IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Compound Interest in International Disputes

Listed author(s):
  • John Gotanda

    (Villanova University School of Law)

Registered author(s):

    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. It is unclear why tribunals hearing disputes between transnational contracting parties have traditionally awarded only simple interest. Perhaps misunderstandings over the availability of compound interest stem from the lack of comparative study of the issue. Indeed, some commentators have simply presumed that compound interest may not be paid, because it is generally prohibited in many legal systems. This has led one noted authority to argue that laws simply have not kept pace with modern financial practices and that tribunals should not apply them when awarding interest. In this article, I undertake a thorough study of compound interest. I examine the laws of various countries in Europe, Oceania, Asia, and North and South America to learn whether compound interest may be awarded. My comparative study finds a divergent practice concerning awards of compound interest; some prohibit it, others allow it in certain circumstances, and a number statutes are silent on the issue. In addition, I review the decisions of international tribunals on compound interest and find that these tribunals have traditionally awarded only simple interest, but that recently a few tribunals have granted compound interest. I conclude that there are three situations where an award compound interest is appropriate: (1) when the parties have expressly agreed to the payment of compound interest; (2) when the respondent's failure to fulfill its obligations caused the claimant to incur financing costs in which it paid compound interest; and (3) when the claimant can prove that it would have earned compound interest in the normal course of business on the money owed if the claimant had been paid in a timely manner. Awarding compound interest in these circumstances would be consistent with the laws of many countries and would better achieve the goals of awarding interest than does the traditional practice of granting only simple interest.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Villanova University School of Law in its series Villanova University Legal Working Paper Series with number villanovalwps-1014.

    in new window

    Date of creation:
    Handle: RePEc:bep:villwp:villanovalwps-1014
    Contact details of provider: Web page:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bep:villwp:villanovalwps-1014. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.