Originally from the Journal of Damages in International Arbitration

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I.   INTRODUCTION

Aside from settings where the specific pre-award interest rate is set by contract or local law, tribunals are often guided by the notion of a commercial rate (e.g., “Compensation shall [among other things] include interest at a commercially reasonable rate.”).   In these settings, tribunals have several options to choose from.  Since 2015, the rate most frequently awarded by tribunals has been LIBOR plus a spread.  Among those cases, more than half have applied LIBOR+2%.  

In this article, we address the appropriate spread on interest rate benchmarks such as LIBOR.  In the first section, we examine whether LIBOR+2% is the most appropriate “commercially reasonable rate” or “normal commercial rate”.  In the second section, we discuss the ongoing transition away from LIBOR and its likely successor, SOFR, and further examine the appropriateness of this new benchmark rate.