Author: Paolo Cerina*
Published: October 1993
Interest and Costs
Indemnity, Damages, Punitive Damages
Costs and Damages
Description: In international commercial arbitration, there seems to be little discussion of the fact that the power to arbitrate a contractual dispute includes the power to award damages. The parties, by submitting the dispute to arbitration, in effect confer to arbitrators the power to adjudicate it and thus authorize the arbitrators to award appropriate remedies. An award of compensatory damages is, of course, the ordinary remedy in international commercial arbitration.
Due to the amount of money usually at stake in international transactions, monetary awards are often very substantial. It is generally held that arbitrators have the authority to grant interest on these awards (unless the parties specifically provide otherwise), as inherent in their power to provide a fair and just compensation. Parties, of course, may expressly confer on arbitrators the power to award interest as damages, but even if there is no express authority in an arbitration agreement to do so, it has been submitted that the arbitrators’ authority to allow interest derives from the “broad language” of the parties’ arbitration agreement. Since the parties often wait considerable periods of time for a final award, the impact of interest on the total monetary judgment is frequently sizeable. However, despite the relevance of the subject, the literature on the allowance of interest in international commercial arbitration is relatively scarce, and arbitral tribunals more often pass upon the issue than carefully appraise it. Yet a number of complex questions arise: Is interest a matter of procedural or substantive law, and which is the applicable law to determine interest in a given dispute? Can arbitrators disregard the rate fixed by the applicable law (whatever this may be) where the rate is believed to be inappropriate, and, if so, what should be the interest rate in that case? Again, when does interest begin to accrue? Should interest be simple or compound? A uniform approach to all these problems does not exist, and this causes substantial problems, particularly for parties contemplating a settlement, since the parties are unable to predict the amount of the final monetary award.
*Associate, Brosio, Casati e Associati, Milan, Italy. LL.M., Columbia University School of Law, 1993.