Originally from Soft Law in International Arbitration, Second Edition

PREVIEW PAGE

Drafting Arbitral Awards Part II --- Interest

Introduction

1. This Guideline sets out the current best practice in international commercial arbitration for awarding interest. It provides guidance on:

i. how to deal with claims to award interest (Article 1);
ii. over what period interest should accrue (Article 2);
iii. at what rate interest should be awarded (Article 3); and 
iv. whether simple or compound interest should be awarded (Article 4).

2. This Guideline should be read in conjunction with the Guideline on

Drafting Arbitral Awards Part I — General and the Guideline on Drafting Arbitral Awards Part III — Costs.

3. In this Guideline references to ‘paying party’ should be understood as the party who is directed to make a payment to another party and references to ‘receiving party’ should be understood as the party who receives a payment.

Preamble

1. The purpose of an award of interest is to compensate a party for loss of the opportunity to use money to which it is entitled and, at the same time, to prevent the counterparty from being unjustly enriched as a consequence of wrongfully withholding money that did not belong to it.

In international commercial arbitration where there is often a significant interval between the origin of a dispute and the time when a final award is issued by the arbitrators, interest may play an important role in compensating the receiving party for the delay in receipt of money and it can represent a significant proportion of the total sum awarded.

2. One of the main challenges for arbitrators considering whether to award interest is that different legal systems apply different approaches to the same issue. Further, most national laws and arbitration rules provide little guidance as to how to deal with a request for an award of interest and do not specify how interest is to be calculated. Complications may also arise due to the fact that some countries prohibit interest altogether because it is inconsistent with their religious beliefs and other countries consider certain types of interest to be contrary to public policy.