Prejudgment Interest in International Arbitration

24 Pages Posted: 16 Nov 2007

See all articles by Jeffrey M. Colon

Jeffrey M. Colon

Fordham University School of Law

Michael S. Knoll

University of Pennsylvania Law School; University of Pennsylvania Wharton School -- Real Estate Department

Date Written: October 29, 2007

Abstract

Tribunals in international arbitration are regularly asked by claimants to award prejudgment interest. Unless foreclosed by an agreement between the parties, there is widespread agreement prejudgment interest should put the claimant in the same position as it would have been had it not been injured by the respondent. However, there is little consensus how to calculate prejudgment interest in order to accomplish that purpose. In this Essay, we describe the proper method of calculating prejudgment interest based on sound financial principles. Using the paradigm that the respondent has forced the claimant to make an involuntary loan to the respondent, we argue that prejudgment interest should be computed using the respondent's borrowing rate. Furthermore, we argue that tribunals should use a series of short-term, floating interest rates rather than a single long-term rate at the commencement of the dispute in order to provide the parties with the proper incentive to settle their dispute. We also discuss how the calculations are different when the parties are individuals and closely held corporations as opposed to corporations and governments, and we address complications that arise when a tribunal calculates damages in one currency and makes a final award in another currency.

Keywords: Prejudgment interest, international arbitration, international trade, alternative dispute resolution, law & economics, compensation, coerced loan, damages, time value of money, award, currency conversion

Suggested Citation

Colon, Jeffrey Miguel and Knoll, Michael S., Prejudgment Interest in International Arbitration (October 29, 2007). U of Penn, Inst for Law & Econ Research Paper No. 07-32; Fordham Law Legal Studies Research Paper No. 1029710. Available at SSRN: https://ssrn.com/abstract=1029710 or http://dx.doi.org/10.2139/ssrn.1029710

Jeffrey Miguel Colon (Contact Author)

Fordham University School of Law ( email )

140 West 62nd Street
New York, NY 10023
United States

Michael S. Knoll

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-898-6190 (Phone)
215-573-2025 (Fax)

University of Pennsylvania Wharton School -- Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

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