Compound Interest in International Disputes
![handle is hein.journals/geojintl34 and id is 403 raw text is: COMPOUND INTEREST IN INTERNATIONAL
DISPUTES
JOHN YUKIO GOTANDA*
One cannot imagine that a sophisticated businessman... would invest
his companies'funds in instruments yielding simple rates of interest.
Nor is it conceivable that ... [his] lenders w[ould] provid[e] his
companies with capital at simple rates of interest.'
I. INTRODUCTION
In today's economic world, compound interest, and not simple
interest, is the norm in both third-party financing and investment
vehicles. Yet, in disputes between transnational contracting parties,
simple interest awards are the norm.
This odd disparity between awards of international tribunals and
standard business norms can have striking consequences. In disputes
between transnational contracting parties, awards of interest are often
significant and, in some cases, may even exceed the principal owed.2
For example, in one recent arbitration, a panel awarded the claimant
approximately $4 million for the property expropriated by the respon-
dent and approximately $12 million in compound interest.3 With
interest awards of this magnitude, an award based on simple interest
would be far less than an award based on compound interest.
In international disputes, the traditional view is that a tribunal may
award only simple interest.4 In fact, a federal district court in Washing-
ton, D.C. recently opined in a dispute between an American contractor
and the Government of Iran that the prohibition on compound
interest was so well settled that it could be considered a principle of
* Associate Dean for Faculty Research, Professor of Law, and Director,J.D./M.B.A. Program,
Villanova University School of Law. Thanks are due to Matthew Mousely, Matthew Pilcher, and
Samantha Pitts-Kiefer for valuable research assistance.
1. Onti, Inc. v. Integra Bank, 751 A.2d 904, 926-27 (Del. Ch. 1999).
2. See, e.g., Am. Bell Int'l Inc. v. Iran, 12 Iran-U.S. Cl. Trib. Rep. 170, 229-32 (1986) (awarding
approximately $28 million in interest on damages of approximately $50 million); Gov't of Kuwait
v. Am. Indep. Oil Co., Mar. 24, 1982, 21 I.L.M. 976, 1042 (awarding $97 million in interest on $83
million in damages).
3. Compaiia dlel Desarrollo de Santa Elena v. Costa Rica, 15 ICSID (W. Bank) 169, 200, 202
(2000).
4. See R.J. Reynolds Tobacco Co. v. Iran, 7 Iran-U.S. Cl. Trib. Rep. 181, 191-93 (1984);
MARIORIE M. WHITEMAN, 3 DAMAGES IN INTERNATIONAl. LAW 1997 (1943).](ViewImageLocal?handle=hein.journals/geojintl34&div=19&collection=&method=preview&ext=.png&size=3)
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Compound Interest in International Disputes
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