- 15-Oct-2025
- public international law
Yes, interest can be awarded in international arbitration. It is typically granted to compensate the claimant for the delay in payment and to ensure that the awarded sum maintains its value over time. The award of interest is at the discretion of the arbitral tribunal, but it is generally seen as an important tool to ensure fair compensation and to deter the respondent from delaying payment.
This is interest awarded on the principal amount of the claim before the tribunal issues its final award. It compensates the claimant for the time period between the occurrence of the breach (or the due date for payment) and the issuance of the award. The goal is to compensate the claimant for the loss of use of the money during this period.
This is interest awarded after the tribunal issues the award but before the award is paid. It compensates the claimant for any delay in enforcement or payment after the award has been made. This type of interest can be awarded to encourage timely payment and prevent unjust enrichment on the part of the losing party.
Interest is often awarded to compensate the claimant for the delay caused by the respondent’s failure to make timely payments. If a respondent has failed to pay an amount that was due or awarded earlier, interest is seen as a fair way to compensate the claimant for the financial loss resulting from this delay.
In some cases, the contract between the parties may expressly provide for the payment of interest in the event of a dispute. In such cases, the tribunal is likely to honor the contractual agreement, unless it is contrary to public policy or law.
In many arbitration systems, the general principle of full compensation applies, meaning that the claimant is entitled to recover the total value of their loss, including the time value of money. If interest is necessary to restore the claimant to the financial position they would have been in had the breach not occurred, the tribunal may award it.
The rate of interest is generally left to the discretion of the arbitral tribunal. Tribunals typically look at factors such as the market rate of interest, the applicable national laws, and the parties’ agreement (if any) in deciding on the interest rate.
If the contract does not specify an interest rate, the tribunal may apply the prevailing legal interest rate in the jurisdiction where the award is to be enforced, or they may use a commercially reasonable rate based on the circumstances.
Tribunals tend to award interest at a reasonable and fair rate. If the interest rate is too high, it could be seen as punitive and may not be awarded; if it is too low, it may not provide adequate compensation.
Example: In international commercial arbitration, the tribunal may award interest at the prevailing LIBOR rate (London Interbank Offered Rate) or a similar international benchmark rate, especially if the contract does not specify a rate.
The longer the delay in payment, the more likely it is that the tribunal will award interest. The delay could be either before the award or after the award.
If the dispute involves a financial contract (e.g., loan agreement), interest is more likely to be awarded as it is considered a customary remedy in such cases.
Economic conditions and inflation rates may also play a role. In some cases, the tribunal may adjust the interest rate to ensure that the value of the award is not eroded by inflation over time.
In general, interest is not awarded on arbitration costs (such as tribunal fees, legal fees, and administrative costs). These costs are typically awarded separately as part of the costs of the arbitration process and are not treated in the same way as the principal claim.
However, in exceptional cases, a tribunal might award interest on the arbitration costs if it is necessary to achieve fairness or compensate for the delay in the final settlement of costs.
The UNCITRAL Model Law on International Commercial Arbitration (which many countries have adopted) allows for the award of interest on monetary claims. Article 36 of the Model Law permits tribunals to award interest in the form of prejudgment interest.
Under the ICC Rules, interest is typically awarded in international arbitration if the parties fail to agree on a specific rate. The tribunal has the discretion to award interest on both the principal sum and the arbitration costs.
The London Court of International Arbitration (LCIA) rules also provide that tribunals can award interest on any sums awarded by them, both pre-award and post-award, in the absence of specific contractual provisions.
In civil law jurisdictions, courts and tribunals often follow a more formulaic approach to determining the interest rate, with reference to statutory rates or a fixed legal rate. For example, in France, the courts may apply the statutory interest rate under the French Civil Code.
Common law systems may have more flexibility in determining the rate, often relying on commercial rates of interest or prevailing market rates.
ABC Ltd., a construction company, enters into a contract with XYZ Inc. for a construction project. XYZ fails to make a final payment of $1 million upon completion of the project. After international arbitration, the tribunal rules in favor of ABC Ltd. and orders XYZ Inc. to pay the $1 million.
Pre-award Interest: The tribunal determines that XYZ has delayed the payment by 6 months. ABC Ltd. requests interest on the $1 million for the 6-month period.
The tribunal applies a LIBOR-based interest rate of 5% per annum, calculating the interest to be $25,000 for the delay period.
Post-award Interest: The tribunal also awards post-award interest at the same rate of 5% per annum, to run from the date of the award until the payment is made.
Thus, ABC Ltd. is awarded both pre-award and post-award interest on the outstanding $1 million, which incentivizes XYZ Inc. to pay promptly and compensates ABC Ltd. for the delay in receiving the full amount.
Yes, interest can be awarded in international arbitration, and it is typically granted to ensure fair compensation for delays in payment. Tribunals have the discretion to award both pre-award interest (from the time of the breach to the award) and post-award interest (from the award to the actual payment). The interest rate is generally based on market rates or contractual provisions and is determined by the tribunal. The decision to award interest is influenced by factors such as delay, the nature of the dispute, and economic conditions.
Answer By Law4u Team
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