Article 38 The Treatment of Interest in International Investment Arbitration

ICSID Review, Vol. 37, No. 1-2 (2022), pp.
339–358
doi: https://doi.org/10.1093/icsidreview/siab034
Published Advance Access 25 February 2022 WINTER/SPRING 2022
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20TH ANNIVERSARY OF ARSIWA
Article 38: The Treatment of Interest in
International Investment Arbitration
Christina L Beharry and Juan Pablo Hugues1
Abstract—Given the breadth of topics in the Articles on State Responsibility, the

guidance on interest contained in Article 38 could be easily overlooked. Yet discus-
sions on this subject featured prominently in the work of the International Law
Commission (ILC) spanning nearly four decades. Article 38 is also intrinsically rele-
vant to international investment arbitration where the coveted remedy is monetary
damages. Despite this, investment arbitration practitioners only make passing refer-
ence to Article 38 without fully appreciating the history of the ILCs discussions that
inform the application of this provision. Facially, Article 38 seems to provide little dir-
ection and broadly defers to the discretion of arbitral tribunals on critical issues. On
closer examination, however, the final text of Article 38 itself and its Commentary as
well as the ILCs preparatory works provide rich insights for those engaged in interest
determinations in investment arbitration. This essay analyzes the treatment of Article
38 by investment arbitration tribunals in conjunction with the ILCs discussions on
this article and documents a number of areas where divergences between arbitral
awards and the ILC Articles and Commentaries have emerged over time.
I. INTRODUCTION
This article will focus on the element of interest, which complements, as necessary,
reparation in the form of monetary compensation, in respect of ‘every breach of an
international obligation’,2 as elaborated by the International Law Commission
(ILC) Articles on the Responsibility of States for Internationally Wrongful Acts
(ARSIWA or ILC Articles). Interest is governed by article 38 of the ILC Articles
1
International Litigation and Arbitration Department, Foley Hoag LLP, 1717 K Street NW, Washington, District
of Columbia, United States. The authors wish to thank Martins Paparinskis, Daniel Flores, Jordan Heim and the an-
onymous peer reviewers for their helpful comments. The opinions expressed in this article are solely those of the authors
and do not necessarily reflect the views of their employer.
2
United Nations, ‘70 Years of the International Law Commission’ (2020) 62 <https://legal.un.org/ilc/publications/
pdfs/ilc_exhibit_book.pdf> accessed 25 February 2021.
C The Author(s) 2022. Published by Oxford University Press on behalf of ICSID. All rights reserved.
V
For permissions, please email: journals.permissions@oup.com
340 ICSID Review VOL. 37 1-2
and is situated in chapter II of part Two, dealing with the ‘Content of the
International Responsibility of a State’.3
Investment arbitration provides a rich body of case law for a study on interest be-
cause compensation is normally the primary remedy sought by foreign investors.
Interest determinations therefore assume a central role—at least quantitatively—in
investment awards. Moreover, tribunals frequently invoke the ILC Articles in assess-
ing damages and interest claims. For its part, article 38 confers wide discretion on tri-
bunals relating to several aspects in calculating interest, which has given rise to a
range of approaches on issues such as the applicable interest rate. At the same time,
article 38 and its commentary also appear to establish certain default rules on other
matters. This article will explore the contours of arbitral discretion under article 38
and examine the treatment of interest determinations by investment tribunals in light
of this provision and its commentary.
In Section II the article will trace the origin of and major milestones in the ILC’s
work on interest that led to its final formulation in article 38. Next, Section III will
examine the prevailing practices of investor–State tribunals in assessing interest in
light of article 38 and the discussions of the Commission recorded in the ARSIWA’s
negotiating history. Section IV will consider whether the practices of investment tri-
bunals diverge from the ARSIWA and its Commentary or peacefully co-exist in the
space left for arbitral discretion. The article will then conclude with some brief obser-
vations in Section V.
II. THE RULES: INTERNATIONAL LAW

COMMISSION’S WORK ON INTEREST
Interest was, perhaps surprisingly, one of the most controversial issues in the ILC’s
work on State responsibility.4 The genesis of the ILC’s discussion on the topic can be
traced at least as far back as 1961, when the first Special Rapporteur on State
Responsibility, Cuban Professor Francisco V Garcı́a-Amador, submitted his sixth re-
port.5 But the most important progress on the ILC’s work on interest was arguably
to come many years later, from its fourth Special Rapporteur, Italian Professor
Gaetano Arangio-Ruiz.6 In the end, the ILC’s final Special Rapporteur on this sub-
ject, Australian Professor and former judge of the International Court of Justice the
late James Crawford, would review and significantly re-shape the work of his prede-
cessors on interest.7 The longstanding controversies surrounding interest are plain
3
Article 38 makes up one of six articles on ‘Reparation for Injury’. The other articles address the forms of reparation
(art 34), restitution (art 35), compensation (art 36), satisfaction (art 37) and contribution to the injury (art 39). ILC,
‘Draft Articles on the Responsibility of States for Internationally Wrongful Acts with Commentaries’ UN GAOR 56th
Session Supp 10, ch 4, UN Doc A/56/10 (2001) (ARSIWA) arts 34–8.
4
See Claudia Annacker, ‘Part Two of the International Law Commission’s Draft Articles on State Responsibility’
(1994) 37 German YB Intl L 206, 229.
5
ILC, ‘International responsibility: Sixth report by FV Garcı́a Amador, Special Rapporteur’ [reproduced in (1961)
II ILC YB] (26 January 1961) A/CN.4/134 and Add.1 (Sixth Report on State Responsibility by FV Garcı́a Amador).
6
ILC, ‘Articles on Responsibility of States for Internationally Wrongful Acts’ (United Nations Audiovisual Library of
International Law, 2012). <https://legal.un.org/avl/ha/rsiwa/rsiwa.html> accessed 25 February 2021. Along with the
issue of interest, as a sub-issue of reparation, Professor Arangio-Ruiz made great contributions on dispute settlement,
‘international crimes’ and countermeasures. During his tenure, he submitted eight reports for discussion.
7
ILC, ‘State Responsibility: Third report, by James Crawford, Special Rapporteur’ (15 March, 15 June, 10 and 18
July and 4 August 2000) UN Doc A/CN.4/507 and Add. 1-4* (Third Report on State Responsibility by James
Crawford) para 213.
Interest in International Investment Arbitration 341
not only from the lack of resolution on certain aspects of the article’s text,8 but also
from the difference of views reflected in the negotiating history of the Commission,
as will be detailed below.
A. The Road to a Rule on Interest in the Draft Articles
Disagreements over the main elements of interest under international law are evident
from multiple ILC draft rules on this subject. In 1961, Professor Garcı́a-Amador sur-
mised that ‘[t]he allowance of interest . . . is not a generally accepted rule either in the
writings of authors or in practice’.9 However, 13 years later, in 1974, he proposed an
article on interest, applicable only to diplomatic protection claims. Notably, this art-
icle was suggested in his academic writings but not in any work submitted directly to
the Commission for its consideration.10 The article suggested the date of injury or
the date of notice of claim as the dies a quo (ie the start date) of interest, and provided
that the rate ‘shall be that prevailing with respect to obligations of analogous amount
and duration at the time of the award in the place in which the injured alien was ha-
bitually resident at the time of the injury’.11
This proposition was not taken up by the ILC, in part because it was never formal-
ly submitted to it. However, some 15 years after this publication, Professor Arangio-
Ruiz proposed a draft article 9 on interest to the ILC. This draft article: (i) linked
interest to loss of profits; (ii) considered the date of breach as dies a quo and the dies
ad quem (ie the end date) as the date of payment, and (iii) expressly addressed com-
pounding (ie interest applied to accrued interest and the principal sum). It provided:
(1) Where compensation due for loss of profits consists of interest of a sum of
money, such interest: (a) shall run from the first day not considered, for the
purposes of compensation, in the calculation of the amount awarded as prin-
cipal; (b) shall run until the day of effective payment.
(2) Compound interest shall be awarded whenever necessary in order to ensure
full compensation, and the interest rate shall be the one most suitable to
achieve that result.12
Governments expressed mixed views on the existence of a rule on interest in inter-
national law, as suggested by Arangio-Ruiz. For instance, France apparently ‘consid-
er[ed] unnecessary to specify as a legal obligation the payment of interest and
compensation for loss of profits’13 while other Governments opined that this obliga-
tion should be included whenever it formed part of the actual loss suffered.14 The
United Kingdom (UK) strongly pushed for this approach, along with the United
8
See Annacker (n 4) 229 (‘Despite substantial analysis of the question in doctrine and jurisprudence, the ILC did
not decide on this issue’). This lack of resolution has been subject to criticisms in international literature. See Dinah
Shelton, ‘Righting Wrongs: Reparations in the Articles on State Responsibility’ (2002) 96(4) AJIL 833, 853 (‘Rather
than attempt to set forth more detailed rules or guidelines, the article unhelpfully leaves the determination of interest to
the discretion of the parties and the respective tribunals in each case’).
9
Sixth Report on State Responsibility by FV Garcı́a Amador (n 5) para 163.
10
FV Garcı́a-Amador, Louis B Sohn and RR Baxter, Recent Codification of the Law of State Responsibility for Injuries to
Aliens (Oceana Publications, Inc 1974) 342.
11
ibid (emphasis added).
12
ILC, ‘State responsibility: Second report by Gaetano Arangio-Ruiz, Special Rapporteur’ [reproduced in 1989
II(1) ILC YB ] (9 and 22 June 1989) UN Doc A/CN.4/425 and Add.1* & Corr. 1 (Second Report on State
Responsibility by Gaetano Arangio-Ruiz) 56.
13
See Third Report on State Responsibility by James Crawford (n 7) para 152.
14
See ibid.
States—the latter based its position on its own experiences before the Iran–United
States Claims Tribunal (IUSCT).15
By this time, the law had evolved since Professor Garcı́a Amador’s finding in
1961 that there was no entitlement to interest in international law, and hence
could justify updating the ILC’s approach to interest. Indeed, the IUSCT was
created in 1981, and had since made great contributions to international law,
particularly in investor–State arbitration.16 However, it is difficult to see how
eight years of IUSCT case law—the period between this tribunal’s establishment
and Arangio-Ruiz’s draft article 9 discussed above—could so radically change the
legal principles that had previously been relied upon by the Commission. This
body of law was indeed grounded on decades of precedents from mixed claims
commissions17 seized with matters similar to the IUSCT (namely, disputes relat-
ing to injuries to individuals and other non-State actors), and dealing with more
entities than the IUSCT, which is confined to Iran, the United States and their
respective nationals.18
Arangio-Ruiz’s proposition was ultimately rejected for linking interest to lost prof-
its and liquidated claims, and for establishing a rule on compounding.19 In its subse-
quent work, the ILC sought to include interest only as a means of achieving full
reparation, but left the determination of rates and its calculation to the relevant court
or tribunal. A later draft article 8(2) stated that ‘compensation [for damages caused
by an internationally wrongful act] covers any economically assessable damage sus-
tained by the injured State, and may include interest’.20 But, this proposed draft was
not destined to be the version adopted by the ILC in the final Draft Articles.
B. Article 38 of the ILC Articles: A ‘Rule’ on Interest?

The ILC’s last Special Rapporteur on State Responsibility, Judge James Crawford,
suggested and defended the text of the article on interest that eventually gained the
approval of both the ILC and the United Nations General Assembly (UNGA).
Article 38 provides that:
Interest on any principal sum due under this chapter 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.
15
ILC, (1989) II(1) YB of the Intl Law Commission, UN Doc A/CN.4/SER.A/1989/Add.1 (Part 1) (ILC YB 1989,
vol II/1) 23–30, 56; and ILC, (1993) II(2) YB of the Intl Law Commission, UN Doc A/CN.4/SER.A/1993/Add.1 (Part
2) (ILC YB 1993, vol II/2) Commentaries 24–6 to art 8.
16
See for instance Hans Van Houtte and Barbara Concolino, ‘The Iran-United States Claims Tribunal and its contri-
bution to international law’ in G DeBaere and J Wouters, (eds), Contribution of International And Supranational Courts To
The Rule Of Law (Edward Elgar Publishing Ltd 2015).
17
The precedents from various Claims Commissions were relevant to the ILC’s work on interest. In particular, there
was constant reference to decisions from the Franco–Mexican Claims Commission; the United States–Peruvian Claims
Commission; the United States–Mexican Commission; the United States–German Mixed Claims Commission; the
Mexican–Venezuelan Mixed Claims Commission; and the German–Venezuelan Mixed Claims Commission, among
others.
18
See for instance Sixth Report on State Responsibility by FV Garcı́a Amador (n 5); Second Report on State
Responsibility by Gaetano Arangio-Ruiz (n 12). See in particular the extensive case law cited on the matter by Professor
Garcı́a Amador in his sixth report to the Commission, and by Professor Arangio-Ruiz, in his second report to the
Commission. Interestingly, Judge Crawford would later note how the IUSCT Full Tribunal would consider itself as pos-
sessing the power to award interest, but refrained from fixing rules on the exercise of such power. See Third Report on
State Responsibility by James Crawford (n 7) para 202.
19
Penelope Nevill, ‘Awards of Interest by International Courts and Tribunals’ (2007) 78(1) BYBIL 255, 259.
20
ILC, (1993) II(2) YB of the Intl Law Commission (n 15) 54 (emphasis added). Afterwards, the articles were reor-
dered. Hence, this provision became art 44.
Interest runs from the date when the principal sum should have been paid until the
date the obligation to pay is fulfilled.21
Thus, interest was not established as a right per se.22 While the ILC accepted the ap-
plication of interest in international law, it codified this principle merely as a possibility
under specific circumstances. That is: (i) whenever ‘necessary in order to ensure full
reparation’ and (ii) per the commentaries attached to the article, ‘if that sum is quan-
tified as at an earlier date than the date of the settlement of, or judgement or award
concerning, the claim’.23
Even when applicable, the ILC noted the difficulties of calculating specific
amounts of interest, where rates and periods of interest are crucial.24 Rates are not
fixed in the ARSIWA; rather, they depend on the circumstances necessary to achieve
‘full reparation’.25 With respect to the period of payment, interest is to run only
‘from the date when the principal sum should have been paid until [payment] is ful-
filled’.26 This formulation was accepted not because it represented the state of inter-
national law at the time, but because ‘the [then] unsettled state of practice ma[de] a
general provision on the calculation of interest useful’.27
Compounding—another important component of interest—was not envisaged in
the final text adopted by the Commission and approved by the UNGA. And this was
not by accident. In its Commentary to the Draft Articles, the ILC concluded that
‘given the present state of international law, it cannot be said that an injured State
has any entitlement to compound interest, in the absence of special circumstances
which justify some element of compounding as an aspect of full reparation’.28
The Commission concluded its commentary to article 38 with two noteworthy cav-
eats. First, it states that the article does not apply to post- award interest. The Articles
do not go so far as to suggest that this type of interest would not ensure full repar-
ation.29 Instead, the commentary states that ‘[t]he power of a court or tribunal to
award post-judgment interest is a matter of its procedure’.30 Secondly, and quite inter-
estingly, the Commission notes that ‘[w]here a sum for loss of profits is included as
part of the compensation for the injury caused by a wrongful act, an award of interest
will be inappropriate if the injured State would thereby obtain double recovery’.31 It
reasons that a ‘capital sum cannot be earning interest and notionally employed in
earning profits at one and the same time’.32 Accordingly, the Commission wisely
sought to guard against a situation where an injured party claims interest on both the
capital sum (ie the value of the asset) and historical lost profits. However, the com-
mentary distinguished this scenario from one in which the asset and such lost profits
21
ARSIWA (n 3) art 38 (emphasis omitted).
22
ibid art 38, commentaries 2, 7 (‘Interest is not an autonomous form of reparation, nor is it a necessary part of com-
pensation in every case. For this reason the term “principal sum” is used in Article 38 rather than “compensation” . . .
[A]n injured State has no automatic entitlement to the payment of interest’).
23
ibid art 38, commentary 2. As will be discussed below, the Commentary provides that art 38 applies to pre-award
interest.
24
ibid art 38, commentary 10.
25
ibid art 38 (emphasis omitted).
26
ibid.
27
28
29
ibid art 38, commentary 7. This stipulation appears somewhat inconsistent with the second paragraph of art 38,
which states that: ‘Interest runs from the date when the principal sum should have been paid until the date the obligation
to pay is fulfilled’ (emphasis added).
30
31
32
ibid (emphasis in original).
are valued at the date of the breach but interest is sought only on the lost profits until
the date of the award.33 This latter scenario is rather uncommon in practice.
The work of the ILC on interest seems to have concluded just at a time when in-
vestment arbitration was quickly evolving. Indeed, the ILC had discussed the issue
for almost 40 years. But most of this discussion was based on precedents from
individual-State claims, developed principally through the first half of the 20th cen-
tury by claims commissions and, into the 1980s, by the IUSCT. It was right after the
UNGA’s adoption of the ILC Articles that an explosion of individual-State claims,
particularly in investor–State arbitration, would take place and would bring with it a
substantial body of case law on the issue of interest. We will now examine more close-
ly the evolution of investor–State arbitral practice on interest.
III. THE PRACTICE: INTEREST IN INTERNATIONAL

INVESTMENT ARBITRATION
For about a century prior to the adoption of the ILC Articles, international courts, tribu-
nals and mixed commissions recognized their authority to award interest as an element
of compensation.34 By its adoption, article 38 laid to rest any lingering doubts regarding
the power of international adjudicatory bodies to order interest on damages caused by
the internationally wrongful acts of States. In its place were questions about when inter-
est was ‘necessary in order to ensure full reparation’ and how to calculate interest ‘so as
to achieve that result’.35 It is to these two questions that we turn our attention.
A. Entitlement to Interest
Early international courts and tribunals considered, as a preliminary matter, whether
interest was necessary to restore an aggrieved party to the position it would have
been in if the wrongful act had not taken place. Interest was deemed inappropriate in
certain circumstances such as when the loss was indeterminate, proof of the quantum
of damages was inadequate, a compromise or lump sum had been paid in settlement
of the claim, or the claimant was guilty of laches or fault.36
The ARSIWA afford wide discretion to international adjudicators with respect to
interest, including whether to even award it. As noted, article 38 does not establish a
right to interest per se.37 But this outcome did not come without controversy. It was
33
See for instance Quiborax SA and Non-Metallic Minerals SA v Plurinational State of Bolivia, ICSID Case No ARB/
06/2, Award (16 September 2015) para 514 (‘The Tribunal is aware of the Respondent’s concern about awarding inter-
est to lost profits and its allegation of double counting. Indeed, according to the Commentary to ILC Article 38,
“[w]here a sum for loss of profits is included as part of the compensation for the injury caused by a wrongful act, an
award of interest will be inappropriate if the injured State would thereby obtain double recovery,” because “[a] capital
sum cannot be earning interest and notionally employed in earning profits at one and the same time.” However, the ILC
Commentary goes on to explain that “interest may be due on the profits which would have been earned but which have
been withheld from the original owner.” Consequently, if interest is applied to past net cash flows (i.e., the cash flows
that would have been earned between 23 July 2004 and 30 June 2013 but were withheld from the Claimants due to
Bolivia’s expropriatory measure) as of the date on which those cash flows were due, there is no double-counting. The
Tribunal understands that this is what Navigant has done’).
34
Case of the SS ‘Wimbledon’ (United Kingdom and ors v Germany) (Judgment) (1923) PCIJ Rep Series A No 1;
Cervetti Case (of a general nature) (Italy v Venezuela) (Opinions of a general nature) [1903] 10 RIAA 492, 497; Illinois
Central Railroad Co. (USA v United Mexican States) (Award) [1926] 4 RIAA 134; Alabama Claims (United States of
America v Great Britain) (Award) [1871] 29 RIAA 125, 133; Del Rio Case (Mexico v Venezuela) [1903] 10 RIAA 693,
703.
35
ARSIWA (n 3) art 38.
36
Marjorie M Whiteman, Damages in International Law vol III ( US Government Printing Office 1943) 1990–3.
37
ARSIWA (n 3) art 38, commentaries 2,7.
one of the major issues of disagreement within the Commission. The ILC’s position
evolved dramatically from Professor Garcı́a-Amador’s initial findings in 1961 that
interest could be a head of compensation for damages to aliens (not necessarily for
States38) but that the great majority of decisions disallowed interest.39 The work of
the Commission shifted course nearly 30 years later with Professor Arangio-Ruiz’s
conclusion that, for the most part, the literature and case law reviewed allowed for
the payment of interest provided that international law called for payment of lucrum
cessans.40 While this led to the inclusion by Professor Arangio-Ruiz of such a provi-
sion41 as a means of reparation for damages caused by an internationally wrongful
act,42 it was only 11 years later that the present article 38 took form.43 This provision
and its commentary embody the view of Special Rapporteur Crawford that interest
was only necessary to achieve full reparation, and where the sum had not been
brought forward to the date of the award.44
Since the adoption of the ILC Articles, awards of interest have continued to feature
in the judgments of international courts and tribunals45 even though there remain
circumstances in which it has been disallowed. For example, interest has not been
awarded where both parties owed each other monetary compensation for similar
amounts,46 the amounts owed were approximations rather than precise calcula-
tions47 or compensation was payable from a settlement fund.48
Even in international investment arbitration—where the granting of interest has
become commonplace—it would not be correct to assume that a party has an
38
Sixth Report on State Responsibility by FV Garcı́a Amador (n 5) 42.
39
The Rapporteur’s research did not conclusively determine the factors behind rejecting interest, but did find that,
usually, this occurred in relation to damages for imprisonment, personal injuries or death (except where damage or loss
of property was involved) (ibid paras 163–5). These cases were noted in other analysis of the Commission. See Shelton
(n 8) 853 (‘[Article 38 of the ILC, on interest] unhelpfully leaves the determination of interest to the discretion of the
parties and the respective tribunals in each case’).
40
Second Report on State Responsibility by Gaetano Arangio-Ruiz (n 12) paras 77–8.
41
The provision established that: ‘1. Where compensation due for loss of profits consists of interest on a sum of
money, such interest: (a) shall run from the first day not considered, for the purposes of compensation, in the calculation
of the amount awarded as principal; (b) shall run until the day of effective payment. 2. Compound interest shall be
awarded whenever necessary in order to ensure full compensation, and the interest rate shall be the one most suitable to
achieve that result’ (Second Report on State Responsibility by Gaetano Arangio-Ruiz (n 12) 56 (emphasis omitted)).
42
At the ILC’s 45th Session of 1990, Professor Arangio-Ruiz’s proposed art 9 was deleted. The Commission had in-
stead inserted in the then (re-numbered) art 8 that compensation ‘may include interest’. The articles were subsequently
re-ordered, and the rule of interest was codified in the then art 44. See Nevill (n 19), 209, 210, fn 19.
43
Third Report on State Responsibility by James Crawford (n 7) para 213. Importantly, Judge Crawford’s opinion
was grounded not only on IUSCT case law, but also on decisions from other international courts and tribunals that
came after Professor Arangio-Ruiz’s report. Specifically, Judge Crawford referred to post-1989 decisions from the Inter-
American Court of Human Rights, the European Court of Human Rights, the Governing Council of the United
Nations Compensation Commission, and the first decision on the merits by the International Tribunal for the Law of
the Sea (M/V ‘Saiga’ (No 2) Case (Saint Vincent and the Grenadines v Guinea) (Judgment of 1 July 1999) ITLOS
Reports 1999 10). Quite relevantly, Judge Crawford’s position was also grounded on the comments and opinions raised
by governments to Professor Arangio-Ruiz report (Third Report on State Responsibility by James Crawford (n 7) para
199) (Judge Crawford made his contributions ‘[h]aving regard to the comments made by Governments and to other
criticisms of the draft articles’).
44
Third Report on State Responsibility by James Crawford (n 7) para 213. See also, ILC Draft Articles Commentary
7 to art 38 and Commentary 1 to art 38 (stating ‘[i]nterest is not an autonomous form of reparation, nor is it a necessary
part of compensation in every case’).
45
The Arctic Sunrise Arbitration (The Kingdom of the Netherlands v The Russian Federation) (2017) PCA Case No 2014-
02, Award on Compensation (10 July 2017); Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v
Nicaragua) (Compensation, Judgment) [2018] ICJ Rep 15; The Duzgit Integrity Arbitration (The Republic of Malta v The
Democratic Republic of S~ ao Tomé and Prı́ncipe) (2019) PCA Case No 2014-07, Award on Reparation (10 December
2019).
46
Eritrea’s Damages Claim (The State of Eritrea v The Federal Democratic Republic of Ethiopia) (Final Award) [2009]
26 RIAA 505 para 44; Ethiopia’s Damages Claims (The Federal Democratic Republic of Ethiopia v The State of Eritrea)
(Final Award) [2009] 26 RIAA 631 para 44.
47
ibid.
48
UNCC, ‘Decision Concerning Award of Interest Taken by the Governing Council of the United Nations
Compensation Commission’ (2005) UN Doc S/AC.26/Dec.243.
absolute entitlement to interest. Indeed, some investment tribunals have declined

to order any interest on certain categories of damages,49 while other tribunals have
seen fit not to order pre-award interest in relation to non-economic harm50 or
where damages have been calculated as of the date of the award.51 Similarly, the
period covered for pre-award interest may be shortened due to a delay caused by
the claimant.52 Tribunals have also refused to order post-award interest when such
a request was not made during the proceedings.53
Accordingly, any court or tribunal applying international law should, as a matter
of good practice, undertake the initial step of determining whether the circumstances
call for the application of interest. It is not, however, always clear on the face of in-
vestment awards whether this analysis has been conducted and whether the absence
of such reasoning is the result of an unchallenged request by the State or an unwrit-
ten presumption in favor of its award by the arbitrators.
B. The Calculation of Interest

As explained in the commentary to Article 38, ‘[i]nterest is not an autonomous form
of reparation’,54 but rather serves a subordinate role to the principal amount of the
claim in ensuring full reparation. However, both article 38 and its commentary stop
short of explaining how to achieve this objective. Nor is any guidance ordinarily avail-
able elsewhere. Investment treaties often lack detail and domestic laws are normally
inapplicable.55 As such, the computation of interest is left to the discretion of tribu-
nals in most cases.56
Before examining the various components of this calculation, it is important to
consider the purpose of awarding interest on the principal sum of damages. Simply
put, interest provides ‘compensation for the loss of the use of that sum during a
period within which the payment thereof continues to be withheld’.57 It is said that
the claimant would have invested or avoided some borrowing expense if the principal
sum had been paid on the date owed. In economic terms, interest simply brings
money forward in time.58 Given the significant amount of time that can pass between
the date of the breach and the date of the award—or even the date of payment in the
49
Inmaris Perestroika Sailing Maritime Services GmbH and others v Ukraine, ICSID Case No ARB/08/8, Excerpts of
Award (1 March 2012) paras 387, 391, 393, 410.
50
Desert Line Projects LLC v Republic of Yemen, ICSID Case No ARB/05/17, Award (6 February 2008) para 297.
51
See eg ADC Affiliate Limited and ADC & ADMC Management Limited v Republic of Hungary, ICSID Case No
ARB/03/16, Award (2 October 2006) para 520. See also ILC Draft Articles Commentary 2 to art 38. Pre-award interest
is only permissible if the principal sum is quantified earlier than the date of the award to avoid double counting.
52
Antoine Goetz and others v Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June 2012) para 302.
53
Enron Creditors Recovery Corporation (formerly Enron Corporation) and Ponderosa Assets, LP v Argentine Republic,
ICSID Case No ARB/01/3, Award (22 May 2007) para 452; Enron Creditors Recovery Corporation (formerly Enron
Corporation) and Ponderosa Assets, LP v Argentine Republic, ICSID Case No ARB/01/3, Decision on Claimants’ Request
for Rectification and/or Supplementary Decision of the Award (r 54 of the ICSID Arbitration Rules) (25 October 2007)
paras 56–7; Sempra Energy International v Argentine Republic, ICSID Case No ARB/02/16, Award (28 September 2007)
para 485.
54
ARSIWA (n 3), art 38, commentary 1.
55
Christina L Beharry, ‘Prejudgment Interest Rates in International Investment Arbitration’ (2017) 8(1) JIDS 56,
57–60.
56
Wena Hotels Limited v Arab Republic of Egypt, ICSID Case No ARB/98/4, Decision on the Application by the Arab
Republic of Egypt for Annulment of the Arbitral Award dated December 8, 2000 (5 February 2002) para 96.
57
Illinois Central Railroad (n 34) para 5.
58
James Dow, ‘Interest’ in John A Trenor (ed), The Guide to Damages in International Arbitration (3rd edn, Law
Business Research Ltd 2018) 301, 302.
case of a recalcitrant party—the calculation of interest can have a dramatic impact on

an award. Interest should therefore concern both sides of a dispute.59
Tribunals normally make determinations on interest for the period prior to the
date of the award (pre-judgment interest) and after its issuance (post-judgment inter-
est). The main elements in calculating interest are: (i) the time period; (ii) the rate of
interest; and (iii) the mode. In most cases, investment tribunals apply the same con-
siderations to both pre- and post-award interest;60 but some tribunals have, in certain
instances, adopted a different approach. Subsection III.B.i will first describe how the
ILC arrived at its position on each component, and will then examine current trends
on pre-award interest in investment awards as well as the special treatment that is
sometimes given to post-award interest.
(i) Time period

At the ILC, the issue of duration was principally discussed by Professor Arangio-
Ruiz. He found at least three approaches to the dies a quo for interest: the date of the
damage;61 the date of the award;62 or the date of the claim.63 Arangio-Ruiz opined
that the starting date should come at a moment when the responsible State is aware
of its obligation64 and against the majority of case law that supported the date of
damage as the start date.65 With respect to the dies ad quem, the discussion was much
less controversial in finding that it should be the date of payment.66
The ILC eventually devoted article 38(2) in its entirety to the period over which
interest is covered. It states:
Interest runs from the date when the principal sum should have been paid until the date
the obligation to pay is fulfilled.
The provision leaves vague the dies a quo and, to some degree, the dies ad quem. As
the commentary indicates, several options exist for the interest calculation with re-
spect to the ‘starting date (date of breach, date on which payment should have been
made, date of claim or demand)’ and ‘the terminal date (date of settlement agree-
ment or award, date of actual payment)’.67 In most investor–State cases, interest will
begin to run from the day prior to the breach and terminate on payment of the
59
Although discussions on interest are normally presented from the perspective of investors, States may also claim
interest on their costs in the event that they prevail in the proceedings. See eg Pac Rim Cayman LLC v Republic of El
Salvador, ICSID Case No ARB/09/12, Decision on the Respondent’s Request for a Supplementary Decision (28 March
2017) para 1.19; Adel A Hamadi Al Tamimi v Sultanate of Oman, ICSID Case No ARB/11/33, Award (3 November
2015) para 481; Transglobal Green Energy, LLC and Transglobal Green Panama, SA v Republic of Panama, ICSID Case No
ARB/13/28, Award (2 June 2016) para 127; Ansung Housing Co, Ltd v People’s Republic of China, ICSID Case No ARB/
14/25, Award (9 March 2017) para 169.
60
According to a recent PwC study, tribunals distinguish the interest rate for pre- and post-interest in only 15% of
cases. See PwC, PwC, ‘2015—International Arbitration Damages Research: Closing the Gap between Claimants and
Respondents’ (PwC 2015) 9 <https://www.pwc.com/sg/en/publications/international-arbitration-damages-research.
html> accessed 25 February 2021.
61
Second Report on State Responsibility by Gaetano Arangio-Ruiz’ (n 12) para 82, citing Forests in Central Rhodopia
Case (Decision) (1933) 3 UNRIAA 1405 et seq (English translation in (1931) 28 AJIL 760 et seq).
62
Citing Wimbledon (n 34).
63
Second Report on State Responsibility by Gaetano Arangio-Ruiz (n 12) paras 82–4, citing Christern and Co Case
(Decision) (1903) 10 UNRIAA 423 by the German–Venezuelan Mixed Claims Commission; Affaire Campbell (United
Kingdom v Portugal) (Decision) (1903) 10 UNRIAA (1931) 2 UNRIAA 1145 et seq, 1158), among other cases from the
British-Venezuelan Mixed Claims Commission.
64
Second Report on State Responsibility by Gaetano Arangio-Ruiz (n 12) para 88.
65
ibid para 92.
66
ibid para 93.
67
ARSIWA (n 3) art 38, commentary 10.
award.68 Only a handful of tribunals have opted to use another date for the dies a quo,
such as the date of initiation of the arbitration69 or the date of the award.70 Thus,
while dominant arbitral practices exist on the covered period, they are by no means
uniform.
The implementation of the dies a quo also sometimes raises unique challenges.
Establishing the start date can be a complicated exercise due to the factual and legal
complexities of investor–State disputes. For instance, in a typical case, an investor
raises a catalogue of treaty violations based on various factual allegations. In such cir-
cumstances, a tribunal may find it appropriate to use multiple start dates for different
measures71 or when damages are sustained on different dates.72
Similar problems can arise when an investor complains of wrongful conduct occur-
ring over a long period of time. Tribunals have taken different approaches in these sit-
uations. In Gemplus v Mexico, for example, the Tribunal started running interest
from the date of the first unlawful act until the date of payment of the award.73 The
PSEG v Turkey Tribunal took a different approach. After noting the difficulty of
determining the dies a quo due to the nature of a fair and equitable treatment breach,
the Tribunal adopted a ‘practical solution’ by selecting a start date based on the
‘mean due date’ (ie the mid-point) during the relevant period.74
An additional complication may occur when the dispute has been prolonged due
to a party’s inaction. In Goetz v Burundi, the Tribunal took into account the claim-
ant’s three-year delay in bringing the proceedings by not awarding interest for this
period.75 By the same token, interest can add up significantly over the years due to
procedural maneuvers taken in the case—as will be seen, with compounding effects.
This potential outcome should inform the decisions of States when contemplating
requests for bifurcation on jurisdiction, provisional measures or post-award
remedies.
(ii) Rates
The choice of interest rates is the second key component of the interest calculation
that can significantly affect the size of an award. As it is on other aspects of interest,
article 38 is light on details regarding rates. This was the outcome of the ILC’s delib-
erations over this controversy.
68
See eg Quiborax v Bolivia (n 33) para 515; Metalclad Corporation v United Mexican States, ICSID Case No
ARB(AF)/97/1, Award (30 August 2000) para 128; BG Group plc v The Republic of Argentina, UNCITRAL, Award (24
December 2007) para 457.
69
See eg Amco Asia Corporation and others v Republic of Indonesia, ICSID Case No ARB/81/1, Award (20 November
1984) para 281(ii); CME Czech Republic BV (The Netherlands) v The Czech Republic, UNCITRAL, Final Award (14
March 2003) paras 633, 635; SwemBalt AB, Sweden v The Republic of Latvia, UNCITRAL, Decision by the Court of
Arbitration (23 October 2000) para 47.
70
See eg Mr Franck Charles Arif v Republic of Moldova, ICSID Case No ARB/11/23, Award (8 April 2013) para 618;
ADC v Hungary (n 51) para 520.
71
Strabag SE v Libya, ICSID Case No ARB(AF)/15/1, Award (29 June 2020) para 964.
72
Siemens AG v Argentine Republic, ICSID Case No ARB/02/8, Award (6 February 2007) para 397.
73
Gemplus SA, SLP SA, Gemplus Industrial SA de CV and Talsud SA v United Mexican States, ICSID Case Nos
ARB(AF)/04/3 and ARB(AF)/04/4, Award (16 June 2010) paras 16–29.
74
PSEG Global Inc and Konya Ilgin Elektrik Üretim ve Ticaret Limited S, irketi v Republic of Turkey, ICSID Case No ARB/02/
5, Award (19 January 2007) paras 349–51. See also Ioan Micula, Viorel Micula, SC European Food SA, SC Starmill SRL and
SC Multipack SRL v Romania, ICSID Case No ARB/05/20, Award (11 December 2013) paras 1273–4.
75
Between 2007 and 2009, the Tribunal found that the investors had delayed the proceedings while they dealt with
Antoine Goetz’s estate, and no interest was awarded for this period. See Goetz v Burundi (n 52) para 302. But see also
Bahgat v Egypt, in which the Tribunal did not shorten the interest period due to the delayed initiation of the proceedings
following the Claimant’s imprisonment and forced labor (Mohamed Abdel Raouf Bahgat v The Arab Republic of Egypt,
UNCITRAL, PCA Case No 2012-07, Final Award (23 December 2019) paras 540–2).
In 1972, Professor JL Subilia, who was cited by Professor Arangio-Ruiz in his second
report on the issue of interest, ‘suggested [to] adopt a conventional rate of interest of
about 6%’.76 This proposition had some popularity, perhaps because the Permanent
Court of International Justice (PCIJ) had used this rate in the Wimbledon case.77 Indeed,
Professor Arangio-Ruiz noted that the PCIJ’s determination in Wimbledon, taking into
consideration public loans in establishing the applicable interest rate, had certain sup-
port.78 Nevertheless, the proposal went no further.79 He concluded that the state of the
law was still inconsistent80 and hence took no position on the matter. Instead, he called
for ‘the Commission [to] express itself on the solution to be preferred’ with respect to
rates.81 In the end, the ILC left article 38 silent on the applicable rate. For its part, the
commentary vaguely references the ‘rate current in the respondent State, in the applicant
State, [and] international lending rates’82 without providing further guidance.
Likewise, interest rates are not normally specified in international investment
agreements.83 Arbitrators therefore possess wide discretion in setting interest rates.
In McCullough v Ministry of Post, the IUSCT helpfully listed seven factors relevant to
a tribunal’s selection of a ‘reasonable’ and ‘fair’ rate:
(i) any pertinent contractual stipulations (which, when they exist, are usually followed
for the determination of the rates); (ii) the rules and principles of the law applicable to
the contract; (iii) the nature of the facts generating the damage; (iv) the nature or level
of the compensation awarded, particularly if it extends to the lost profit or includes a
profit in the costs to be reimbursed; (v) the knowledge that the defaulting party could
have had of the financial consequences of its default for the other party; (vi) the rates in
effect on the markets concerned; and (vii) the rates of inflation, etc.84
Two broad approaches have emerged from investment arbitration case law over
time. Interest has been set based on either a borrowing or an investment rate.
The choice of rates usually depends on the circumstances of the case (including
the conduct of the parties),85 the arbitrator’s philosophical take on interest, and
the extent to which the selected rate incorporates risks.86 We will examine each
category of rates in turn.
First, borrowing rates may reflect either the financing costs of the investor or
the respondent State’s borrowing costs. With respect to the former, tribunals
usually opt for a proxy of the investor’s borrowing costs using an inter-bank rate
(such as the London Inter-Bank Offered Rate (LIBOR))87 either with or without
76
Nevill (n 19) 257.
77
Wimbledon (n 34) 32.
78
79
It is not known whether the Commission had any reservations towards using a fixed rate. However, it has been
noted by some commentators that fixed rates do not account for shifts in interest rates. See Nevill (n 19) 258.
80
ibid paras 95–7. Decisions have taken the statutory rates of the respondent state; the rate in force in the claimant
State; or ‘the commercial rate or the creditor’s home rate’.
81
ibid para 97.
82
83
For rare examples of treaties that refer to a particular rate, see Agreement between the Government of the Socialist
Republic of Vietnam and the Government of the Republic of Bulgaria on Mutual Promotion and Protection of
Investments (adopted on 19 September 1996, entered into force 15 May 1998) art 5(2) (LIBOR) and Italian Model
BIT (2003) art V(3) (EURIBOR).
84
McCullough & Company Inc v The Ministry of Post, Telegraph and Telephone, The National Iranian Oil Company and
Bank Markazi (1986) 11 IUSCTR 3 para 100.
85
Wena v Egypt Annulment Proceeding (n 56) para 96.
86
Beharry (n 55) 62.
87
Notably, the highly popular LIBOR rates will be completely phased out by mid-2023. See Intercontinental
Exchange Benchmark Administration, ‘LIBOR’ (Intercontinental Exchange Inc) <https://www.theice.com/iba/libor>
accessed 25 February 2021.
a premium.88 To a lesser extent, tribunals have used the investor’s actual cost of
debt89 or some variant of the claimant’s cost of capital (ie a rate that combines
the cost of borrowing with a required return on equity).90 However, tribunals
routinely reject proposed rates based on an investor’s weighted average cost of
capital.91 The main reason that an investor’s cost of capital has generally gar-
nered less favor with tribunals is the misalignment between risk and return. As
Maniatis and others have explained:
The cost of capital represents the expected rate an investor earns in exchange for bear-
ing the risk of earning more or less than a particular target, including the possibility of
actually experiencing a loss. The cost of capital is by no means a certain return.
Awarding such a return is inappropriate if the alleged violation has itself deprived the
claimant of the risk associated with an asset or business.92
Because of this conceptual flaw, the borrowing rate of the State has appealed to some
tribunals instead. Under this so-called ‘coerced loan’ theory, the claimant is seen as
an unwilling creditor of the State that should be compensated at the rate at which the
respondent would have to pay a willing lender.93 Tribunals have used government
bonds or bank lending rates as a proxy for the State’s borrowing costs,94 but this ap-
proach has also been rejected in a number of cases.95 Critics point to the unfair com-
parison between a compensatory award and a default risk-weighted bond that may
unduly penalize developing States. This approach is also faulted for reversing the
88
Tidewater Investment SRL and Tidewater Caribe, CA v Bolivarian Republic of Venezuela, ICSID Case No ARB/10/5,
Award (13 March 2015) paras 207, 209; Flughafen Zürich AG and Gestión e Ingenerı́a IDC SA v Bolivarian Republic of
Venezuela, ICSID Case No ARB/10/19, Award (18 November 2014) para 962; National Grid plc v Argentine Republic,
UNCITRAL, Award (3 November 2008) para 294; Mobil Exploration and Development Argentina Inc Suc Argentina and
Mobil Argentina Sociedad Anónima v Argentine Republic, ICSID Case No ARB/04/16, Award (25 February 2016) para
292.
89
Karkey Karadeniz Elektrik Uretim AS v Islamic Republic of Pakistan, ICSID Case No ARB/13/1, Award (22 August
2017) paras 990, 998.
90
Alpha Projektholding GMBH v Ukraine, ICSID Case No ARB/07/16, Award (8 November 2010) para 514 (equity
risk premium); Bernardus Henricus Funnekotter and others v Republic of Zimbabwe, ICSID Case No ARB/05/6, Award (22
April 2009) para 143 (political risk premium); Phillips Petroleum Company Venezuela Limited and ConocoPhillips
Petrozuata BV v Petróleos de Venezuela, SA, ICC Case No 16848/JFR/CA, Final Award (17 September 2012) para 295
(cost of equity).
91
See eg Glencore International AG and CI Prodeco SA v Republic of Colombia, ICSID Case No ARB/16/6, Award (27
August 2019) paras 1592, 1618; Hassan Awdi, Enterprise Business Consultants, Inc and Alfa El Corporation v Romania,
ICSID Case No ARB/10/13, Award (2 March 2015) paras 484, 518; Guaracachi America, Inc & Rurelec plc v The
Plurinational State of Bolivia, UNCITRAL, PCA Case No 2011-17, Award (31 January 2014) para 615; EDF
International SA, SAUR International SA and Leon Participaciones Argentinas SA v Argentine Republic, ICSID Case No
ARB/03/23, Award (11 June 2012) para 1336; Enron v Argentina Award (n 53) paras 451–2; Compa~ nı́a de Aguas del
Aconquija SA and Vivendi Universal SA v Argentine Republic, ICSID Case No ARB/97/3, Award (20 August 2007) paras
9.2.7–9.2.8. Cf Manuel A Abdala, Pablo D López Zadicoff and Pablo T Spiller, ‘Invalid Round Trips in Setting Pre-
Judgement Interest in International Arbitration’ (2011) 5(1) World Arb and Mediation Rev.
92
M Alexis Maniatis, Florin Dorobantu and Fabricio Nunez, ‘A Framework for Interest Awards in International
Arbitration’ (2018) 41(4) Fordham Intl LJ 821, 837 (emphasis omitted). See also Irmgard Marboe, ‘Damages in
Investor-State Arbitration: Current Issues and Challenges’ (2018) 2(1) Brill Research Perspectives in Intl Investment L
and Arb 71.
93
Michael S Knoll and Jeffrey M Colón, ‘Prejudgment Interest’ in R Weil and others (eds), Litigation Services
Handbook: The Role of the Financial Expert (6th edn, John Wiley & Sons, Inc 2017); Michael S Knoll and Jeffrey M
Colón, ‘The Calculation of Prejudgment Interest’ (2005) Paper 114 Faculty Scholarship at Penn Law. See also James M
Patell, Roman L Weil and Mark A Wolfson, ‘Accumulating Damages in Litigation: The Roles of Uncertainty and
Interest Rates’ (1982) 11(2) JLS 341.
94
Eiser Infrastructure Limited and Energı́a Solar Luxembourg Sàrl v Kingdom of Spain, ICSID Case No ARB/13/36,
Award (4 May 2017) para 478; Bear Creek Mining Corporation v Republic of Perú, ICSID Case No ARB/14/21, Award
(30 November 2017) para 714; Grenada Private Power Limited and WRB Enterprises, Inc v Grenada, ICSID Case No
ARB/17/13, Award (19 March 2020) para 350.
95
See eg Quiborax v Bolivia (n 33) para 517; Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan,
ICSID Case No ARB/12/1, Award (12 July 2019) para 1790; Khan Resources Inc, Khan Resources BVand CAUC Holding
Company Ltd v Government of Mongolia and MonAtom LLC, UNCITRAL, PCA Case No 2011-09, Award on the Merits
(2 March 2015) para 425; Tidewater v Venezuela (n 88) para 205.
measure of compensation by focusing on the respondent’s unjust enrichment rather

than the investor’s loss. It is worth noting that, for some, this focus on the State’s
gains makes it an appropriate rate for post-award interest.96
The second broad category of interest rates is based on investment rates.
According to this approach, but for the deprivation of funds, the claimant would
have invested the money and earned a return.97 Interest therefore represents the
profit forgone by the firm as a result of not having funds to invest.98 Tribunals have
established this rate by reference to widely available low-risk investments (such as
treasury bills, certificates of deposit or savings deposits)99 or, less commonly, by the
anticipated return on the claimant’s investment. This latter approach has been
adopted in specific circumstances where the anticipated return was an element of the
investment.100 More often rates based on projected returns are criticized for inher-
ently speculating about how funds would be invested and what returns would have
been likely.101 Even for a going concern, past returns are no guarantee of future earn-
ings given fluctuations in the market and, as was noted by one tribunal, this approach
does not reflect how most companies operate.102
In practice, most investment tribunals apply one of three rates regardless of the
theoretical underpinning. According to a recent study, the most frequently applied
rates are benchmark rates (77 percent) and fixed percentages (21 percent).103 Within
the broad category of benchmark rates, the study found that the top three approaches
were based on an inter-bank rate (28 percent), the cost of debt (19 percent) or a risk-
free rate (15 percent). Fundamentally, the difference in rates lies in the level of risk
reflected therein.104 However, these risk-based determinations are not always trans-
parent. In the case of inter-bank rates—which may be used as a proxy for both bor-
rowing and investment rates105— these rates ‘have at times been very close to risk-
free rates’.106 Consequently, some tribunals add an additional percentage to these
rates as a surcharge, on the basis that not all enterprises can borrow from banks at
those low rates.107 But these surcharges have been drawn largely from precedent
96
Maniatis, Dorobantu and Nunez (n 92) 839.
97
Compa~ nia del Desarrollo de Santa Elena SA v Republic of Costa Rica, ICSID Case No ARB/96/1, Final Award (17
February 2000) para 104 (‘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’).
98
John C Keir and Robin C Keir, ‘Opportunity Cost: A Measure of Prejudgment Interest’ (1983) 39(1) The
Business Lawyer 129, 146–9.
99
See eg Yukos Universal Ltd (Isle of Man) v Russian Federation, UNCITRAL, PCA Case No AA 227, Final Award
(18 July 2014) paras 1684–5; Anatolie Stati, Gabriel Stati, Ascom Group SA & Terra Raf Trans Traiding Ltd v Republic of
Kazakhstan, SCC Case No V116/2010, Award (19 December 2013) para 1854; BG v Argentina (n 68) para 455; Archer
Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v United Mexican States, ICSID Case No ARB(AF)/
04/5, Award (21 November 2007) paras 297, 300. See also Franklin M Fisher and R Craig Romaine, ‘Janis Joplin’s
Yearbook and the Theory of Damages’ 5 Journal of Accounting, Auditing and Finance 145, 146.
100
See eg SAUR International SA v Argentine Republic, ICSID Case No ARB/04/4, Award (22 May 2014) para 430
(profitability guaranteed in letter of understanding); Vivendi v Argentina (n 91) para 9.2.8 (anticipated return reflected
in Concession Agreement).
101
Beharry (n 55) 72–3.
102
National Grid v Argentina (n 88) para 293.
103
PwC, ‘2015—International Arbitration Damages Research’ (n 60) 9. The other 2% of rates are classified as ‘unclear’.
104
Maniatis, Dorobantu and Nunez (n 92) 826–7 (explaining that the choice of rates depends on whether the re-
spondent is perceived to be in default at the date of the award or the date of breach).
105
As Marboe points out, inter-bank lending rates such as LIBOR can be viewed as either a proxy for the borrowing
rate of the claimant or the State or as a proxy to the lending rate in an ‘alternative investment’ approach. See Marboe (n
92) 72.
106
Dow (n 58) 304.
107
Rusoro Mining Limited v Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/12/5, Award (22 August 2016)
para 838.
without further analysis.108 As for fixed rates, it is not always clear how a tribunal has
arrived at a particular rate or the extent to which it captures risks and, if so, which
ones.109 It is, however, essential that tribunals specifically consider the purpose to be
served by an award of interest to ensure that the rate selected is consistent with the
principle of full reparation.
(iii) Mode of calculation

The question of whether an injured party may obtain compound interest rather than
simple interest was the subject of a longstanding debate in the ILC. This issue was
extensively studied by Professor Arangio-Ruiz. He found no principle against com-
pound interest in international law110 and even went so far as to state that ‘[a]lthough
a majority of negative decisions on compound interest may seem to emerge, inter-
national jurisprudence is, in [his] opinion . . . not really conclusive in the negative
sense’.111 In his view, the decisions rejecting compound interest were distinguish-
able.112 Moreover, the decisions that failed to justify compounding indicated that
compound interest applied as a matter of principle. As he put it, these decisions
‘would seem to suggest that compound interest was considered to be an essential,
non-controversial element of reparation by equivalent’.113
Such a conclusion seemed forced and, indeed, his proposition was not
accepted.114 Special Rapporteur Crawford would later note that, in fact, internation-
al case law was against compound interest.115 For Judge Crawford, compound inter-
est could only be provided in special circumstances; where full reparation called for
it. Notably, he counselled special care in compounding as this mode ‘could result in
an inflated and disproportionate award, with the amount of interest greatly exceeding
the principal amount owed’.116
In the final formulation of article 38, subparagraph 1 simply states that the ‘mode of
calculation shall be set so as to achieve’ full reparation. However, the ILC Commentary
to article 38 expressly endorses the traditional view of granting interest on a simple
basis.117 Citing chiefly the jurisprudence of the IUSCT, the Commentary observes that
108
See eg Joseph Houben v Republic of Burundi, ICSID Case No ARB/13/7, Award (12 January 2016) para 258;
Bernhard von Pezold and others v Republic of Zimbabwe, ICSID Case No ARB/10/15, Award (28 July 2015) para 947.
109
Use of fixed rates has been based on national law, prevailing global financial conditions, contractual provisions,
general principles of international law, or without any explanation at all. See eg Asian Agricultural Products LTD (AAPL)
v Republic of Sri Lanka, ICSID Case No ARB/87/3, Final Award (27 June 1990) para 113; Vivendi v Argentina (n 91)
para 11.1(v)–(vii); Southern Pacific Properties (Middle East) Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3,
Award on the Merits (20 May 1992) paras 223, 257; Wimbledon (n 34) 32; Cervetti Case (n 34) 498–9.
110
Second Report on State Responsibility by Gaetano Arangio-Ruiz (n 12) paras 98–100, citing France v Poland
(Decision) (1936) 3 UNRIAA 1689 et seq, Affaire des chemins de fer Zeltweg-Wolfsberg et Unterdrauburg-Woellan
(Yugoslavia v Austria) (Decision) (1934) 3 UNRIAA 1795 et seq. The British claims in the Spanish Zone of Morocco case
appeared to be an exception where the arbitrator Max Huber required ‘particularly strong and quite special arguments’
to accept awarding compound interest. See British claims in the Spanish Zone of Morocco (Great Britain v Spain) (1924) 2
RIAA 615. Other negative precedents against compound interests were referenced by Arangio-Ruiz.
111
112
ibid para 105(a).
113
ibid para 105(b).
114
ILC YB 1993, vol II/2 (n 15) Commentary 26 to art 8.
115
Third Report on State Responsibility by James Crawford (n 7) para 208.
116
ibid para 211.
117
See eg ARSIWA (n 3) art 38, commentary 8. See also Whiteman, Damages in International Law (1943) (n 36)
(‘There 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. Although in rare cases compound interest, or its equivalent, have been
granted, tribunals have been almost unanimous in disapproval of its allowance’). See eg Norwegian Shipowners’ claims
(Norway v USA) (1922) 1 RIAA 307, 341; Christern and Co Case (n 63) 424; British Claims in the Spanish Zone of
Morocco (n 110) 650.
tribunals have consistently denied claims for compound interest even when the claimant
suffered losses through compound interest charges118 or contractual provisions allowed
for compound interest.119 Importantly, the Commentary recognizes that there may be
‘special circumstances’ that could justify the payment of compound interest.120
The ILC’s position on compounding coincided with what is widely regarded as a
watershed moment on this issue in investment arbitration.121 The Santa Elena
Tribunal—followed by those in a series of other investment cases in 2000122—granted
compound interest, marking a gradual shift in perceptions. At the beginning of this
period, compound interest was regarded as appropriate only in cases involving expro-
priation,123 but its application has broadened over time to other treaty breaches.
What brought all this about? To begin with, some commentators started to argue
that interest should be calculated in a way that mimics the business world, where
financings and investment vehicles involve compounding.124 Indeed, some rates are
premised on compounding at a given interval (eg US six-month LIBOR or one-year
treasury bills). At the time of its work, the ILC was certainly aware of this new direc-
tion—even citing the Santa Elena case and academic works. Nevertheless, the
Commission unequivocally stated that there was no ‘entitlement to compound inter-
est, in the absence of special circumstances’.125 With such strong language, the shift-
ing practice of investment tribunals on compounding marks perhaps the starkest
contrast with the ILC’s approach on interest.
Most investment tribunals continue to apply compound interest in large numbers.
According to PwC, the application of simple interest has decreased from 60 percent
in the pre-2000 period to around 14 percent as of 2011–15.126 Put differently, com-
pounding has risen from 40 percent to 86 percent over the same period.127 This
trend is particularly interesting when compared with the findings of another PwC
study on international commercial awards.128 Here, the authors observed a different
pattern. In these cases, interest is calculated on a simple basis for pre-award interest
in 79 percent of cases and for post-award interest in 74 percent of cases. This result is
118
RJ Reynolds Tobacco Company v The Government of the Islamic Republic of Iran and Iranian Tobacco Company (ITC)
(Partial Award) (1984) 35 IUSCTR para 47.
119
Anaconda-Iran, Inc v The Government of the Islamic Republic of Iran and The National Iranian Copper Industries
Company (Interlocutory Award) (1986) 167 IUSCTR paras 138–42.
120
121
Sergey Ripinsky with Kevin Williams, Damages in International Investment Law (British Institute of Intl and
Comparative L 2008) 385.
122
Santa Elena v Costa Rica (n 97) paras 103–6; Metalclad v Mexico (n 68) para 128; Emilio Agustı́n Maffezini v
Kingdom of Spain, ICSID Case No ARB/97/7, Award (13 November 2000) para 96; Wena Hotels Limited v Arab Republic
of Egypt, ICSID Case No ARB/98/4, Decision (8 December 2000) paras 128–9.
123
Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela, ICSID Case No ARB/00/5, Award (23
September 2003) para 394.
124
See eg John Y Gotanda, ‘Awarding Interest in International Arbitration’ (1996) 90 AJIL 40, 61; FA Mann,
‘Compound Interest as an Item of Damage in International Law’ (1988) 21 UC Davis L Rev 577, 585.
125
ARSIWA (n 3) art 38, commentary 9. See also Santa Elena v Costa Rica (n 97) para 101.
126
PwC, ‘2015—International Arbitration Damages Research’ (n 60) 9. For a similar finding, see Dow (n 58) 309.
127
A number of investment tribunals continue to apply simple interest. Typically, tribunals have opted for simple
interest when the damages figure is massive (Yukos Universal v Russia (n 99), the interest rate is high (CME v Czech
Republic (n 69) para 643), due to force majeure (Strabag v Libya (n 71) para 963), to conform with domestic law
(Burlington Resources Inc v Republic of Ecuador, ICSID Case No ARB/08/5, Decision on Counterclaims (7 February
2017) para 1095), or to comply with a contractual stipulation (Standard Chartered Bank (Hong Kong) Limited v
Tanzania Electric Supply Company Limited (TANESCO), ICSID Case No ARB/10/20, Award (12 September 2016) paras
387–90).
128
PwC, ‘Damages awards in international commercial arbitration: A study of ICC awards’ (PwC, December 2020)
<https://www.pwc.co.uk/forensic-services/assets/documents/trends-in-international-arbitration-damages-awards.pdf>
accessed 25 February 2021.
particularly surprising given the commercial nature of these disputes and the parties
involved. The reason, according to the study, is that in many cases interest was gov-
erned by a legal/statutory rate or contractual rate that required it to be calculated on
a simple basis.129 While the applicable law partly explains this phenomenon, PwC
goes on to note that ‘even where the type of interest was at the discretion of the arbi-
trators, the arbitrators’ default position is often to assume that simple interest should
be applied unless the parties had clearly agreed otherwise’.130
The practice of investment tribunals can be contrasted not only with commercial
arbitration, but also with that of other international fora. Even now, most inter-
national courts and tribunals tend to apply simple interest131—although there are
some notable exceptions.132 While it is true that decisions concerning interest,
including compounding, fall comfortably within the discretion of tribunals, it would
be reasonable to question whether investment arbitration is out of step with the ap-
proach of other areas of international dispute resolution.
(iv) Post-award interest

According to the ILC Commentary, post-award interest falls outside the purview of
article 38.133 In fact, post-award interest was never a substantial issue in the discus-
sions of the Commission. This should not be taken to mean that post-award interest
is inapplicable in international awards. But, by explaining that the ARSIWA are only
concerned with compensatory interest, the Commentary suggests that post-award
interest may serve a different purpose; that is, to incentivize prompt payment of the
award.134 Although this might suggest the use of different elements in the interest
calculation, this is not what usually happens in practice. In many cases, tribunals do
not distinguish between pre- and post-award interest and simply order interest from
the date of the breach until the date of payment on the same basis.135
Due to its seemingly distinct function, post-award interest merits separate consid-
eration. In fact, some cases have only awarded post-award interest.136 And other tri-
bunals, which have differentiated between the application of interest before and after
the award, have adopted different conditions—some more onerous and others less
so—on issues relating to the start date, rate and mode of calculation.
As for the covered period, post-award interest normally runs from the date of the
award until the date of payment. However, some tribunals have recognized that
States will not be able to make payment immediately on issuance of an award.
Tribunals sensitive to this concern have opted for a grace period to enable the
129
ibid 20.
130
ibid.
131
Arctic Sunrise Arbitration (n 45) para 125; Dr Horst Reineccius, First Eagle SoGen Funds, Inc, Mr Pierre Mathieu and
La Société de Concours Hippique de La Châtre v Bank for International Settlements Final Award (2003) PCA Case No 2000-
04 para 138(4); Certain Activities Carried Out by Nicaragua (n 45); Saiga Case (n 43) para 175.
132
Duzgit Integrity Arbitration (n 45); The M/V ‘Norstar’ Case (Panama v Italy) (Judgment of 10 April 2019) ITLOS
Case No 25 paras 460, 462; M/V ‘Virginia G’ (Panama/Guinea-Bissau) (Judgment of 14 April 2014) ITLOS Case No
19 Rep 2014 paras 444–66.
133
ARISWA (n 3) art 38, commentary 12.
134
Marboe (n 92) 77; Gisèle Stephens-Chu and Joshua Kelly, ‘Awards of Interest in International Arbitration:
Achieving Coherence through Purpose’ (2018) 7 Indian J Arb L 9, 13. See also Gold Reserve Inc v Bolivarian Republic of
Venezuela, ICSID Case No ARB(AF)/09/1, Award (22 September 2014) para 856.
135
See eg Vestey Group Limited v Bolivarian Republic of Venezuela, ICSID Case No ARB/06/4, Award (15 April 2016)
para 472(iii); ADM v Mexico (n 99) para 304(5); MTD Equity Sdn Bhd and MTD Chile SA v Republic of Chile, ICSID
Case No ARB/01/7, Award (25 May 2004) para 253(4).
136
Wimbledon (n 34); Case Concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo)
(Judgment) [2012] ICJ Rep 324; Desert Line v Yemen (n 50) 69 (moral damages).
respondent to take the necessary internal steps to arrange for payment.137 In the
Wimbledon case, the PCIJ took a different course. There, the court fixed the period
by which payment was expected.138 This practice has not been observed elsewhere,
for obvious reasons.139
Tribunals seeking to motivate prompt payment have also adjusted the interest rate
and/or the mode of calculation. In terms of the rate, some awards have set a higher
rate for the post-award period than prior to that date.140 Different approaches can
also be adopted on the modality of interest in the post-award period. In some cases,
for example, tribunals have elected to only compound post-award interest141 or to
adopt a shorter compounding interval for post-award interest.142 These techni-
ques—while unusual in investment arbitration—give force to the suggestion that
post-award interest can play a different role in incentivizing timely payment.
As the previous discussion demonstrates, the decisions of investment tribunals on
interest have converged around some common approaches as to the covered period,
interest rates, and the mode of calculating pre- and post-award interest. Article 38 of
the ARSIWA offers wide flexibility to international courts and tribunals in respect of
these determinations. The ILC’s Commentary, however, elaborates on these topics
and establishes certain presumptions regarding the implementation of the provision.
In Section IV, we will consider the aspects of arbitral practice that seemingly deviate
from the guidance set out in the Commentary, offer explanations for why this may be
happening and evaluate whether these approaches can be reconciled.
IV. THE ASSESSMENT: GOING BACK TO BASICS?

Investment tribunals frequently tie their interest determinations to the principle of
full reparation contained in the ARSIWA.143 While the ILC provided ample discre-
tion to international courts and tribunals in its determinations on interest in article
38, the Commentary reveals certain settled positions of the Commission resulting
from decades of discussion on the subject. As Section III demonstrated, the approach
of tribunals has been largely congruent with the terms of article 38 and its commen-
tary. However, there are three areas where greater attention should be paid to ensure
a faithful application of the general rules established in article 38 and the
Commission’s related comments.
First, many tribunals do not appear to consider whether interest is even required to
give full reparation—that is, interest is treated as automatic. Yet, article 38(1) and the
137
Tenaris SA and Talta-Trading E Marketing Sociedade Unipessoal LDA v Bolivarian Republic of Venezuela I, ICSID
Case No ARB/11/26, Award (29 January 2016) para 595 (six-month grace period); Wena v Egypt, Decision (n 122) para
136 (30-day grace period); Duzgit Integrity Arbitration (n 45) para 217 (three-month grace period).
138
Wimbledon (n 34) 32–3 (fixing a period of three months for compliance with the award).
139
James Crawford, State Responsibility: The General Part (CUP 2013) 535.
140
Gold Reserve v Venezuela (n 134) paras 863(ii)–(iii); Eiser v Spain (n 94) para 486(d); Watkins Holdings SàrL and
others v Kingdom of Spain, ICSID Case No ARB/15/44, Award (21 January 2020) para 775(f)–(g).
141
See eg OperaFund Eco-Invest SICAV plc and Schwab Holding AG v Kingdom of Spain, ICSID Case No ARB/15/36,
Award (6 September 2019) para 746(5)–(6); CMS Gas Transmission Company v Argentine Republic, ICSID Case No
ARB/01/8, Award (12 May 2005) para 471; Yukos Universal v Russia (n 99) para 1888(i).
142
See eg Metalclad v Mexico (n 68) para 131; Maffezini v Spain (n 122) paras 96–7.
143
See eg Vivendi v Argentina (n 91) para 8.3.20; Hrvatska Elektroprivreda DD v Republic of Slovenia, ICSID Case No
ARB/05/24, Award (17 December 2015) paras 539–40; RREEF Infrastructure (GP) Limited and RREEF Pan-European
Infrastructure Two Lux Sà rl v Kingdom of Spain, ICSID Case No ARB/13/30, Decision on Responsibility and on the
Principles of Quantum (30 November 2018) paras 65–6. See also Pierre Bienvenu and Martin J Valasek,
‘Compensation for Unlawful Expropriation, and Other Recent Manifestations of the Principle of Full Reparation in
International Investment Law’ in Albert Jan van den Berg (ed), 50 Years of the New York Convention (Kluwer Law
International 2009) 231, 261–73.
commentary emphasize that interest is only payable (i) ‘when necessary in order to en-
sure full reparation’ and (ii) ‘if that sum is quantified as at an earlier date than the date
of the settlement of, or judgement or award concerning, the claim’.144 While interest
may indeed be called for in most cases, there may be some circumstances in which it
might not be warranted. This may arise, for example, due to the non-economic nature
of the injury suffered or the conduct of the parties. In all events, tribunals could avoid
creating a presumption to interest per the ARSIWA by undertaking the preliminary
step of evaluating whether an award of interest is needed for full reparation.
A second issue that warrants more care to ensure adherence to the ARSIWA and
the ILC Commentary is with respect to the nature of the interest claim. Specifically,
it is important to consider whether what is being sought is interest on damages or
interest as damages. The distinction is important as the former compensates for the
loss of use of money and falls squarely within article 38. Interest as damages, by con-
trast, relates to claims for compensation such as the loss of an opportunity, loss of
profits or interest charges on a debt. Such claims constitute a separate head of dam-
ages for the purposes of article 36 of ARSIWA and should therefore be subject to the
ordinary rules of proof, causation, remoteness and mitigation.145 However, these
issues are frequently conflated when tribunals assess interest rates. For instance, rates
that are chosen to compensate for an investor’s actual borrowing costs incurred as a
result of the respondent’s wrongful actions are misconceived. In reality, the investor
should claim its borrowing charges as a separate head of damages in those circum-
stances. The selected rate should instead serve its intended purpose of compensating
the injured party for the deprivation of the use of money.
And finally, the evolution of arbitral practice on the mode of interest over the past
20 years shows a gradual leaning toward compounding, away from the presumption
of simple interest set out in the ILC Commentary. While some have heartily wel-
comed the reversal, others have questioned its legal basis.146 Indeed, this phenom-
enon is somewhat surprising given that the ILC had explicitly considered the Santa
Elena case and legal scholarship calling ‘for a reconsideration of this principle’.
Despite this, the Commentary considered that ‘the present state of international law
. . . cannot be said’ to bestow ‘any entitlement to compound interest, in the absence
of special circumstances’.147 The ILC’s rather strong position is surprising given its
flexibility on other elements of interest and its knowledge of surrounding legal devel-
opments. The reference by investment tribunals to the ILC Articles in their interest
determinations is equally bewildering in this respect.
A number of practical reasons have been offered to explain this shift in the jurispru-
dence. One theory posits that compound interest has been awarded where requested by
the claimant.148 One might wonder whether this means that these claims went un-
opposed or were not convincingly challenged by the responding State. Otherwise, it is
not clear why a mere request by an investor should trump the position of the State (or
customary international law for that matter). A second reason that awards of compound
144
ARSIWA (n 3) art 38, commentary 2. As will be discussed below, the Commentary provides that art 38 applies to
pre-award interest.
145
Tierry J Sénéchal and John Y Gotanda, ‘Interest as Damages’ (2009) 47 Column J Transnatl L 491, 517;
Stephens-Chu and Kelly (n 134) 22.
146
CN Brower and JK Sharpe, ‘Award of Compound Interest in International Arbitration: The Aminoil Non-
Precedent’ (2006) 5 TDM 155.
147
ARSIWA (n 3) art 38.
148
Crawford (n 139) 538 (citing Elihu Lauterpacht and Penelope Nevil, ‘Interest’ in James Crawford, Alain Pellet
and Simon Olleson (eds), The Law of International Responsibility (OUP 2010) 621).
interest may be ‘more frequent in investment treaty tribunal practice [is] due to the high
occurrence of claims concerning the deprivation of commercial property which would
have produced income that would have accumulated, or offset money borrowed, at a
compound rate’.149 But surely, having analyzed awards of the IUSCT and other invest-
or–State tribunals, the ILC would have been acutely aware of this distinction yet it chose
to make none. Moreover, owners of non-income generating assets could presumably
seek compound interest based on similar reasoning for the inflationary effects on their
value caused by the passage of time between the breach and the award.
A more likely explanation, however, is that tribunals frequently adopt reference
rates (such as LIBOR, the Euro Inter-Bank Offered Rate (EURIBOR), T-bills and
prime rates) presented by parties and their quantum experts which assume com-
pounding at a given interval. Investors argue that these rates reflect financial realities
since they would be subject to a compounding borrowing or investment rate. While
explanations based on business practices may be appealing from an economic per-
spective, the decisions of investment tribunals generally do not articulate the legal
basis for this modern approach which is facially at odds with the ILC Commentary
as well as the practices of tribunals in other international fora.
The first and second issues can be reconciled with the ARSIWA with relatively
minor adjustments in arbitral practice. With respect to the third issue on compound-
ing, the present state of affairs merits a renewed examination into whether the practi-
ces of investment tribunals still reflect the principle of full reparation, as codified by
the ILC, and accepted by the United Nations General Assembly (UNGA) or, in the
alternative, whether such practice has evolved in a new direction altogether.
Ultimately, investment tribunals look to arbitral decisions for their interest determi-
nations and these awards have a role at least as a subsidiary source of international
law,150 and perhaps as a heightened one. In the absence of stare decisis in international
law,151 the doctrine of jurisprudence constante, borrowed from French law,152 could
give persuasive force for investment tribunals and, in so doing, promote stability and
predictability through a consistent line of jurisprudence.153 Indeed, some investment
149
ibid.
150
United Nations, ‘Statute of the International Court of Justice’ (18 April 1946) art 38(d) (‘subject to the provisions
of Article 59, judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsid-
iary means for the determination of rules of law’).
It should be noted that bilateral investment treaties that refer to a ‘commercial rate’ or a ‘market rate’ could be
argued to provide an alternative justification for compounding. See eg UK Model BIT (2008) art 5(1) and French
Model BIT (2006) art 6(2). However, these references—to the extent that they are suggestive of compounding—are typ-
ically found only in expropriation provisions. Moreover, it is often argued that these provisions only apply in cases of
lawful expropriation. As a result, most tribunals resort to principles of customary international law in addressing claims
for treaty breaches.
151
ibid art 59 (‘The decision of the Court has no binding force except between the parties and in respect of that par-
ticular case’).
152
See Mary Garvey Algero, ‘The Sources of Law and the Value of Precedent: A Comparative and Empirical Study of
a Civil Law State in a Common Law Nation’ (2005) 65(2) La L Rev 775, 789.
153
For instance, the ICSID Ad Hoc Annulment Committee in Enron v Argentina analyzed whether it was bound to
stay the enforcement of an arbitral award conditioned on the requesting party providing security for enforcement of said
award. In analyzing possible sources of a rule in that respect, the Committee reasoned that ‘weight must . . . be given to
the fact that there is now what amounts to a jurisprudence constante to the effect that a stay may be made conditional on
the provision of security. While the Committee is not bound by these previous decisions, it considers that it should take
into account the possible effect on the stability and predictability of the ICSID system if it were to depart from a consistent
line of previous decisions’) (emphasis added). Enron v Argentina, Decision on Continued Stay of Enforcement of the
Award (Rule 54 of the ICSID Arbitration Rules) (7 October 2008) para 33. For a discussion on the application of juris-
prudence constante in investment arbitration, see Andrea K Bjorklund, ‘Investment Treaty Arbitral Decisions as
Jurisprudence Constante’ in Colin B Picker and others (eds), International Economic Law, The State and Future of the
Discipline (Hart 2008). See also Alain Pellet, ‘The 2013 Lalive Lecture: The Case Law of the ICJ in Investment
Arbitration’ (2013) 28(2) ICSID Rev—FILJ 223, 224.
tribunals have resorted to this doctrine to support their decisions with respect to
compounding.154 Although it is neither this article’s place, nor its intention, to dis-
cuss the precedential value of arbitral awards, this doctrine may provide a convenient
theoretical basis for the development of consistent practices on matters left ambigu-
ous (such as interest rates and the covered period) by the ILC Articles. It is, however,
left to readers to decide whether this doctrine provides a satisfying conceptual basis
to justify a seeming departure in investment arbitration case law from the ILC’s
Commentary on compounding.
V. CONCLUDING REMARKS
This article traces the ILC’s little-known yet extraordinarily rich study on interest
under international law. The negotiating history shows that the Commission’s think-
ing on this subject evolved in surprising ways over several decades. No issue was too
small or too large to be questioned by the Commission—including the appropriate-
ness of interest itself. In the end, the resulting article 38 balances the power of tribu-
nals to exercise their discretion on interest within certain defined parameters. On the
one hand, article 38 provides ample scope for tribunals to decide on key elements of
interest such as the applicable rate, the period covered, and whether to apply post-
award interest. On the other hand, it provides international adjudicators with clear
directives on other significant issues.
In practice, the decisions of investment tribunals on interest have been largely con-
sistent with the ARSIWA and its Commentary. However, in some crucial respects,
investment awards have adopted a somewhat incongruent approach. In particular,
tribunals have often overlooked the Commission’s guidance relating to a party’s en-
titlement to interest, the function of interest in setting the applicable rate and the
mode of calculating interest. While tribunals may have practical reasons to stray from
the guidance set out in the ILC Commentary, we argue that such departures should,
at the very least, be adequately explained. Regardless of the particularities of invest-
or–State disputes, whenever an arbitration involves the responsibility of States for
internationally wrongful acts, in all respects, and certainly for interest, any deviations
from customary international law as codified in the ILC Articles should be well rea-
soned and legally justified.155
154
See eg Gemplus v Mexico (n 73) paras 16–26; Hulley Enterprises Limited (Cyprus) v The Russian Federation,
UNCITRAL, PCA Case No 2005-03/AA226, Final Award (18 July 2014) para 1689; Oko Pankki OYJ (formerly called:
OKO Osuuspankkien Keskuspankki OYJ), VTB Bank (Deutschland) AG (formerly called Ost-West Handelsbank AG) and
Sampo Bank plc v Republic of Estonia, ICSID Case No ARB/04/6, Award (19 November 2007) para 349.
155
For instance, the ICJ has deemed different articles of the ILC’s ARSIWA to crystalize customary international law.
See inter alia Jurisdictional Immunities of the State (Germany v Italy: Greece intervening) (Judgment) [2012] ICJ Rep 99
para 93 (on art 41 of the ILC’s Articles relating to ‘Particular consequences of a serious breach of an obligation under
this chapter’); Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Croatia v Serbia)
(Judgment) [2008] ICJ Rep 412 para 127 (on art 10.2 of the ILC’s Articles relating to ‘Conduct of an insurrectional or
other movement’); Difference Relating to Immunity from Legal Process of a Special Rapporteur of the Commission on Human
Rights (Advisory Opinion) [1999] ICJ Rep 62 para 62 (on art 6 of the ILC’s Articles relating to ‘Conduct of organs
placed at the disposal of a State by another State’).

Article 38 The Treatment of Interest in International Investment Arbitration

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Article 38 The Treatment of Interest in International Investment Arbitration

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ICSID Review, Vol. 37, No. 1-2 (2022), pp.

Abstract—Given the breadth of topics in the Articles on State Responsibility, the

II. THE RULES: INTERNATIONAL LAW

B. Article 38 of the ILC Articles: A ‘Rule’ on Interest?

III. THE PRACTICE: INTEREST IN INTERNATIONAL

absolute entitlement to interest. Indeed, some investment tribunals have declined

B. The Calculation of Interest

case of a recalcitrant party—the calculation of interest can have a dramatic impact on

(i) Time period

measure of compensation by focusing on the respondent’s unjust enrichment rather

(iii) Mode of calculation

(iv) Post-award interest

IV. THE ASSESSMENT: GOING BACK TO BASICS?

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