A Study of Interest

VI DOSSIERS OF THE ICC INSTITUTE OF WORLD BUSINESS LAW, ICC Publications, 2008

Villanova Law/Public Policy Research Paper No. 2007-10

37 Pages Posted: 10 Aug 2007 Last revised: 7 Nov 2007

John Y. Gotanda

Villanova University School of Law

Abstract

In recent years, a number of tribunals, mainly those deciding investment disputes, have re-examined traditional practices concerning the awarding of interest, particularly whether interest should be awarded at market rates and on a compounded basis. However, many tribunals deciding transnational contracts disputes continue to follow the practice of applying national laws on interest, which often results in the application of domestic statutory interest rates calling for a fixed rate of interest to accrue on a simple as opposed to compound basis. These statutory rates often do not change to reflect economic conditions and thus may under compensate or over compensate a claimant. I argue that when tribunals award interest in both international investment disputes and transnational contract disputes they should strive to fully compensate the aggrieved party for the loss of the use of its money. In many cases then, they should award interest at a market rate and on a compound basis. I begin the article by providing an overview of interest and a brief comparative study of laws providing for its payment, the period during which interest should accrue, and the rate of interest. I then compare the practice of awarding interest in international commercial disputes and international investment disputes. I conclude by offering a proposal that essentially provides a framework for awarding interest as damages and achieves the goal of awarding interest to make a party whole after being deprived of the opportunity to earn a return on the use of its money.

Keywords: damages, interest, international law

Suggested Citation

Gotanda, John Y., A Study of Interest. VI DOSSIERS OF THE ICC INSTITUTE OF WORLD BUSINESS LAW, ICC Publications, 2008; Villanova Law/Public Policy Research Paper No. 2007-10. Available at SSRN: https://ssrn.com/abstract=1005425

John Y. Gotanda (Contact Author)

Villanova University School of Law ( email )

299 N. Spring Mill Road
Villanova, PA 19085
United States
610-519-7436 (Phone)
610-519-7436 (Fax)

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