Present Day Valuation in International Arbitration: A Five Principle-Based Framework for Awarding Interest

Abstract

In international arbitration, there is often a significant delay between the time when the injury occurs and the decision is rendered by the arbitral tribunal. Consequently, arbitrators and parties are often confronted by the challenging question of how to deal with the passage of time and propose with confidence a method to adjust the award to present day value. Despite the fact that an overwhelming body of international law jurisprudence supports the general proposition that the award should include an interest component, there is still considerable uncertainty concerning the calculation of interest. Consequently, the use of interest in international arbitration is often dependent on the circumstances at hand and tribunals having a wide discretion in respect of awarding interest. In this article, we argue that the question of interest can be as important as the valuation of the loss itself in international arbitration. Indeed, awards of interest may, in some cases, exceed the principal owed because of extensive delays between the occurrence of the underlying injury and the resulting award. We strongly advocate that an international standard should be developed for awarding interest. Such a standard is required to ensure that a party is made whole after being deprived of the opportunity to earn a return on the use of its money. To help arbitrators and parties decide what interest can be reasonably and consistently applied, we must introduce a conceptual framework around a set of five principles.