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Part IV The Content of International Responsibility, Ch.42.3 The Different Forms of Reparation: Interest

Elihu Lauterpacht, Penelope Nevill

From: The Law of International Responsibility

Edited By: James Crawford, Alain Pellet, Simon Olleson, Kate Parlett

Content type:
Book content
Product:
Oxford Scholarly Authorities on International Law [OSAIL]
Series:
Oxford Commentaries on International Law
Published in print:
20 May 2010
ISBN:
9780199296972

From: Oxford Public International Law (http://opil.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 08 June 2023

(p. 613) Chapter 42.3  The Different Forms of Reparation: Interest∗

  1. 1  Jurisdiction to award interest and general considerations 613

  2. 2  The distinction between pre-award and post-award interest 616

  3. 3  The period for which interest is payable 617

  4. 4  Compound interest versus simple interest 617

  5. 5  The rate of interest 621

  6. 6  Conclusion 621

  7. Further reading 622

1  Jurisdiction to award interest and general considerations

This chapter will examine some issues relating to the concept of interest in the context of international responsibility. Generally speaking, interest can be an element both in the calculation of a sum due as damages or compensation (pre-award interest) and in relation to the obligation of a judgment debtor as regards the payment of the sum awarded (postaward interest).

A tribunal that possesses jurisdiction to determine liability and the compensable damage flowing therefrom is both entitled and obliged to give consideration to interest. A tribunal may refuse to award interest if it is precluded from doing so by the instrument establishing its jurisdiction.1 Tribunals have also decided against the award of interest where settlement funds are restricted,2 or because of the claimant’s conduct.3

(p. 614) The substantive international legal obligation to pay interest on monies due is well established. An authoritative statement of the position is to be found in article 38 of the ILC Articles on State Responsibility of 2001:

1. Interest on any principal sum payable under this Chapter [‘Reparation for Injury’] shall be payable when necessary in order to ensure full reparation. The interest rate and mode of calculation shall be set so as to achieve that result.

Jurisdiction to award interest is rarely covered expressly by the statute or procedural rules of a tribunal. There is no reference to any power to award interest in the statute or rules of, for example, the International Court of Justice, the Permanent Court of Arbitration, the International Centre for the Settlement of Investment Disputes, or the Iran-US Claims Tribunal. Nonetheless, those bodies have evidently considered themselves as possessing an inherent competence to award interest. The Permanent Court of International Justice (PCIJ), with a Statute very similar to that of the ICJ, showed no hesitation in dealing with the question of interest in its very first judgment, The SS Wimbledon.4 The PCIJ awarded simple interest of 6 per cent, the amount requested by the applicant, running from the date of the judgment:

As regards the rate of interest, the Court considers that in the present financial situation of the world and having regard to the conditions prevailing for public loans, the 6% claimed is fair; this interest, however, should run, not from the day of the arrival of the ‘Wimbledon’ at the entrance to the Kiel Canal, as claimed by the applicants, but from the date of the present judgment, that is to say from the moment when the amount of the sum due has been fixed and the obligation to pay has been established.5

The Iran-US Claims Tribunal in a case relating to the payment of post-award interest held that claims for interest on principal sums awarded are part of the compensation sought and do not constitute a separate cause of action requiring their own jurisdictional grant.6 The Law of the Sea Tribunal has stated that it is ‘generally fair and reasonable that interest is paid on monetary losses, property damage and other economic losses’,7 and the European Court of Justice also concluded in an early case concerning non-contractual liability of the European Community that claims for interest are in general admissible.8

(p. 615) An important multilateral acknowledgement of the power to award interest is to be found in the Decision of the Governing Council of the United Nations Compensation Commission of 18 December 1992:

The Governing Council decides that:

1. Interest will be awarded from the date the loss occurred until the date of payment, at a rate sufficient to compensate successful claimants for the loss of use of the principal amount of the award.

2. The methods of calculation and of payment of interest will be considered by the Governing Council at the appropriate time.

3. Interest will be paid after the principal amount of awards.9

This was affirmed in the ‘Report And Recommendations Made By The Panel of Commissioners Concerning The First Instalment Of Claims For Departure From Iraq or Kuwait (Category “A” Claims)’:

In the Panel’s view the above Decision of the Governing Council is supported by international law and jurisprudence which recognize the principle that interest should be paid on the principal amount of awards to make successful claimants whole for their losses.10

There are a number of instances in which the constituent instrument of a tribunal, or its rules of procedure, foresee the possibility of an award of interest. The North American Free Trade Agreement provides in article 1135 that a tribunal may award ‘monetary damages and any applicable interest’. The American Arbitration Association (AAA) in its Rules on International Dispute Resolution Procedures11 provides, in article 28(4):

the tribunal may award such pre-award and post-award interest, simple or compound, as it considers appropriate, taking into consideration the contract and applicable law.

Similarly, the World Intellectual Property Organization (WIPO) Rules provide in article 60(b):

‘The Tribunal may award simple or compound interest to be paid by a party on any sum awarded against that party. It shall be free to determine the interest at such rates as it considers to be appropriate, without being bound by legal rates of interest, and shall be free to determine the period for which the interest shall be paid.’12

These provisions are consistent with the views expressed in leading international law treatises.13 The jurisdiction to hear claims for interest and award it as an element of (p. 616) reparations is thus well established in international law, although it is less common for regional human rights courts than mixed commissions and arbitral tribunals to discuss or particularize any pre-judgment interest component of a reparations award.14

An award of interest may perform one of several functions. The most frequent rationale given for the award of pre-judgment interest is that it is compensation for loss of the ability to benefit from the use of the principal compensation sum from the date it fell due.15 The fact of the claimant’s loss and the respondent’s responsibility is assumed to follow from the fact of the latter being responsible for the deprivation of monies due to the former without the need to establish any liability for such harm, its directness and proof of loss. An award of interest has also been said to be necessary to protect against the diminution in value of the principal sum for the period between the time it fell due and payment, thus protecting against the effect of inflation on damages due and valued at a date before the judgment or award.16 Interest may also be awarded ‘as damages’ where interest costs are actually incurred by the claimant, the court or tribunal considers that the respondent has liability for such harm and it is not too remote a consequence from the original harm inflicted,17 and on occasion interest may form the principal damages sum rather than being ancillary to it.18 It has also been suggested that an interest award may function as an alternative to other methods of calculation as compensation for loss of profits.19 An interest award may also be used to restore the status quo ante by removing an unlawful competitive advantage gained by a respondent by the use of property or money which they ought not to have had.20

2  The distinction between pre-award and post-award interest

It is necessary to distinguish between interest as an element in the calculation of the sum awarded in the decision and interest payable for delay in the payment of that sum. For instance, the obligation to pay compensation for a taking of property will have arisen at (p. 617) the time of the taking. That principal sum will then be enhanced by interest for the period from the time of the taking to the date of the award. The resulting figure will constitute the sum awarded. Post-award interest may subsequently accrue in respect of any delay in the payment of the sum awarded.21 The judgment or award sum on which interest accrues until payment may also include other components, such as costs and expenses. International courts and tribunals for the most part now award post-award interest, including the regional human rights courts, the European Union courts, and arbitral tribunals. However, some courts and tribunals, for example the Iran-US Claims Tribunal, do not treat postaward interest separately from pre-award interest on principal compensation sums, allowing the interest awarded on the principal compensation sums to run from the start date, before the award, until payment. In those instances, post-award interest does not tend to be awarded on separate components of the award, such as costs and expenses. Where post-award interest is treated separately from pre-award interest, it is not uncommon for a court or tribunal to grant a period of grace—extending to days, weeks, or even months, depending on the circumstances—before post-award interest becomes payable.22

3  The period for which interest is payable

Interest is normally awarded to bridge the time gap between the date when the principal sum became due and the date when it is actually paid. Thus, in the case of a taking of property in respect of which there is a legal obligation to pay compensation, as required, for example, by the European Convention on Human Rights, Protocol I, article 1, or by numerous bilateral investment treaties containing property protection provisions, interest will generally be payable from the date of the taking. On the other hand, when damages are determined for physical or moral injury to a person arising from some other wrong, for instance, personal injury or unlawful expulsion, the damages not being fixed or liquidated until the moment of determination by the tribunal, interest will only be awarded to cover a delay in the payment of the sum awarded. Pre-award interest may, however, be awarded on any sums claimed which represent pecuniary losses or expenses incurred and valued at dates before judgment as a result of the wrong.23 The obligation to pay post-award interest terminates, of course, when the sum due is paid.

4  Compound interest versus simple interest

A major question in relation to any award of interest is whether it should be ‘simple’ or ‘compound’. ‘Simple’ interest is calculated only on the original principal amount, the stated interest percentage being added thereto at specified intervals or ‘breaks’, eg quarterly or annually, but is not itself added to the principal sum for the future calculation of (p. 618) interest. ‘Compound’ interest is added at specified intervals to the principal sum and is thus included as part of the principal when calculating the next amount of interest due. This has sometimes been described as the payment of interest on interest.

For reasons which are not entirely clear,24 there has been some disposition on the part of international tribunals to award only simple interest. Marjorie Whiteman, in her major treatise on Damages in International Law, written in 1943, stated that ‘[t]here are few rules within the scope of the subject of damages in international law that are better settled than the one that compound interest is not allowable’.25 More recently, however, it has become increasingly recognized that simple interest may not always ensure full reparation for the loss suffered and that the award of interest on a compound basis is not excluded. This is because modern financial activity, eg in relation to consumer and commercial bank loans and accounts, normally involves compound interest. The reasoning behind this change in approach is that a judgment creditor promptly placed in the possession of the funds due would be able to lend them out or invest them at compound interest rates or, if forced to borrow as a result of the respondent’s wrong, will do so at compound rates. It is therefore unreasonable to limit the interest to simple interest.26

The first detailed discussion of this development was in the case of Compañia del Desarrollo de Santa Elena SA v Republic of Costa Rica,27 in terms which may helpfully be quoted in full. The Tribunal, having determined that the value of the property at the date of its taking in 1978 was US$4,150,000, continued as follows:

97. Even though there is a tendency in international jurisprudence to award only simple interest, this is manifested principally in relation to cases of injury or simple breach of contract. The same considerations do not apply to cases relating to the valuation of property or property rights. In cases such as the present, compound interest is not excluded where it is warranted by the circumstances of the case.

98. First, there are international arbitral decisions where compound interest has been expressly allowed.

99. Secondly, there are decisions where the possibility of compound interest appears to have been acknowledged, but the circumstances were not thought to be appropriate for its award.

100. Thirdly, there is the decision of Chamber I of the Iran-US Claims Tribunal in the Sylvania Technical Services case in which, although it was stated that ‘the Tribunal has never awarded compound interest’, the Tribunal specifically declared its intention to ‘derive a rate of interest based approximately on the amount that the successful claimant would have been in a position to have earned if he had been paid in time and thus had the funds available to invest in a form of commercial investment in common use in its own country. Six-month certificates of deposit in the United States are (p. 619) such a form of investment for which average interest rates are available from an authoritative official source’. The late Dr. F.A. Mann has made the following telling comment on this passage: ‘It is not certain whether the Tribunal realized that investment in six-month certificates of deposit involves earning compound interest’.

101. Fourthly, there are the views of writers of high authority. Dr. Mann concluded the article just cited as follows: ‘… it is submitted that, on the basis of compelling evidence, compound interest may be and, in the absence of special circumstances, should be awarded to the claimant as damages by international tribunals’. The Tribunal does not consider that the expression by Dr. Mann of his conclusion in terms of ‘damages’ renders it inapplicable in the present case. While it is true that the taking by Costa Rica of the Claimant’s Property was not initially unlawful, so that no question of damages then arose, the fact remains that there is no substantive distinction to be drawn, so far as the Claimant is concerned, between an entitlement to damages and his entitlement to compensation. CDSE is entitled to the full present value of the compensation that it should have received at the time of the taking. Conversely, the taking state is not entitled unjustly to enrich itself by reason of the fact that the payment of compensation has been long delayed.

102. Finally, reference may be made to the scholarly treatment of the subject by Professor Gaetano Arangio-Ruiz, Special Rapporteur of the UN International Law Commission on State Responsibility. After close consideration of the authorities he concluded as follows: ‘The Special Rapporteur is therefore inclined to conclude that compound interest should be awarded whenever it is proved that it is indispensable in order to ensure full compensation for the damage suffered by the injured State’.

103. In other words, while simple interest tends to be awarded more frequently than compound, compound interest certainly is not unknown or excluded in international law. No uniform rule of law has emerged from the practice in international arbitration as regards the determination of whether compound or simple interest is appropriate in any given case. Rather, the determination of interest is a product of the exercise of judgment, taking into account all of the circumstances of the case at hand and especially considerations of fairness which must form part of the law to be applied by this Tribunal.

104. In particular, where an owner of property has at some earlier time lost the value of his asset but has not received the monetary equivalent that then became due to him, the amount of compensation should reflect, at least in part, the additional sum that his money would have earned, had it, and the income generated by it, been reinvested each year at generally prevailing rates of interest. It is not the purpose of compound interest to attribute blame to, or to punish, anybody for the delay in the payment made to the expropriated owner; it is a mechanism to ensure that the compensation awarded the Claimant is appropriate in the circumstances.

105. In the instant case, an award of simple interest would not be justified, given that since May 1978, i.e., for almost twenty-two years, CDSE has been unable either to use the Property for the tourism development it had in mind when it bought Santa Elena or to sell the Property. On the other hand, full compound interest would not do justice to the facts of the case, since CDSE, while bearing the burden of maintaining the property, has remained in possession of it and has been able to use and exploit it to a limited extent.

106. Consequently, Claimant is entitled to an award of compound interest adjusted to take account of all the relevant factors.28

(p. 620) Since the early 2000s the balance of investment treaty tribunal practice has shifted towards awarding compound interest where requested by the claimant,29 but not invariably.30 There are very few examples of compound interest awards in other international judicial practice.31 Notably, recent studies by two domestic law commissions have concluded that there is no reason in principle to preclude the award of compound pre-judgment interest in all types of claim, contract, delict, or otherwise, involving the award of monetary sums valued at a date before judgment.32 Moreover, depending on the circumstances of the case, a simple interest rate which is very high may overcompensate the claimant. Other factors such as ease and cost of calculation may, however, weigh against the award of compound interest for claims involving sums which are small or which have been outstanding for only short periods. The ability of courts and tribunals to award compound interest reflecting rates prevailing over the period of account has been made considerably easier by the availability of both technology able to make calculations easily and published historical interest rate data.

Where compound interest has been awarded, the intervals of compounding have varied. The question of whether interest should be compounded and at what intervals cannot really be considered separately from the question of rate: logically the intervals of compounding should be selected based on the intervals associated with the rate selected or normal banking practice.

(p. 621) 5  The rate of interest

There is no established percentage rate for an interest award. It may be influenced by such factors as the nature of the claim or cause of action and the facts of the case (where and when the liability arose and the circumstances of the parties), the applicable law, the period that has elapsed since payment of the principal became due, any contractual rate agreed between the parties, and the commercial rate prevailing at either the seat of the tribunal or in either the country of the debtor or the creditor. On occasion it is impossible to identify the division of the sum finally awarded as between, on the one hand, the basic value of the claim and, on the other, the amount added to it by way of interest.33

Rates awarded generally varied between 4 per cent and 8 per cent in the 19th century and for the most part of the 20th century. However, the rates awarded give little authoritative guidance unless viewed in the context of the market interest rates prevailing at the dates of the awards and for the periods the sums due were outstanding, and the law applied by the court or tribunal. For the most part tribunals did not explain their selection of rate, although where they did so, as in the Permanent Court’s SS Wimbledon judgment, prevailing rates were considered persuasive.

A development in more recent international practice, led from the early 1980s by a chamber of the Iran-US Claims Tribunal, has been to select an available market interest rate which is relevant to the parties and the circumstances of the tribunal’s operation. The US six-month certificate of deposit rate was considered appropriate to US claimants as it represented a stable, low risk return on a savings vehicle available in their country and for which interest rate data was available over the periods of account.34 Other examples of market rates recently awarded by tribunals include treasury bill rates in the State of the claimant’s nationality35 or the London interbank lending rate (the LIBOR) for the currency of the award.36

6  Conclusion

The brevity of the present exposition may suggest a greater certainty in the rules relating to the award of interest than has yet been achieved. The practice of tribunals has varied greatly, particularly in relation to the choice between simple and compound interest, and the selection of the rate of interest. However, there is now an identifiable trend towards acknowledging that the objective of providing a deprived party with a sum approaching the full reparation required by law necessarily involves the use of market rates and compounding as the best approximation of the loss suffered by the deprived party as a result of the respondent’s failure to pay the proper amount of compensation when it became due in law, eg at the date of the taking or wrong. This is a trend to be welcomed.

(p. 622) But the overall degree of diversity in the approach of tribunals to the question of interest is not satisfactory. Although the topic of interest usually occupies only a small place in an award, its impact on the final result can be considerable. A more detailed codification of the law relating to interest than the ILC has been able to achieve in article 38 of the Articles on State Responsibility seems unlikely for the time being. In the meantime, it is desirable, that so far as they can, tribunals should aim to ensure that the award of interest contributes signifi cantly to achieving a pecuniary result that comes as close as possible to full reparation.

Further reading

  • N Affolder, ‘Awarding Compound Interest in International Arbitration’ (2001) 12 Am Rev Int’l Arbitration 45
  • A van Casteren, ‘Article 215(2) EC and the Question of Interest’, in T Heukels and A McDonnell (eds), The Action for Damages in Community Law (1997), 199
  • AH Feller, The Mexican Claims Commissions 1923–1934 (1935), 308–312
  • JY Gotanda, ‘Damages in Private International Law’ (2007) 326 Recueil des cours 73
  • C Gray, Judicial Remedies in International Law (Oxford, OUP, 1987), 29–32
  • FA Mann, ‘Compound Interest as an Item of Damage in International Law’, in Further Studies in International Law (Oxford, OUP, 1990), 377–385
  • P Nevill, ‘Awards of interest by international courts and tribunals’ (2007) 78 BYIL 255
  • G Salvioli, ‘La responsabilité des états et la fixation des dommages et intérêts par les tribunaux internationaux’ (1929-III) 28 Recueil des cours 277
  • D Shelton, Remedies in International Human Rights Law (2nd edn, Oxford, OUP, 2005), ch 9

Footnotes:

∗  The authors express their great appreciation of the assistance given in the preparation of this chapter by Ms Michelle Bradfield, formerly Research Fellow, Lauterpacht Centre for International Law.

1  Motion for allowance of interest on awards from the date until their payment, Britain-Venezuela Commission, 9 RIAA 470, 470–1, Christern & Co, Becker & Co, Max Fischbach, Richard Friedericy, Otto Kummerow and A Dauman claims, German-Venezuelan Commission, 1903, 10 RIAA 363, Postal Treaty claim, Italian-Venezuelan Claims Commission, 1903, 10 RIAA 499, Illinois Central Railroad Co v Mexico, US-Mexico General Claims Commission, 1923, 9 RIAA 134.

2  A recent example is the United Nations Compensation Commission which decided that: ‘Taking into account all relevant circumstances, in particular the unavailability of adequate funds and the imminent completion of the Compensation Commission’s claims processing programme, Decides to take no further action with respect to the issue of awards of interest.’ S/AC.26/Dec.243 (2005).

3  Auditing of accounts between the Kingdom of the Netherlands and the French Republic pursuant to the Additional Protocol of 25 September 1976 of the Protection of the Rhine against Pollution by Chlorides, Permanent Court of Arbitration, 12 March 2004 (unofficial English translation available at <http://www.pca-cpa.org/upload/files/Neth_Fr_award_English.pdf>, para 139; First Eagle Sogen v Bank for International Settlements, Decision of 19 September 2003, 43 ILM 893 (2004), para 99.

4  The SS ‘Wimbledon’, 1923, PCIJ Reports, Series A, No 1, 4, 32.

5  Ibid. It could be doubted whether the PCIJ was correct in precluding the award of interest on elements of the compensation award that were suffered and valued at dates before the judgment.

6  Islamic Republic of Iran v United States of America, Case A-19, (1987) 16 Iran-US CTR 288, 86 ILR 307.

7  The M/V Saiga (St Vincent and the Grenadines v Guinea), Admissibility and Merits (1999) 120 ILR 143, para 173.

8  Case 238/78 Ireks-Arkady v Council and Commission [1979] ECR 2955, paras 19–20. See more recently Case T-134/01 Fuchs v Commission [2002] ECR II-3909, paras 56–57. Interest is also recoverable on fines improperly levied by the Community (Case T-171/99 Corus UK Ltd v Commission [2001] ECR II-2967) and to restore the status quo ante where improperly paid state aid is recovered from an individual (eg Case T-459/93 Siemens SA v Commission [1995] ECR II-1675, paras 96–100). Recovery of interest in claims by individuals against Member States for breaches of the European Community Treaty will depend on the application of the principle of national procedural autonomy, ie national procedural and remedial rules on interest will apply subject to the requirements of effectiveness and equivalence. For a recent application of the principle in an important English case, see Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Commissioners of Inland Revenue [2007] UKHL 34, [2007] 3 WLR 354, [2007] 7 All ER 657.

9  S/AC.26/1992/16.

10  S/AC.26/1994/2, 21 October 1994, para 51. The significance of this decision is not diminished by the Council’s subsequent Decision of 10 March 2005 not to award interest on damages (see n 2 above). This decision clearly reflected practical considerations rather than any reversal of the substantive position laid down in the Council’s earlier decision.

11  Amended and effective, 15 September 2005 see <http://www.adr.org/sp.asp?id=22090>.

12  See: <http://arbiter.wipo.int/arbitration/rules/index.html>. Although, on its face, this paragraph could be read as contemplating only post-award interest, the reference to determination of the period for which the interest should be paid allows the award of interest on damage incurred and valued as of an earlier date, eg the date that the requirement to pay compensation arose.

13  See eg DP O’Connell, International Law (2nd edn, London, Stevens & Sons Limited, 1970), vol 2, 1122–1123; RY Jennings & AD Watts, Oppenheim’s International Law (9th edn, London, Longmans, 1992), vol 1, 529–530; JB Moore, A Digest of International Law (Washington, Government Printing Office, 1906), vol 6, 1029; J Ralston, The Law and Practice of International Tribunals (revised edn, California, Stanford University, 1926), 129. For closely related topics in private international law, see the detailed treatment by JY Gotanda, Supplemental Damages in Private International Law (The Hague, Kluwer, 1998).

14  Notable exceptions include, in the European Court of Human Rights, Stran Greek Refineries v Greece (App No 13427/87), ECHR, Series A, No 301-B (1995), paras 82–83, Scordino v Italy (No 1) (App No 36813/97), ECHR Reports 2006-V, para 258; Lustig-Prean & Beckett v United Kingdom (Art 41) (App Nos 31417/96; 32377/96), Judgment, 27 September 1999, paras 28–9; Beyeler v Italy (No 2) (Just Satisfaction), (App No 33202/96), Judgment, 28 May 2002, para 23; in the Inter-American Court of Human Rights, Neira Alegría (Reparations and Costs), Inter-Am Ct HR, Series C, No 29 (1996), para 46, Case of the ‘Street Children’ (Villagrán-Morales et al v Guatemala) (Reparations and Costs), Inter-Am Ct HR, Series C, No 77 (2001), para 81.

15  This is the conclusion of commentators who have reviewed international judicial and arbitral practice: see eg G Arangio-Ruiz, Second Report on State Responsibility, ILC Yearbook 1989, Vol II(1), para 78 and P Nevill, ‘Awards of Interest by International Courts and Tribunals’ (2007) 78 BYIL 255, 278–279, and the cases cited therein.

16  For example, see the ECJ decisions in Cases C-104/98 and C-37/90 Mulder v Commission (No 2) [2000] ECR I-203 and Case T-17/89 Brazzelli v Commission [1992] ECR II-293 where compensatory interest for a claim of non-contractual liability was expressly stated to cover inflation only, and to exclude an element of real return because of failure to prove such loss. In the ECHR, see Stran Greek Refineries v Greece (App No 13427/87), ECHR, Series A, No 301-B (1995); Beyeler v Italy (No 2) (Just Satisfaction) (App No 33202/96), Judgment, 28 May 2002.

17  For example, LETCO v Liberia, Award of 31 March 1986, 2 ICSID Reports 343.

18  For example, Pammel v Germany (App No 17820/91), ECHR Reports 1997-IV; Joined Cases C-397 and 410/98 Metallgesellschaft Ltd & Ors v Commissioners of Inland Revenue & Or [2001] ECR I-1727 (ECJ).

19  G Arangio-Ruiz, Second Report on State Responsibility, ILC Yearbook 1989, Vol II(1), 20, and M Whiteman, Damages in International Law (Washington DC, US Government Printing Press, 1943), vol III, 186 7–1871.

20  For example, Case T-459/93 Siemens SA v Commission [1995] ECR II-1675.

21  The fact that a DCF approach may have been adopted in calculating the value of an asset as at the date of the taking does not mean that the value thus reached is itself then incapable of generating pre-award interest to cover the period between the taking and the date of the award. But pre-award interest will not be given where an alternative method of calculating compensation is used which calculates the value of the loss suffered as at the date of the award.

22  The European Court of Human Rights commonly allows a three-month grace period, the Inter-American Court a year. Ad hoc investment treaty arbitral tribunals have allowed grace periods ranging between 30 and 90 days.

23  See eg Lustig-Prean & Beckett v United Kingdom (Art 41) (App Nos 31417/96; 32377/96), Judgment, 27 September 1999.

24  Probably due to the fact that international tribunals have in this area been influenced by domestic laws and judicial practices which have, for the most part, traditionally allowed (in codes in civil law countries and legislation and/or the common law in common law countries) only simple interest on sums due under contract, by law or court judgment, usually at specified rates, unless the parties have expressly agreed otherwise or where recognized commercial custom is to compound or capitalize interest charged or accrued.

25  M Whiteman, Damages in International Law (Washington DC, US Government Printing Press, 1943), vol III, 1997.

26  An earlier but still cogent consideration of the problem is to be found in FA Mann, ‘Compound Interest as an Item of Damage in International Law’, Further Studies in International Law (Oxford, OUP, 1990), 377. See also C Gray, Judicial Remedies in International Law (Oxford, OUP, 1987), 32; N Affolder, ‘Awarding Compound Interest in International Arbitration’ (2001) American Review of International Arbitration 45, 70–73; P Nevill, ‘Awards of interest by international courts and tribunals’ (2007) 68 BYIL 255, 307–330.

27  (2000) 5 ICSID Reports 157.

28  Ibid, 176–178. See also SD Myers v Canada, Award on Damages (2002) 8 ICSID Reports 124, 171; Maffezini v Spain (2000) 5 ICSID Reports 419; Metalclad v Mexico (2000) 5 ICSID Reports 209; Middle East Cement v Egypt (2002) 7 ICSID Reports 178; MTD Equity Sdn Bhd and TD Chile SA v Chile (2004) 12 ICSID Reports 6; Pope & Talbot v Canada (2002) 7 ICSID Reports 148; Técnicas Medioambientales Tecmed, SA v Mexico (2003) 10 ICSID Reports 130.

29  Before 2000, capitalized interest was awarded in Atlantic Triton v Guinea (1986) 3 ICSID Reports 13 on the basis of applicable French law and in SPP(ME) v Egypt (1992) 3 ICSID Reports 189 in accordance with the provisions of a loan agreement between the parties (however, only simple interest was awarded on the non-loan elements of the award). Since 2000 compound interest awards have been made in Maffezini v Spain, Award of 13 November 2000, 5 ICSID Reports 419; Metalclad v Mexico, Award of 30 August 2000, 5 ICSID Reports 209; Middle East Cement Shipping and Handling Co SA [ME Cement] v Egypt, Award of 12 April 2002, 7 ICSID Reports 173; AIG v Kazakhstan, Award of 7 October 2003, 11 ICSID Reports 3; Pope & Talbot v Canada, Award on Damages of 31 May 2002, 7 ICSID Reports 148; SD Myers v Canada, Second Partial Award on Damages of 21 October 2002, 8 ICSID Reports 124; Técnicas Medioambientales Tecmed SA v Mexico, Award of 29 May 2003, 10 ICSID Reports 130; Azurix v Argentina (ICSID Case No ARB/01/12), Award of 23 June 2006; LG&E Energy Corp & Ors v Argentina (ICSID Case No ARB/02/01) Award of 25 July 2007; Wena Hotels v Egypt, Award of 8 December 2000, 6 ICSID Reports 89, Siemens AG v Argentina (ICSID Case No ARB/02/8), Award of 17 January 2007; Enron v Argentina (ICSID Case No ARB/01/3), Award of 22 May 2007; Sempra Energy International v Argentina (ICSID Case No ARB/02/16), Award of 28 September 2007; Camuzzi International SA v Argentina (ICSID Case No ARB/03/7), Award of 18 September 2007; BG Group Plc v Argentina (UNCITRAL Case No 08-0485), Award of 24 December 2007; Rumeli Telekom AS & Or v Kazakhstan (ICSID Case No ARB/05/16), Award of 29 July 2008; Continental Casualty Company v Argentina (ICSID Case No ARB/03/9), Award of 5 September 2008; National Grid Plc v Argentina, Award of 3 November 2008; Waguih Elie George Siag & Clorinda Vecchi v Egypt (ICSID Case No ARB/05/15), Award of 1 April 2009.

30  See eg Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v Mexico (ICSID Case No ARB(AF)/04/05), Award of 21 November 2007; Desert Line Projects LLC v Yemen (ICSID Case No ARB/05/17), Award of 6 February 2008; Duke Energy Electroquil Partners & Or v Ecuador (ICSID Case No ARB/04/19), Award of 18 August 2008.

31  In the European Court of Human Rights, see Beyeler v Italy (No 2) (Just Satisfaction) (App No 33202/96), Judgment, 28 May 2002; Wasserman v Russia (Merits and Satisfaction) (App No 15021/02), ECHR, Judgment, 18 November 2004. In the European Union courts, see Case 67/69 Simet v Commission [1971] ECR 197, Case T-171/99 Corus UK Ltd v Commission [2001] ECR II-2967, AfCon Management Consultants & Ors v Commission [2005] ECR II-981 and the English courts applying European Union law in Sempra Metals Limited (formerly Metallgesellschaft Ltd) v Commissioners of Inland Revenue [2007] UKHL 34, [2007] 3 WLR 354, [2007] 7 All ER 657.

32  The Law Commission for England and Wales in its 2004 ‘Report on Pre-Judgment and Post-Judgment Interest’ 2004, Law Com No 287 <http://www.lawcom.gov.uk/docs/lc287(1).pdf>, and the Scottish Law Commission in ‘Report on Interest on Debt and Damages’, September 2006, SCOT LAW COM No 203, SE/2006/146, <http://www.scotlawcom.gov.uk/downloads/rep203.pdf>.

33  As in, for example, much of the practice of the European Court of Human Rights.

34  Sylvania Technical Systems, Inc v Iran (1985) 8 Iran-US CTR 298, at 320–323.

35  Eg CMS Gas Transmission Company v Argentina (ICSID Case No ARB/01/08), Award of 12 May 2005.

36  Eg MTD v Chile, Award of 25 May 2004, 12 ICSID Reports 6. The award of an increment on top of the basic LIBOR rate is not uncommon: see eg PSEG Global Inc v Turkey (ICSID Case No ARB/02/05), Award of 1 January 2007, where the LIBOR rate plus 2% was awarded. Some domestic jurisdictions now use an interest rate formula based on central bank rates in legislation, eg the bank rate plus 1 or 2%: see eg the 2002 amended German Civil Code and the French legislative provisions. Some jurisdictions may build an element of penalty or default into statutory interest formulas—for example, twice the bank rate—but this is not appropriate in international law given its rejection of penalties and aggravated damages.