Meaning
Damages component representing the time value of money lost between the date of a breach and the date the award is issued. The pre-award interest compensates the claimant for the inability to use the funds during the period of the dispute. In international arbitration, tribunals have broad discretion to award this interest to ensure the claimant is made whole.
It is treated as a substantive right rather than a mere procedural matter in many jurisdictions.
Accrual Period
Starting point for the interest is usually the date the obligation became due or the date the notice of arbitration was served. For a claim involving pre-award interest, the period ends when the final award is signed and delivered. This period can span several years in complex industrial disputes.
Rate Determination
Choice of interest rate depends on the governing law of the contract or the rules of the arbitral institution. When calculating pre-award interest, the tribunal may use a market rate such as SOFR or a statutory rate set by the law of the seat. In some cases, the cost of borrowing for the claimant or the investment return for the respondent provides the basis for the percentage.
The goal is to avoid the unjust enrichment of the party that held the funds during the proceedings. Evidence regarding commercial lending rates is often presented by financial experts to guide the tribunal’s decision.
Discretionary Award
Inclusion of this amount in the final total is not automatic and must be specifically requested by the claimant. The tribunal considers the conduct of the parties and the complexity of the legal issues when deciding on the pre-award interest. This component often represents a substantial portion of the total recovery in long-running construction or energy cases.
