro-272
(John Fellas Gen. ed. 2002) (“Where an action is based on contract, and
interest at a stipulated rate has been provided for in the contract,
the judgment will reflect the agreement unless it is usurious.”); see
also supra note 230 (citing cases).
See Petro Jamaica, Inc., Soc'y Mar. Arb., No. 3495 at *5, available
at LEXIS, Admiralty.
See R.J. Reynolds Tobacco Co., 7 Iran-U.S. Cl. Trib.
Rep. at 192 (quoting Whiteman, supra note 4, at 1981, 1990).
See Int'l Standard Elec. Corp. v. Bridas Sociedad Anonima
Petrolera Industrial y Comercial, 745 F. Supp. 172, 181 (S.D.N.Y.
1990); Gen. Elec. Co., 25 Y.B. Com. Arb. at 489; Hunter &
Triebel, supra note 84, at 19. A country adhering to Shari'a
may refuse to enforce an award of interest, simple or compound, because
it violates the country's fundamental public policy against the payment
of interest (riba). See Abdul Hamid El-Ahdab, Enforcement
of Arbitral Awards in the Arab Countries, 11 Arb. Int'l 169, 173-74
See Further Studies, supra note 8, at 384 (recognizing
that business people commonly have their funds “invested in brick and
mortar, machinery and equipment, and whose working capital is obtained
by way of loans or overdrafts from banks” and not necessarily from
internal financing); see also Brigham & Houston, supra
note 32, at 491 (stating that when business expands, it needs capital,
and that capital can come from debt or equity).
See Brigham & Houston, supra note 32, at 666
(stating that there are numerous sources of short term financing
including accruals, accounts payable (trade credit), bank loans (lines
of credit) and/or commercial paper).
See Award of May 30, 1979 in Case Nos. 3099 and 3100, in
Collection of ICC Arbitral Awards 1974 – 1995 67, 74 (1990); see
also 1 Dobbs, supra note 11, § 3.6(2) n.12 (citing
See Kizer, supra note 21, at 1299-1300
(recognizing that some courts have awarded the plaintiff its actual
borrowing cost, usually a loan or extension in corporation's line of
See Brigham & Houston, supra note 32, at 491
(stating that businesses can finance with either debt or equity).
To be entitled to such interest, claimant would need to produce the
applicable loan documents or other similar financial records. See Kizer,
supra note 21, at 1299-1300; see also R.F. Lanzillotti
& A.K. Esquibel, Measuring Damages in Commercial Litigation:
Present Value of Lost Opportunities, 5 J. Acct. Auditing & Fin.
125, 139 (1989) (recognizing that interest rate calculation should
employ the claimant's borrowing cost if it had to borrow to cover its
See Award of May 30, 1979 in ICC Case Nos. 3099 and 3100, supra
See id. at 73.
See id. at 75.
See C. civ. art. 1153 (Fr.); C.C. art. 1284 (It.); Colunga,
722 F. Supp. at 1488; ITT Corp., 17 Cl. Ct. at 242; Jad Int'l
Pty. Ltd. v. Int'l Trucks Austl. Ltd., 50 F.C.R. 378. 391-92 (Austl.
1994); Wadsworth v. Lydall, 1 W.L.R. 598, 603 (Eng. C.A., 1981); 1
Dobbs, supra note 11, § 3.6(2) (“When the plaintiff has in
fact incurred interest costs because of the defendant's delay in paying
the underlying obligation, the plaintiff may recover those costs as
consequential damages, provided his proof meets the rules for recovery
of consequential loss.”); Hunter & Triebel, supra note 84,
at 18 (stating that in Germany, although compound interest is generally
prohibited, it can be given where “claimant has actually paid compound
interest to his bank”); Kreindler, supra note 280, at 292
(stating that “if a creditor can prove that it has actually paid a
higher interest for a loan replacing the payment in dispute, then it
may be able to claim such interest as damages”).
See Library of Cong. v. Shaw, 478 U.S. 310, 315 n.2 (1986);
McCormick, supra note 276, at 207-08.
See Brealey & Myers, supra note 33, at 280 (stating
that if a firm chooses to invest in project net, the present value of
the project would have to be higher than the firm's cost of capital or
else the firm would not choose to invest in that project, and, even
though it may be true that the firm might invest in a losing
proposition to penetrate a market, the firm would still eventually have
to exceed its opportunity cost of capital in long run or firm would not
be profitable); Keir & Keir, supra note 21, at 147-49
(stating that opportunity costs vary from entity to entity and in each
case courts should evaluate the various opportunity costs and choose
from a range of rates).
See Keir & Keir, supra note 21, at 146 (stating that
“opportunity cost is the benefit that is forgone when resource is not
used in its next best alternative”); see also Rothschild, supra
note 178, at 192 (stating that “if a judgment, years after the fact,
provides only the amount of damage sustained by the claimant at the
time of the incident, the claimant will have lost the opportunity to
invest the amount of the damages and to earn a return on that
See Stephen Ross et al., Fundamentals of Corporate Finance
233-35, 402-12, 582-85 (1998) (recognizing that when funding a project,
business will typically have to borrow capital or use its excess
capital and, if it has temporary cash surpluses, it may invest the
money in short term securities).
See Brealey & Myers, supra note 33, at 279.
The amount it would have received from investing the funds by either
reinvesting in the company or paying the extra cash out as dividends.
See Keir & Keir, supra note 21, at 48; see also
Ross et al., supra note 303, at 62-63.
See Ross et al., supra note 303, at 62-63. One
commentator has argued that a claimant's opportunity cost is the same
as the respondent's unsecured cost of borrowing. See Knoll, supra
note 21, at 308-11. This commentator argues that because the lost
capital was invested in the respondent's business, the return to the
claimant should reflect the inherent risk of the investment in the
respondent and the proper way to assess this risk is to use the
respondent's cost of borrowing. See id. I disagree. The
claimant should be awarded the amount of return adjusted for the risk
it undertook by investing in the respondent's business if the claimant
chose to make this investment voluntarily. However, where the
respondent has breached its obligations and caused claimant to suffer a
monetary loss, it seems more appropriate under the circumstances to
consider that the claimant did not voluntarily agree to place its money
in the respondent's business. To make the claimant whole, it should
receive its lost opportunity cost, not the expected return of a forced
See generally id. at 350-51; see also Sergesketter, supra
note 22, at 253 (stating that the opportunity cost method creates
uncertainty and expense in settlement process because the parties must
first establish past investment profiles before calculating realistic
potential judgment awards).
In general, this means that it must be proved with “reasonable
certainty and meet the limitations imposed by the proximate cause and Hadley
v. Baxendale rules.” 1 Dobbs, supra note 11, § 3.6(2)
n.11. For a discussion of how claiming interest as special damages
falls within Hadley v. Baxendale, see supra notes 40-66
and accompanying text (discussing cases in England) and notes 109-24
and accompanying text (discussing the practice in Australia).
See supra notes 259-65 and accompanying text (discussing cases).
See Gotanda, supra note 19, at 55. My 1996 study of the
approaches used to award interest found:
The various methods used by arbitral tribunals in
awarding interest have led to inconsistent and arbitrary awards. In
similar cases, arbitrators have reached different conclusions with
respect to whether interest would be due for nonperformance. In
addition, there has been no consensus as to the time from which
interest is calculated. Arbitrators have awarded compensatory interest
from, inter alia, the date of breach, the date when the debtor
receives notification of default, and the date that the request for
arbitration is filed. Rates at which interest accrues also have varied
from 3% to 20%.
Id. One way to eliminate the unpredictability
in the awarding of interest is to adopt a uniform approach. See id.
See generally id. at 59-61.
See supra notes 27-30 and accompanying text.
See supra notes 211-215 and accompanying text.
See V.V. Veeder, London Court of International Arbitration,
The New 1998 LCIA Rules, art. 26.6, XXIII Y.B. Com. Arb. 366, 385
¶ 26.6 (1998) (“The Arbitral Tribunal may order that simple or
compound interest shall be paid by any party on any sum awarded at such
rates as the Arbitral Tribunal determines to be appropriate, without
being bound by legal rates of interest imposed by any state court, in
respect of any period which the Arbitral Tribunal determines to be
appropriate ending not later than the date upon which the award is
Am. Arbitration Ass'n, International Arbitration Rules art. 28.4 (Nov.
1, 2001), available at
http://adr.org/index2.1.jsp?JSPssid=15747 (“A monetary award shall
be in the currency or currencies of the contract unless the tribunal
considers another currency more appropriate, and the tribunal may award
such pre-award and post award interest, simple or compound, as it
considers appropriate, taking into consideration the contract and
Center for Public Resources Institute for Dispute Resolution Rules for
Non-Administered Arbitration of International Disputes Rule 10.6, reprinted
in XXVI Y.B. Com. Arb. 343, 353 (2001) (“A monetary award shall be
in the currency or currencies of the contract unless the Tribunal
considers another currency more appropriate, and the Tribunal may award
such pre-award and post-award interest, simple or compound, as it
considers appropriate, taking into consideration the contract and
World Intellectual Property Organization Arbitration Rules art. 60(b), supra
note 222, at 361 (“The Tribunal may award simple or compound
interest to be paid by a party on any sum awarded against that party.
It shall be free to determine the interest at such rates as it
considers to be appropriate, without being bound by legal rates of
interest, and shall be free to determine the period for which the
interest shall be paid.”).
See Hong Kong International Arbitration Centre, Domestic
Arbitration Rules art. 20 (1993) (“Unless otherwise agreed by the
parties, the Arbitrator may order that compound interest be paid.”), available
http://www.hkiac.org/pdf/e_domestic.pdf; Arbitration Rules of the
Singapore International Arbitration Centre art. 28.5, reprinted in
23 Y.B. Com. Arb. 424, 437 (1998) (“The Tribunal may award simple or
compound interest on any sum which is the subject of the reference at
such rates as the Tribunal determines to be appropriate, in respect of
any period which the Tribunal determines to be appropriate ending not
later than the date upon which the award is complied with.”).
See United Nations Commission on International Trade Law
Arbitration Rules art. 32 (Apr. 28, 1976), reprinted in 15
I.L.M. 701, 713 (1976); See generally Int'l Chamber of
Commerce, Rules of Arbitration (2d ed. 2002), reprinted in 22
Y.B. Com. Arb. 345 (1997), available at
See, e.g., C. civ. art. 1154 (Fr.); BGB § 288(3), (4);
C.c. art. 1224 (It.).
See Hungerfords, 84 A.L.R. at 119; Bank of Am. Can. v.
Clarica Trust Co.,  211 D.L.R. (4th) 385, 399-400 (Can.);
Wadsworth v. Lydall, 1 W.L.R. 598, 603 (Eng. C.A., 1981); Trans Trust
S.P.R.L. v. Danubian Trading Co., 2 Q.B. 297, 302-03 (Eng. C.A., 1952);
Dods v. Coopers Creek Vineyards Ltd.,  1 N.Z.L.R. 530, 53-38.
See Kreindler, supra note 280, at 292; 1 Dobbs, supra
note 11, § 3.6(2).
See supra notes 255-58 and accompanying text.
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