I. Introductory remarks

The question of awarding interest in international disputes is crucial. Court and arbitral proceedings are often initiated for the settlement of disputes involving significant amounts of money. Once a party has succeeded in its damages claim, interest is usually added in order to fully compensate that party for the damage it has suffered, also with regard to the length of the period between the beginning of the procedure, the issuance of the award and, finally, the actual payment.

Although the legal approaches and solutions differ, even radically in the various legal systems, it is generally recognized that interest is due for delayed payments. There are also a few countries that forbid interest in principle, because they consider it inconsistent with their religious beliefs, but they provide alternative mechanisms in order to compensate the damaged party. 1 Moreover, in some countries, interest is qualified as a procedural matter, while in others it is considered a substantive issue. There is still no uniformity as to the determination of interest rates, the period of time over which interest is due or the applicable rate. 2 It may be added that the determination of the interest rate and period is generally fact-specific. 3

Obviously, judges and arbitral tribunals generally consider the contractual provisions applicable to the case as the primary source for their power to award interest. The parties might have provided in the contract that interest is due in the case of late payment, specifying the rate and date for the calculation of interest. If the contract does not contain any provision concerning the payment of interest or designate the law applicable in this regard, the court or tribunal usually applies domestic law to solve the problem. [Page131:]

As national statutory law and case law vary considerably on the issue of interest, the choice of the applicable law or rules is of extreme importance in the process of deciding a case. The choice of law on interest can turn an outstanding success on the issue of responsibility and damages into an unsatisfying compensation, due to the application of simple interest at a low rate. In contrast, a limited outcome in terms of responsibility and damages can be transformed into an outstanding success in terms of effective compensation, due to the awarding of compound interest at a high rate.

Obviously, international conventions and other international instruments- when applicable - make a significant contribution in favour of the uniformity of solutions, which is traditionally desirable in international trade. In the present chapter, the issue of interest in international commercial cases will be examined, taking into particular consideration the 1980 Vienna Convention on Contracts for the International Sale of Goods (CISG) and its related case law. Article 78 CISG provides: "If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74." According to this rule, interest is due, but the Convention does not specify the accrual period, the rate of interest to be applied or how the rate should be determined. For these reasons, the analysis of national case law and international arbitration practice becomes of great importance. 4

Particular attention will also be given to the UNIDROIT Principles. Articles 7.4.9 and 7.4.10 of the UNIDROIT Principles contain provisions that are clearly and substantially in line with international trade requirements. In consideration of these characteristics, recent practice shows that the Principles are often applied or referred to by courts and arbitration tribunals. 5

Moreover, various authors have dealt extensively with the issue of interest, carefully examining national and international practices6 and often suggesting solutions that have been derived from or inspired by the practice and trends of international trade. [Page132:]

Nevertheless, they sometimes seem to pay insufficient consideration to the particular frameworks (national jurisdictions or different kinds of international arbitration) in which the problems arise and to the content of the applicable national or international rules. In a general context characterized by different approaches and solutions, it is understandable that authors, national courts and arbitral tribunals have tried to free themselves from the constraints of traditional conflict of laws methods and the strict application of national statutory laws or international rules, in order to freely promote the uniformity of solutions that is necessary for the protection and development of international trade.

However, it should be pointed out that uniformity of solutions cannot be sought by applying abstract and subjective criteria, as this would be detrimental to certainty and foreseeability, which are also fundamental values for international trade.

The necessity of assuring certainty and stability of solutions is particularly important nowadays, when international litigation is growing significantly and participants in international trade are located all over the world. Thus, the lack of certainty and variability of the decisions adopted by the competent judicial and/or arbitral bodies severely endanger the development of international economic cooperation.

The present chapter intends to indicate some points that could contribute to promoting clearer and more coherent solutions in the decisions of national courts and arbitral tribunals on the issue of interest. In doing so, it distinguishes carefully between the various fields of international trade in which the problem arises, while at the same time applying a comparative approach and taking into account recent positions suggested by commentators and international case law.

It therefore seems necessary to maintain the traditional approach as a starting point and then to distinguish different models, such as the CISG, the UNIDROIT Principles and other uniform principles, as well as the rules of some arbitration institutions. Next, the practice of the Iran-US Claim Tribunal and other arbitral institutions (mainly ICSID and other mechanisms for the solution of investment disputes) will be analyzed. Finally, some concluding observations are presented. [Page133:]

II. The traditional approach: interest determined according to the law governing the contract

The issue of awarding interest is primarily dealt with by judges and arbitrators by having regard to the parties' agreement. In fact, the parties to the dispute may have inserted provisions expressly addressing this issue and also determining the date from which interest is expected to be paid. There may also be contractual provisions designating the law governing the matter of interest. In such cases, the interest claim is therefore resolved, at least in principle, 7 by courts and arbitral tribunals by awarding interest in the amount and at the rate agreed directly by the parties or stipulated by the law designated by them.

Frequently, however, the contract or the agreement from which the dispute originates does not contain any reference to the possibility of awarding moratory and/or compensatory interest in case of default by one of the parties with respect to its contractual obligations. In these circumstances, national courts usually apply the conflict rules of the forum to select the law applicable to solve the issue. In contrast, international arbitrators enjoy greater freedom of approach and have recourse to different methods for determining the interest to be applied. The issue can actually be resolved by the arbitrators through a traditional conflict of law method by selecting an applicable national law for the contract and then applying it to the determination of interest. As will be seen later, however, a number of decisions of international tribunals show that it is also possible for arbitrators to disregard national statutory law and apply general principles of law.

When arbitrators opt for the choice of law approach, their analysis will face the difficult process of initially selecting the applicable conflict of laws rules. In this context, it is worth mentioning that some national laws on arbitration provide specific rules concerning the way in which tribunals that have their seat in the country concerned have to determine the substantive law applicable to the disputed issues. [Page134:]

In Switzerland, Article 187 of the Federal Code on Private International Law provides:

"(1) Le tribunal arbitral statue selon les règles de droit choisies par les parties ou, à défaut de choix, selon les règles de droit avec lesquelles la cause présente les liens les plus étroits.

(2) Les parties peuvent autoriser le tribunal arbitral à statuer en équité."

Article 834 of the Italian Code of Civil Procedure, as introduced by Law No. 25 of 1994 (and abrogated in 20068), provided:

"Le parti hanno facoltà di stabilire d'accordo tra loro le norme che gli arbitri debbono applicare al merito della controversia oppure di disporre che gli arbitri pronuncino secondo equità. Se le parti non provvedono, si applica la legge con la quale il rapporto è più strettamente collegato. In entrambi i casi gli arbitri tengono conto delle indicazioni del contratto e degli usi del commercio."

Broader powers are conferred on arbitrators by French law. For instance, Article 1496 of the Nouveau Code de Procédure Civile9 provides:

"L'arbitre tranche le litige conformément aux règles de droit que les parties ont choisies; à défaut d'un tel choix, conformément à celles qu'il estime appropriées. Il tient compte dans tous les cas des usages du commerce."

Depending on the powers conferred on the arbitrators, the issue of interest may be decided according to: (i) the substantive law applicable to the contract as designated by the parties; (ii) the substantive law applicable to the contract as chosen or deemed appropriate by the arbitrators; (iii) the law of the place of the arbitration; (iv) the applicable international conventions; or (v) the rules of international arbitration institutions. [Page135:]

III. The traditional approach in national case law

The traditional approach to the question of awarding interest in the process of solving international disputes can be detected in the national case law of most countries. Examples are numerous, especially in less recent case law, and do not require specific references here. 10

However, a US case of 2004 deserves to be mentioned, because the issue of interest was examined in some detail. In this case, the Northern District Court of Illinois observed that, on the matter of interest, there is no single approach used by courts and that, when the parties to the contract fail to address the interest issue and fail to provide information necessary to "customize" a rate, the court has to award interest "according to the principles used by the federal courts in determining choice of law issues". 11 In particular, making reference to the Vienna Convention, the Court determined that the substantive law applicable to the dispute was the law of Illinois, given that this state was the place of performance of the contractual obligations. 12 The determination reached in that case also indicated that, despite the CISG's evident purpose to promote uniformity, the result of applying the forum's interest rate is quite common in comparative CISG case law, thus generating significant variability in terms of solutions.

The traditional conflict of law method for determining the accrual period and rate of interest is also confirmed in the Swiss and Italian case law, where the problem is often solved by making reference to the conflict of laws system of the forum.

As to Swiss law, a decision of the Tribunal Cantonal du Valais of 200513 is worth mentioning. The Court decided that the respondent owed the plaintiff the delayed payment together with interest. In the absence of any reference to the Vienna Convention, the Court stated that, in order to determine interest,

"celui-ci doit dès lors être déterminé selon le droit désigné par les règles de conflit du for. Conformément aux articles 118 LDIP et 3 al. 1 de la convention de La Haye de 1955 … il s'agit, à nouveau, de la loi interne du pays où le vendeur a sa résidence habituelle au moment où il reçoit la commande, soit le droit italien." [Page136:]

In the framework of the CISG, 14 the Tribunal of Padua, despite affirming that, in principle, "an approach different from the international private approach must nevertheless be preferred", favoured "the direct application of the norms of substantive law" and subsequently decided that the interest rate should be determined by reference to the substantive law applicable by virtue of the rules of conflict of the forum. 15 The Court observed that the Vienna Convention, which was applicable to the merit of the dispute, recognized the right of the party to be awarded interest in addition to compensation, but that it was silent as to the method of determining the interest. Therefore, in order to determine the law applicable to this issue, the Court made reference to the Italian private international law rules, incorporating the Hague Convention of 1955 on the law applicable to international sale contracts. Article 3(1) of the Hague Convention provides:

"In default of a law declared applicable by the parties under the conditions provided in the preceding Article, a sale shall be governed by the domestic law of the country in which the vendor has his habitual residence at the time when he receives the order."

As a result, in compliance with the Hague rule, the Court awarded interest according to Italian substantive law, this being the "law of the seller". 16

A more recent example of this trend is the case decided in 2006 by the Cour de Justice of Geneva concerning a dispute initiated by a French seller and a Swiss buyer. The Swiss Court recognized that Article 78 CISG provides for the awarding of interest but that it does not mention the applicable rate or the dies a quo and concluded that

"En cas de contestation, la question est régie par le droit désigné par les règles de conflit de lois de l'État du for … En l'espèce, l'intimée s'est référée au droit suisse (art. 104 al. 1 CO) et a réclamé un intérêt moratoire 5% à compter du 1er juin 1999. Ce point n'a pas fait l'objet d'une controverse, et le Tribunal était dès fondé d'y donner suite." [Page137:]

IV. The method of conflict of laws and the direct determination of interest in international commercial arbitration

In recent years, the practice of international arbitration has shown significant variability in decisions concerning the awarding of interest, which have focused mainly on the awarding of compensatory interest rather than moratory interest. There are three major approaches in international arbitration practice concerning the awarding of interest to the party that has to be compensated. The first is represented by the application of the traditional method of conflict of laws. As already noted above with regard to national case law, the arbitrators decide whether interest should be awarded and determine the rate and the accrual period according to the law governing the contract.

Under the second approach, the arbitrators resolve the claim for interest pursuant to general principles of law and the relevant practice of international arbitration.

Under the third approach, the arbitrators freely decide the issue of interest on the basis of the principles they deem applicable and in relation to the circumstances of the case under dispute. 17

1. Interest determined by the law applicable to the contract as indicated by the parties

International arbitral tribunals sometimes resolve the issue of interest simply by applying the law that has been chosen by the parties for the interpretation and application of their contract. In this case, the lex causae governing the merits of the dispute also applies to interest, which could be awarded against the party that is condemned to pay compensation. An example of this solution is offered by ICC Award No. 9448 of 1999. 18 In this arbitration case, the parties had provided that "the laws of Switzerland shall apply to all matters respecting the making, interpretation and performance of this contract". As the parties had chosen Swiss law, and Switzerland is a contracting state of the CISG, the Arbitral Tribunal thus considered that the 1980 Vienna Convention on Contracts for the International Sale of Goods formed part of Swiss substantive law and was applicable to the contract, as all the necessary preconditions had been fulfilled. [Page138:]

The Tribunal noted that,

"according to Article 78 CISG, if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest. The rate to be applied is, however, a matter, in the first place, for the domestic law".

The Tribunal thus decided that the Swiss Code of Obligations was applicable. 19

2. Interest determined by the law designated by the conflict rules of the place of arbitration

A different approach is followed when arbitrators, having decided to award interest on the sums to be paid to the injured party, determine the interest rate on the basis of the conflict of law rules of the lex fori.

3. Interest determined according to the conflict of laws rules deemed applicable or appropriate by arbitrators

Article VII(1) of the 1961 Geneva Convention on International Commercial Arbitration can be taken as the best example. It provides:

"The parties shall be free to determine, by agreement, the law to be applied by the arbitrators to the substance of the dispute. Failing any indication by the parties as to the applicable law, the arbitrators shall apply the proper law under the rule of conflict that the arbitrators deem applicable. In both cases the arbitrators shall take account of the terms of the contract and trade usages."

It is also worth mentioning the ICC Rules of Arbitration as in force from 1975 to 1998. Article 13(3) of those Rules provided:

"The parties shall be free to determine the law to be applied by the arbitrator to the merit of the dispute. In the absence of any indication by the parties as to the applicable law, the arbitrator shall apply the law designated as the proper law by the rule of conflict which he deems appropriate." [Page139:]

Another example of interest determined by arbitrators on the basis of the applicable or appropriate conflict of laws rules are the UNCITRAL Arbitration Rules. Article 33(1) of these Rules provides:

"The arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable."

4. Interest determined according to the direct choice by the arbitrators of the rules governing the contract

French law provides an important example in this regard. Article 1496 of the Nouveau Code de Procédure Civile provides:

"L'arbitre tranche le litige conformément aux règles de droit que les parties ont choisies; à défaut d'un tel choix, conformément à celles qu'il estime appropriées. Il tient compte dans tous les cas des usages du commerce."

It is also worth mentioning Article 17 of the ICC Rules as introduced in 1998, which provides:

"The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute. In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate."

In ICC Case No. 11849 of 2003, the interest issue was decided according to the substantive law deemed appropriate by the arbitral tribunal. First, the sole arbitrator determined that the Vienna Convention was applicable to the contract, as agreed by the parties, although the claimant argued that it was governed by Italian substantive law, because the CISG could not be applied to a long-term distributorship agreement. [Page140:]

Having quantified the sums due by one party to the other, the arbitrator came to the award of interest on these sums and noted that

"The Agreement does not contain any indication as to the interest rate applicable to the sums due by respondent to claimant. Claimant has submitted that the legal rate applicable in the State of Washington should apply because this is the place where it is registered. The Arbitrator does not believe such solution to be appropriate. As a matter of fact, by submitting the Agreement to the CISG, the parties have clearly indicated their intention to avoid their respective internal law rules, and to resort to neutral solutions. This will should be respected also regarding interest."

In this respect, the arbitrator added that

"In international arbitration, arbitrators have the broadest powers to determine interest on the basis of the most appropriate rate, without resorting to any rule of conflict. As indicated above, the interest rate to be applied should correspond to a generally accepted rate, applied on the international financial markets to the currency in which the damages shall be paid."

An interesting position was expressed by the sole arbitrator in ICC Case No. 9771 of 2001 when determining first the applicable conflict of law rules to govern the contract and then the issue of interest. The arbitrator noted that the contract did not contain any explicit designation on the choice of law and that neither party had made precise reference to any applicable law. Instead, he observed:

"it seems likely that the parties in this case would not have been inclined to accept the case being treated with the application of the substantive law … of the other party's country [Italy and Cyprus]. … The indication of Stockholm as the place of arbitration could be interpreted as an indication of the will of the parties to let the law of the place of arbitration govern their contract."

Then, the sole arbitrator, also referring to Article VII (erroneously indicated as Article III) of the 1961 Geneva Convention regarding the conflict of law system "deemed applicable" by the arbitrators, concluded that the contract was governed by Russian law, designated by the Swedish conflict of law rules. [Page141:]

As to the issue of interest, the arbitrator considered that

"[t]he general view in Sweden (as elsewhere) is that the matter of interest is an issue of substance and thus is governed by the applicable substantive law. The latter is thus to be determined under the appropriate provisions of the internal Russian legislation",

being the law governing the contract as determined by the Swedish conflict of law rules. It followed that

"[t]he proper construction of Russian law with regard to interest … shall therefore in the opinion of the sole arbitrator lead to the application of the official discount rate as applicable from time to time in the claimant's domicile, i.e., Italy."

The dies a quo was left to the discretion of the arbitrator, who found it reasonable to award interest from the time the request for arbitration was filed.

5. Interest freely determined on the basis of arbitration rules

Arbitrators can also freely determine interest without any reference to the law governing the contract in cases where the arbitration rules applicable to the procedure allow them to do so. In this regard, Article 60 of the WIPO Rules, which regulates currency and interest with respect to the sums to be awarded, provides that

"the Tribunal may award simple or compound interest to be paid by a party on any sum awarded against that party. It shall be free to determine the interest at such rates as it considers to be appropriate, without being bound by legal rates of interest, and shall be free to determine the period for which the interest shall be paid."

Similarly, Article 26.6 of the LCIA Arbitration Rules provides that

"the Arbitral Tribunal may order that simple or compound interest shall be paid by any party on any sum awarded at such rates as the Arbitral Tribunal determines to be appropriate, without being bound by legal rates of interest imposed by any state court, in respect of any period which the Arbitral Tribunal determines to be appropriate ending not later than the date upon which the award is complied with."[Page142:]

The freedom of the arbitral tribunal in the determination of interest is perhaps more limited under the AAA Arbitration Rules, which in Article

28.4 provide that

"the tribunal may award such pre-award and post-award interest, simple or compound, as it considers appropriate, taking into consideration the contract and applicable law."

V. Special conflict rules on interest

As evidenced by the arbitral award in ICC Case No. 9771 of 2001, another problem in the process of determining interest is the fact that the rules on interest may be qualified differently in different countries. In particular, these rules are considered as procedural in some countries and substantive in others. In this respect, it has been stated that

"similar differences exist as to the classification of the rules governing interest. Most national laws consider interest as part of damages and therefore part of the substantive law. … In some countries, such as England, the issue of interest is considered at least partly as procedural. The natural consequence of this is that the law that governs the arbitration, the lex arbitri, has to deal at least with the question of which items are classified as procedural and which are substantive."20

Under English law, only the question whether interest should be awarded is classified as a matter of substantive law and is therefore governed by the lex causae applicable to the contract, while the issues of the dies a quo and the rate of interest are regarded as procedural matters and have to be governed by the lex fori. As clearly evidenced by Lew, "in arbitration, however, no such lex fori exists", and arbitrators are generally free to apply the conflict of law rules they deem appropriate.

The search for a specific rule of conflict on the matter of interest can be detected both in national case law and in international arbitration. Therefore, the examples of the various solutions presented here come from both domestic and international case law. [Page143:]

1. Interest determined by the law of the place of payment

In a recent case concerning an international sales contract, 21 the judges of the Court of Appeal of Antwerp had to determine the interest rate to be applied to the sums claimed by the plaintiff. In particular, the seller claimed compound interest and a rate of 9% from the date of payment until the date of full payment. The court held that "according to Belgian law [which was the law applicable to the contract], the conventional interest claimed by the [seller] on the basis of Article 5 of [seller]'s general conditions - which are deliberately reduced to 9% - are certainly not exaggerated" and applied the 9% rate.

2. Interest determined by the law of the country of the currency of payment

This solution is well evidenced in a case decided by a Belgian District Court in 200122 concerning a sales contract between a Belgian plaintiff and Czech defendant. As to the substantive law governing the contract, the Court found that the CISG was applicable to the dispute, as both countries were contracting states and the obligation concerned the sale of movable goods. According to the Court's ruling, the seller-plaintiff was entitled to interest under Article 78 CISG because of the late payment, but, "whereas the CISG does not itself determine the interest rate in the case of late payment, this interest rate is determined according to the law of the currency of payment", which was Belgian law.

Similarly, in ICC Case No. 11849 of 2003, the sole arbitrator, having applied the CISG rules to a sale contract, observed that, as a matter of fact, the parties had clearly indicated their intention to avoid their respective internal law rules and to resort to the neutral solution of the Vienna Convention and that their will should also be respected regarding interest. Hence, the arbitrator ruled differently on the issue of interest, making a distinction between interest to be awarded on the sums due from the claimant and interest to be awarded on the sums due from the respondent, applying two different interest rates. The reasoning was that, in international arbitration, arbitrators have the broadest powers to determine interest on the basis of the most appropriate rate without resorting to any rule of conflict. In this case, the arbitrator decided that "the interest rate to be applied should correspond to a generally accepted rate, applied on the international financial markets to the currency in which the damages shall be paid". [Page144:]

VI. The vienna convention on contracts for the international sale of goods (cisg) and its articles 74 and 78

As already noted, the Article 78 CISG specifically provides that a party is entitled to interest if the other party fails to pay the price or any other sum that is in arrears "without prejudice to any claim for damages recoverable under article 74". 23 However, the CISG does not contain any specific indications regarding the interest rate or the date from which interest is due. Farnsworth notes that the reason why Article 78 was conceived without an express definition of the interest rate and the time for calculation is that the problem proved to be "too intractable" within the Working Group to adopt more than a limited solution. 24 It is clear that the major source of difficulty was that some countries forbid interest in principle, because it is considered inconsistent with their religion, and that others impose a limit on the applicable rate. It was therefore unconceivable to fix a standard rate in the Convention that would be valid for all member states. On the other hand, however, it was still necessary to provide at least a general rule, in order to avoid that the matter would be regulated exclusively by national statutory law.

As a consequence, whenever the CISG has been considered applicable to a case, the issue of interest according to Article 78 has received different interpretations in both national courts and international arbitrations.

In particular, there is one general view according to which the issue of interest is outside the scope of Article 78 and should therefore be decided according to the domestic substantive law designated by the applicable conflict rules. In this case, interest could be awarded according to (i) the applicable law chosen by the parties; or (ii) the applicable law determined by the court or the arbitral tribunal.

In some cases, however, judges and arbitrators have considered that Article 78 affirmed the right of a party to be awarded interest, despite being silent on how it should be determined and that the issue therefore had to be solved according to the general principles of the CISG. [Page145:]

There are many examples of the first approach. In ICC Case No. 7565 of 1994, the arbitrators stated:

"As the general principles do not settle the matter … and the parties have referred to the laws of Switzerland, it seems justified to refer to Article 73 of the Swiss Code of Obligations whereby, in the absence of a determination of the rate of interest by agreement or law or usages, that rate shall be 5% per annum".

Similarly, in ICC Case No. 9187 of 1999, the arbitral tribunal determined that the law governing the contract was Swiss law, given the explicit reference to that statutory law contained in the contract, and, therefore, that any of the conventions applicable in Switzerland, including the CISG, were applicable to the case. As to the rate of interest, the tribunal noted that " Article 78 CISG is silent. Therefore, national law is supplementarily applicable."

In a case decided by an arbitral tribunal of the International Commercial Arbitration Court of the Russian Federation in 2000, 25 the parties had expressly agreed in their contract to apply the law of the Russian Federation and, as a consequence, the Vienna Convention. The tribunal issued the final award, granting the claim for interest and noted that "considering that the CISG does not provide the rate of interest, the amount of interest should be calculated in accordance with the rules of subsidiary applicable Russian law", thus deciding that

"under Article 395(1) of the Russian Federation Civil Code, the amount of interest for failure to perform a monetary obligation is calculated according to the actual credit rate of interest offered by banking institutions at the place of location of the creditor."

More recently, in a judgment of the Court of Appeal of Antwerp in 2006, it was decided that the CISG was applicable, and the issue of interest was then determined according to the law applicable to the contract. The Court stated that

"According to article 78 CISG, interest is due in case of late payment and interest commences to run without the need for an order. Since the interest rate is not determined by the CISG, it is determined by the lex contractus, in casu Belgian law." 26[Page146:]

Given the general principle contained in Article 78 CISG, and in the absence of a choice of law expressed by the parties in the contract, the law governing interest is determined by judges or arbitrators having regard to the appropriate conflict of law rules. There are many cases in which the issue of interest has been solved by turning to the conflict of law rules of the lex fori.

In 1999, the Tribunal of Pavia decided that

"Per quanto riguarda gli interessi sulle somme non pagate, va rilevato che la Convenzione delle Nazioni Unite prevede solo un generale diritto agli interessi, senza specificare quale sia il tasso da applicare. Alla luce del fatto che i redattori della Convenzione hanno intenzionalmente lasciato irrisolto il problema del tasso applicabile, come si evince dai lavori preparatori, non si può ritenere che si tratti una delle materie che, in virtù dell'art. 7, comma II della Convenzione, dovrebbero essere regolate dai principi generali cui la Convenzione stessa si ispira. Si tratta invece di una questione per niente disciplinata dalla Convenzione e che quindi va risolta alla luce del diritto applicabile (da determinarsi in virtù delle norme di diritto internazionale privato italiano) ossia alla luce del diritto italiano (quale diritto del venditore, al quale rinvia l'art. 3, comma I della Convenzione dell'Aja del 1955). Conseguentemente gli interessi vengono determinati nella misura del tasso legale vigente in Italia."27

In a more recent case decided in 2006 by the Oberlandesgericht Köln, the Court noted that "hinsichtlich der Zinshöhe ist auf das niederländische Recht als Recht der charakteristischen Leistung abzustellen, da das CISG keine Regelung enthalt".28

A different position has also been expressed by judges and arbitrators who considered that, in the absence of any specific determination in Article 78, the issue of interest had to be solved according to the general principles of the CISG as affirmed in Article 7(2). [Page147:] This approach is reflected in a case decided by the Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft Österreich in 1994. 29 The arbitrators considered, first of all, that Article 78 CISG, while granting the right to interest, says nothing about the level of the interest rate payable. They also recalled that, in various international legal writings and case law, it is disputed whether the question is outside the scope of the Convention or whether there is a true gap in the Convention within the meaning of Article 7(2), meaning that the applicable interest rate should possibly be determined autonomously in conformity with the general principles underlying the Convention. In relation to this, the arbitral tribunal decided that

"this second view is to be preferred, not least because the immediate recourse to a particular domestic law may lead to results which are incompatible with the principle embodied in Art. 78 of the CISG, at least in the cases where the law in question expressly prohibits the payment of interest."

VII. Interest according to uniform principles and directive 2000/35/ec on combating late payment in commercial transactions

Uniform laws applicable to international commercial transactions also provide for the awarding of compensatory interest in favour of the party to which the payment is due. In this regard, the UNIDROIT Principles 2004 deserve special attention. 30 The right to interest is clearly affirmed in Article 7.4.9, which determines the accrual period and gives a general indication as to the rate to be applied. According to this rule, in case of late payment of the sum due, "[t]he aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused", and the rate to be applied is "the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment". Article 7.4.9 also provides that, in cases where such a rate cannot be determined at either place, the rate of interest shall be that fixed by the law of the state of the currency of payment. It is worth noting that according to the preamble, the Principles may be used to interpret or supplement international uniform law instruments or to interpret or supplement domestic law. [Page148:]

Moreover, the Principles provide an additional rule on interest that is applicable when judges or arbitrators have to determine the dies a quo of interest on damages for non-performance. Article 7.4.10 provides that "unless otherwise agreed, interest on damages for non-performance of non-monetary obligations accrues as from the time of non-performance".

It is not superfluous to underline the importance of the UNIDROIT Principles for international trade and arbitration, 31 as national courts and international arbitral tribunals have made useful references to the Principles in numerous cases. 32

With particular regard to the application of the UNIDROIT Principles by arbitrators in determining interest to be awarded to one of the parties, the Arbitral Tribunal of the Stockholm Chamber of Commerce considered, in a case decided in 2005, 33 that

"this claim is based on the Treaty and is therefore a claim under international law. In accordance herewith, the interest should, in the Arbitral Tribunal's opinion, be based on international rather than national rules. The Arbitral Tribunal considers the UNIDROIT Principles of International Commercial Contracts, relied on by X, to be an appropriate basis for determining the interest".34

The Principles of European Contract Law 1998 contain a rule providing for the payment of compensatory interest when the payment of a sum of money is delayed. Under Article 9:508,

"the aggrieved party is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short-term lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due." 35

The 1992 UNCITRAL Model Law on International Credit Transfers also allows interest for the benefit of a party that has been damaged in a payment order. The Model Law affirms the principle that a receiving bank that does not comply with its obligations under the Model Law when the credit transfer is completed is liable to the beneficiary. [Page149:]

In this respect, under Article 17, the receiving bank has

"to pay interest on the amount of the payment order for the period of delay caused by the receiving bank's non-compliance. If the delay concerns only part of the amount of the payment order, the liability shall be to pay interest on the amount that has been delayed." 36

EC Directive 2000/35/EC of June 29, 200037 provides a uniform standard aimed at discouraging delays in payments in commercial transactions. The Directive applies to all commercial relations involving the delivery of goods or the provision of services for remuneration between undertakings or between undertakings and public authorities whenever the payment due has exceeded the contractual or statutory period. 38 In particular, according to the Directive, the debtor's liability is automatically established, and, unless the debtor can demonstrate that he is not responsible for the delay, a fixed rate of interest will be applied with the special purpose of discouraging late payments and protecting the creditors established in the Community.

With regard to interest rates, Article 3 provides that the member states have to ensure that the level of interest for the delayed payment imposed to the debtor shall be the sum of the interest rate applied by the European Central Bank to its most recent refinancing operations, plus at least seven percentage points, unless otherwise specified in the contract. 39

The interest rate determined by Directive 2000/35/EC was taken into consideration in a case submitted to the Commercial Court of Hasselt in 2006. The dispute concerned an international sale of goods between a Dutch seller and a Belgian buyer, in which the creditor-seller claimed compensation for delayed payment as provided under the 2002 Belgian Act. At first, the Court considered the problem of the applicable law, noting that

"if internal law were to be applied to determine the interest, then this would have to be the law of the lex contractus, in this case Dutch law. Dutch law has transposed Directive No. 2000/35 of 29 June 2000 concerning compensation for delay in payment in commercial transactions."[Page150:]

However, the court also stated that

"the interest rate, determined by the Directive, does not only have the intention to reimburse the creditor for the loss of funds, but is also intended as a sanction for late payment and an incentive to pay in a timely manner. The latter seems contradictory to the international context in which the CISG must be considered. In these matters, article 78 of the CISG is appli-cable." 40

In conclusion, the court agreed that the interest rate should be viewed in an international context, without recourse to the national law applicable to the contract.

However, it is worth mentioning that, in an award of the Internationales Schiedsgericht der Wirtschaftskammer Österreich issued in 2006, 41 the arbitral tribunal applied an interest rate of 9.47% as provided for by Article 1333(2) the Austrian Civil Code, as modified by Directive 2000/ 35/EC, without making reference to the CISG. The arbitrators argued that, although many authors share the opinion, which is confirmed by the relevant case law, that Article 78 CISG has to be interpreted independently from national statutory law, in the case at issue the national rule on interest could be applied in the absence of any objection by the debtor.

VIII. Interest in the case law of the iran-united states claims tribunal

The Iran-US Claims Tribunal was established in 1981. Since the beginning, the practice of awarding interest to the prevailing party was limited and not uniform. In particular, the decisions rendered by the Tribunal have generally been positive as to whether interest should be awarded, but the practice remains divided as to the rate to be applied, with a clear trend towards the allocation of simple interest instead of compound interest. 42

In the Sylvania award of 1985, 43 the Tribunal44considered the claimant's request for interest on the awarded amounts and noted that, in order to have uniformity of treatment of the parties, a rate of interest based on return of investment during the relevant period would be more appropriate. [Page151:]

The Tribunal found that

"So far the Tribunal's practice in awarding interest does not show a great degree of uniformity. While the Chambers are consistent in generally awarding interest, when claimed, on the basis of compensation for damages suffered due to delay in payment, and while the Tribunal has never awarded compound interest, the rates applied by the Tribunal show little uniformity. In the absence of a contractually stipulated rate, however, the Tribunal has exercised its discretion, applying rates varying from 8.5 percent to 12 percent, which it determined to be 'fair rates'."

Consequently, in the absence of a contractually determined interest rate, the Tribunal applied a rate of interest based approximately on the amount that a successful claimant would have earned if it had been paid in time and thus would have had "the funds available to invest in a form of commercial investment in common use in its own country".

In the McCollough award of 1986, 45 the Tribunal46 noted that "a large variety of rates of interest have been awarded" and concluded that

"no uniform rule of law relating to interest has emerged from the practice in transnational arbitration, in contrast to the well developed rules regarding the determination of the standard of compensation for damages resulting from a breach of contract, where the rule of full compensation usually is applied."

However, the Tribunal also noted that "the absence of a uniform rule does not, however, imply the absence of general principles". Two principles are therefore indicated by the Tribunal. The first is that "under normal circumstances, and especially in commercial cases, interest is allocated in the amounts awarded as damages in order to compensate for the delay with which the payment to the successful party is made". The second principle is that "the rate of interest must be reasonable, taking into account all pertinent circumstances, which the Tribunal is entitled to consider by virtue of the discretion it is empowered to exercise in this field". The Tribunal, which awarded the successful party a flat interest rate of 10%, also considered that the difficulty in the application of a fixed rate is due to the diversity of the cases submitted and that, for the same reason, the accrual period has to be determined on a case-by-case approach, taking into account all relevant factors. 47[Page152:]

It may be noted that the solutions adopted in the various decisions of the Iran-US Claims Tribunal are certainly influenced by the significant impact of the interstate origin of the Tribunal and the solutions in the matter of interest traditionally adopted in interstate relations. As will be seen below, this also applies to investment arbitration practice, at least in its initial stage.

IX. Interest in investment arbitration

In recent years, disputes concerning international investments and the amount of related case law have increased dramatically, especially when the applicable national or international rules allow investors to present their claims against host states directly before international arbitral tribunals. As is well known, these developments are essentially due to the creative decisions of some arbitral tribunals operating under the aegis of ICSID, which has rapidly consolidated and expanded. According to this case law, the consent of the host state to ICSID arbitration can be found not only in a compromissory clause contained in an investment contract but also in a national piece of legislation (mainly a law for the promotion of investments) in which the state generally undertakes to submit possible disputes with foreign investors to ICSID or other kinds of international arbitration. 48 Subsequently, the consent of the state was regarded as being explicitly expressed in the clauses contained in bilateral investment treaties (BITs) concluded by the host state with the home states of the investors indicating ICSID arbitration as one of the means for investors to solve their disputes with the host state. 49

On the matter of interest, ICSID case law also seems to show an interesting evolution. This phenomenon appears in those cases where reference to the ICSID mechanism is not contained in BITs but in treaties with a much broader participation, such as the North American Free Trade Agreement (NAFTA) 50 and the Energy Charter Treaty. 51 It also appears in other kinds of investment arbitration that take place in different frameworks and apply different arbitration rules, such as the UNCITRAL Rules, those of the Stockholm Arbitration Institute and those of the International Chamber of Commerce. [Page153:]

The rather prudent attitude to matters of interest initially followed by the tribunals dealing with investment disputes was probably influenced by the public international law character of the ICSID Convention and its mechanism of arbitration, as well as by the same interstate nature of the applicable bilateral investment treaties. 52 Traditionally, interest - particularly compound interest - was restrictively and rarely awarded in interstate litigation, even in cases where states sought to provide diplomatic protection to their citizens who suffered damage abroad. 53

The prudent approach in matters of interest traditionally followed in interstate arbitration had a strong influence on the arbitration between states and foreign enterprises in matters of protection of property and investments prior to the recent increase in and development of ICSID disputes. Actually, the doctrine according to which "state contracts" are submitted to public international law resulted in the expansion to those contracts of the principles on interest usually applied in interstate commerce. In cases where a national law was considered applicable, the relevant national rules on interest were faithfully respected. Famous cases do not need to be recalled, particularly the three Libyan arbitrations of the 1970s involving British Petroleum, Texaco-Calasiatic and LIAMCO. 54 The only case that appears of special interest in the framework of this presentation is the Aminoil v. Kuwait case of 1982. 55 In that case, the Tribunal awarded Aminoil damages of USD 83 million, adding interest and inflation rates for a global annual rate of 17.5 %, which was compounded and produced an additional sum of USD 96 million. The case, which obviously forms a famous example of compound interest in international arbitration, has recently been subject to new analysis indicating that the high compounded rates of interest and inflation were a sort of disguised compensation of Aminoil for an expropriation that, notwithstanding the fact that it was officially considered lawful, the Tribunal intended to compensate with a global amount corresponding to the higher level due for an unlawful expropriation. 56

In order to properly evaluate ICSID case law concerning interest, it seems useful to take into consideration the basic discipline provided for in Article 42 of the Washington Convention as to the law to be applied by ICSID tribunals. [Page154:]

According to Article 42.1:

"The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable."

Thus, in order to solve an issue related to interest, ICSID tribunals have first to respect the agreement of the parties on the direct determination of the interest and then their possible agreement as to the "rules of law" 57 governing the particular issue of interest, or the investment contract in its entirety. In the absence of choice by the parties, the solution to the entire dispute, or some aspects of it such as interest, will be adopted by applying the relevant rules of the host state of the investment.

At first, the attitude of ICSID tribunals on the issue of interest showed a general reference to the law of the host state and appeared founded on strict compliance with Article 42 of the Washington Convention. In that earliest period, the case law of the ad hoc committees ruling on annulment claims58 somehow encouraged strict compliance with the law of the host state, because the committees regarded as a manifest excess of power, justifying the annulment, the failure by tribunals to apply to the case concerned the law that should be applicable according Article 42 of the Washington Convention. An example of this attitude can be found in one of the first ICSID awards in the case Agip SpA v. République du Congo of 1979, 59 in which the tribunal awarded the claimant what the claimant itself had requested in terms of interest, presenting its claims in compliance with the applicable law of the Republic of Congo (at the time Article 1153 of the French Civil Code for moratory interest and Article 2028 for additional compensatory interest). Consequently, the tribunal awarded only simple interest at 5% for debts in CFA and interest at the lowest rate in effect in the markets concerned for debts in other currencies60

The ICSID arbitral tribunal in the Aucoven v. Venezuela case of 2003 made a reference to the law of the host state to solve the issue of interest. 61[Page155:]

The tribunal held that

"Aucoven's submission that international law requires an award of compound interest must thus be rejected. Having concluded that the applicable Venezuelan law combined with the pertinent contract provision does not allow compound interest and that international law does not require it, the Tribunal can dispense with making a determination whether the specific circumstances of the case prevent an award of compound interest in the present arbitration."

Accordingly, the decision applied Venezuelan simple interest, adding the relevant finding that international law does not require the application of compound interest, so that the solution of the national applicable law cannot be superseded because that would be contrary to international law.

The CME v. Czech Republic case of 200362 provides an example of a similar ruling on interest adopted by an ad hoc international tribunal deciding on an investment dispute according to the UNCITRAL Rules. The tribunal concluded in favour of the application of the Czech rate of interest, as established in Article 517 of the Civil Code and the ensuing Government Decree, after having found that "[n]either the Treaty [the applicable BIT] nor international law provide for an interest rate to be applied". The tribunal added that no particular circumstances in the case justified the award of compound interest. 63

An important development took place in the Compania de Desarollo de Santa Elena v. Costa Rica case of 2000, 64 in which an ICSID tribunal for the first time awarded compound interest to a foreign investor who had suffered damage. This was done in order to assure compensation to the investor in a case where the "taking" of the property had taken place several years before the award and was initially creeping (or indirect), becoming direct afterwards. The case is also worth mentioning because the tribunal attached no apparent relevance to the environmental reasons on which the public authorities had based the taking. [Page156:]

In particular, the tribunal considered that, on the one hand, simple interest would not be justified, given the long period of time that had elapsed between the measure of taking and the arbitral award, and, on the other hand, that full compound interest would not do justice to the parties in the case at issue, in which the investor maintained its property for a long period but with a reduced capacity to exploit it. 65

More recent practice seems to confirm, with limited exceptions, a trend in favour of awarding compound interest to investors who have suffered damage. To start with the exceptions, reference can be made to the ICSID arbitration award of 2007 in the Siemens AG v. Argentine Republic case. 66 The tribunal decided the issue of interest on the basis of the guiding principle of the "full reparation for the injury suffered as a result of the internationally wrongful act". The tribunal then considered it inappropriate to take into account the rate of interest paid by the company for its borrowings and preferred to adopt the "interest rate the amount of the compensation would have earned had it been paid after the expropriation".67

A recent trend in favour of compound interest thus seems to be consolidating. For example, compound interest has been adopted as a means to assure full compensation to the investor in some recent ICSID awards, such as in the ADC Affiliate Ltd and ADC & ADMC Management Ltd v. Republic of Hungary case68in 2006 and in the LG&E v. Argentine Republic case69 and the Sempra Energy International v. Argentine Republic case70 in 2007. The tribunal in the first case decided for post-award compound interest on a monthly basis, affirming that compound interest constituted "the current trend in investor-State arbitration" and going against the traditional findings in public international law contrary to compound interest still "echoed" by the Iran-US Claims Tribunal. 71 In the LG&E case, the tribunal also considered compound interest an appropriate means to assure "full reparation" and added the general explanation that such interest "would better compensate the Claimants for the actual damages suffered since it better reflects contemporary financial practice". 72

Having examined the decisions of various arbitral tribunals in relation to investments, and especially the recent trend in favour of awarding compound interest to compensate investors for the damages suffered, a note of some interest can be added. [Page157:]

In some decisions awarding compound interest, such as in the Aminoil and Santa Elena cases, it appears that the basic reason for such an award is represented by the will of the tribunal to reach a certain global amount of compensation that it considers justified in the circumstances of the case. In the first case, it was stated that the awarding of compound interest was due to the fact that, although the tribunal formally considered the expropriation suffered by the investor legitimate, it intended to fully compensate the investor as if the expropriation was unlawful. In the second case, the awarding of compound (but adjusted) interest was apparently due to the difficulty of assessing the initial value of the taken property and the extremely long period of time elapsed from the taking until the arbitral award. 73

This observation invites us to attribute the real and proper value to the findings of the tribunals on the issue of interest. The tribunals sometimes do not intend to solve the issue according to rules or principles of law but rather take into consideration the particular characteristics of the case and the practical results that the tribunals deem justified and intend to reach.

X. Some concluding observations

Concluding the analysis of the practices of state courts and international arbitration tribunals, which solve different kinds of disputes, namely in the commercial and investment sectors, it clearly appears that it is difficult or even impossible to find at a uniform solution to the problems relating to interest. Various factors encourage scepticism as to the possibility of reaching conclusions that can be generally valid and applicable worldwide.

The first factor inducing careful consideration of distinctions in relation to interest-related issues relates to the various laws that may be applicable, the litigation contract in its entirety or the specific issue of interest. This basic difficulty is strictly connected to the traditional functioning of a conflict of laws method, which is still widely employed by state courts, also in cases where international conventions on uniform law are applicable (such as Article 78 CISG) but which leaves the issue subject to the choice made by the competent court. [Page158:]

Obviously, the difficulty can be overcome to the extent that the classic conflict method does not need to be applied to the specific issue. As has been shown above, this happens more frequently in international arbitration than before state courts. Actually, arbitrators frequently have the possibility of making a direct choice on the rules governing the contract or the specific issue of interest on the basis of national laws governing the arbitration (e.g. Article 1496 of the French NCCP) or the arbitration rules applicable in the case (e.g. Article 17 of the ICC Arbitration Rules, Article 22.3 of the LCIA Rules, Article 28.4 of the AAA Rules or Articles 59(a) and 60(b) of the WIPO Rules).

Another important distinction relates to the subject matter or field to which the interest-related dispute refers. In principle, different solutions on interest are conceivable and appear justified if one compares commercial arbitration to investment arbitration. The commercial character of a dispute appears to justify the payment of a high rate of interest, at least in abstracto and in due compliance with the applicable law or rules of law. This is due to the personal characteristics of the disputing parties, who are normally involved in commercial and financial transactions and accustomed to earning and paying interest, in their capacity as creditors or debtors in those transactions. The practice of state courts and international arbitration tribunals basically appear to follow the same approach, with inevitable differences due to the different applicable rules and powers attributed to the deciding bodies.

In contrast, in the investment sector, the parties involved in a dispute where an issue of interest arises have different personal characteristics, one being a state often exercising its public or regulatory powers and the other being an investor often acting on the basis of a legal instrument, a piece of legislation of the host state or an investment treaty in force between the host state and the home state of the investor, which was not directly negotiated and concluded by the parties to the dispute. In such cases, the legitimate interest of the investor regarding the preservation and protection of its investment is not usually faced with the non-performance of a contractual obligation by the host state but with measures that the latter has adopted in its capacity as a public or regulatory authority. As a result, at least in principle, the conditions are basically different from those underlying the awarding of interest in commercial or financial disputes. [Page159:]

It thus appears doubtful whether, for the purpose of determining interest in investment disputes, reference should be made to solutions adopted by state courts or international arbitration tribunals acting in different frameworks and in the presence of parties having the same commercial or financial nature. Actually, it seems that the peculiar position of host states should be taken into account, namely when they act in the legitimate use of their public and regulatory powers in order to protect, for instance, welfare objectives such as public health, safety and the environment. 74 In those cases where the measures affecting investors do not constitute direct or indirect expropriation, if any compensation should be provided to the investor, this will be done through a different method for the assessment of damages, and especially the calculation of possible interest, so that the adoption by the state of such legitimate measures will not be jeopardized.

One final point of distinction can be made on the issue of compensation and related interest in the case of measures of taking adopted by states that can be considered legitimate in view of their specific welfare objectives. The point is suggested by the case law of the European Court of Human Rights concerning the protection of the right of property according to Article 1 of Protocol 1 to the 1950 Rome Convention. 75 The Court constantly differentiates between legitimate expropriations that violate Article 1 of Protocol 1 only because of the inadequate level of compensation provided and expropriations considered unlawful because they were adopted in violation of the rule of law. In the first case, according to the Court, reasons of utilité publique allow the state to pay compensation that is lower than the value of the property taken. This important case law seems to confirm the opportunity to differentiate, also in the case of the taking of investors' rights, between the compensation and interest due in consideration of the proper character and objectives of the public measures adopted by the host state and the compensation and interest due in the case of unlawful takings. [Page160:]

1
Tarek Fouad A. Riad, 'The Issue of Interest in Middle East Laws and Islamic Law', Report to the ICC Annual Meeting (2007) (in this volume).

2
J.Y. Gotanda, 'Awarding Interest in International Arbitration', 90 Am. J. Int'l L. (1996) p. 40; ibid., 'A Study of Interest', Report to the ICC Annual Meeting (2007) (in this volume).

3
C. McLachlan, L. Shore, and M. Weiniger, International Investment Arbitration (Oxford, 2007) p. 343 ff.

4
An important collection of cases concerning the awarding and determination of interest is available at: <http://www.unilex.info/dynasite.cfm?dssid=2376&dsmid=13356&x=1>.

5
See the collection of case law made available at: <http://www.unilex.info/dynasite.cfm?dssid= 2377&dsmid=13617>. See also the case law on the UNIDROIT Principles reproduced in Italian in M.J. Bonell and E. Finazzi-Agrò, Diritto del Commercio Internazionale, Rassegna giurisprudenziale sui Principi UNIDROIT dei contratti commerciali internazionali (2002, 2004 and 2007).

6
Many authors have dealt with the issue: F.A. Mann, 'Compound Interest as an Item of Damages in International Law', in F.A. Mann (ed.), Further Studies in International Law (Oxford, 1990) p. 377 ff.; Y. Derains, 'Intérêts moratoires, dommages-intérêts compensatoires et dommages punitifs devant l'arbitre international', in Etudes offertes à Pierre Bellet (Paris, 1991) p. 101 ff.; P. Karrer, 'Transnational Law of Interest in International Arbitration', in E. Gaillard (ed.), Transnational Rules in International Commercial Arbitration, ICC Pub. No. 480 (Paris, 1993) p. 223 ff.; H. Schönle, 'Intérêts moratoires, intérêts compensatoires et dommagesintérêts de retard en arbitrage international', in Etudes de droit international en l'honneur de Pierre Lalive (Basle, 1993) p. 649 ff.; P. Cerina, 'Interest as Damages in International Commercial Arbitration', Am. Rev. Int'l Arb. (1993) p. 255 ff.; M.S. Schwebel, 'Compound Interest in International Law', in Scritti in onore di Arangio Ruiz (Naples, 2004) p. 881 ff.; N. Comair-Obeid, 'Recovery of Damages for Breach of an Obligation of Payment', in Evaluation of Damages in International Arbitration, ICC Institute of World Business Law Dossiers (Paris, 2006); J.Y. Gotanda, 'Awarding Interest', supra note 2; ibid., 'Compound Interest in International Disputes', (2004) Oxford U Comparative L Forum 1, at: <http.ouclf.iuscomp.org> ; ibid., 'A Study of Interest', supra note 2; C. Brower, 'Awarding Interest - Ex Officio or Only if Requested, at What Rate, as of When, Compound or Not?', in Resolution of the Dispute - from the Hearing to the Award, ASA Special Series No. 29 (2007) p. 70 ff.

7
This conclusion applies only "in principle", because it depends on the characterization of the national rules on interest. If they are considered as simple national ordre public, they cannot be derogated from by the parties after they have selected that national law as applicable or, in the case of absence of choice, once the court has found that such national law governs the contract. However, they can be derogated from by a party's choice of a foreign law governing the entire contract or the special issue of interest. On the other hand, if the rules of the forum on interest are considered "international mandatory rules" or rules of "ordre public vraiment international", then their application cannot be avoided by any other party's choice concerning both the substantive and the conflict regulation of the issue.

8
Art. 834 of the Code of Civil Procedure was abrogated along with the entire chapter devoted to international arbitration by the Decreto Legislativo Legal Decree No. 40 of February 2, 2006, which entered into force on March 1, 2006.

9
Art. 1496 was introduced by Décret n° 81-500 of May 12, 1981, published in Journal Officiel of May 14-21, 1981.

10
See supra note 4. A selection of cases is also reproduced in Italian in A. Veneziano, and V.M. Donini, Diritto del Commercio Internazionale, Rassegna giurisprudenziale sulla compravendita internazionale di beni mobili (2002, 2004 and 2007).

11
U.S. District Court Illinois, Chicago Prime Packers Inc. v. Northam Food Trading Co., May 21, 2004, available at: <http://www.unilex.info/case.cfm?pid=1&id=974&do=case>.

12
The court observed that, "in determining the conflict of laws in contract disputes, Illinois follows the Restatement (Second) of Conflict of Laws, which refers either to a choice of law provision in the contract at issue, or to the place of performance".

13
Tribunal Cantonal Valais, Case No. C1 04 33, September 19, 2005, available at: <http:// www.unilex.info/case.cfm?pid=1&id=1083&do=case>.

14
Cf. infra section VI for other relevant case law on the issue of interest in the framework of the Vienna Convention.

15
See Tribunal of Padua, March 31, 2004, available at: <http://www.unilex.info/case.cfm?pid= 1&id=966&do=case>.

16
A similar decision was taken by the Tribunal of Pavia on December 29, 1999, in Case No. 468 concerning a textile sale contract between an Italian seller and a Greek buyer, available at: <http://www.unilex.info/case.cfm?pid=1&id=734&do=case>.

17
J.D.M. Lew, 'Interest on Money Awards in International Arbitration', in Making Commercial Law. Essays in Honour of Roy Goode (Oxford, 1997) p. 543 ff., notes that a fourth approach is sometimes suggested, based on the reference to usages of international trade in the particular sector concerned. These usages "will expect or provide for interest to be charged to outstanding amounts".

18
ICC Case No. 9448 of July 1999, Final Award, available at: <http://www.unilex.info/ case.cfm?pid=1&id=467&do=case>.

19
See also the ICC Case No. 6527 of 1991, Final Award, in YB Com. Arb., Vol. XVIII (1993) p. 44 ff., in which the arbitral tribunal extended the application of the law governing the contract to the issue of interest.

20
Lew, supra note 17.

21
Hof van Beroep Antwerpen, Gmbh Lothringer v. NV Fepco Int., Case No. 20002/AR/2087, April 24, 2006, available at: <http://www.unilex.info/case.cfm?pid=1&id=1152&do=case>.

22
Rechtbank van Koophandel Veurne, BV BA G-2 v. A.S. C.B., Case No. A/00/00665, April 25, 2001, available at: <http://www.unilex.info/case.cfm?pid=1&id=953&do=case>.

23
Art. 74 provides that: "Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

24
E.A. Farnsworth, 'Art. 78', in Bianca and Bonell, Commentary on the International Sales Law. The Vienna 1980 Sales Convention (Milan, 1987) p. 568 ff. See also V. Behr, 'The Sales Convention in Europe: From Problems in Drafting to Problems in Practice', Journal Law and Comm. (1998) p. 263 ff.

25
Russian Federation Chamber of Commerce and Industry, Case No. 340/1999, February 10, 2000, available at: <http://www.unilex.info/case.cfm?pid=1&id=876&do=case>.

26
Hof van Beroep Antwerpen, supra note 21. This judgment is also of particular relevance. After briefly discussing the issue of simple and compound interest, it affirms that "the CISG is silent on the question whether compound interests is possible. Article 78 CISG mentions 'interest on the price or any other sum' from which some authors conclude that no interest on interest is due. Other authors state that interest on interest can be framed in the practices between parties in the sense of article 9 CISG."

27
Tribunal of Pavia, supra note 16. See also Cour d'appel Grenoble, November 28, 2002, available at: <http://www.unilex.info/case.cfm?pid=1&id=923&do=case>; Tribunal of Padua, supra note 15; Tribunal Cantonal Valais, supra note 13.

28
Oberlandesgericht Köln, Case No. 16U17/05, April 3, 2006, available at: <http://www.unilex.info/ case.cfm?pid =1&id=1133&do=case>.

29
Internationales Schiedsgericht der Bundeskammer Wien, Case No. SCH-4366, June 15, 1994, available at: <http://www.unilex.info/case.cfm?pid=1&id=55&do=case>.

30
Institute of International Business Law and Practice, UNIDROIT Principles for International Commercial Contracts: A New Lex Mercatoria?, ICC Pub. No. 490/1 (1995); A. Giardina, Les Principes UNIDROIT sur les contrats internationaux (Clunet, 1995) p. 547 ff.; M.J. Bonell, An International Restatement of Contract Law. The UNIDROIT Principles of International Commercial Contracts, 2nd edn. (Ardsley, NY, 1997); ibid. (ed.), A New Approach to International Commercial Contracts. The UNIDROIT Principles of International Commercial Contracts (The Hague, 1999); UNIDROIT Principles of International Commercial Contracts. Reflections on their Use in International Arbitration, ICC Pub. No. 642 (2002).

31
A collection of case law on the UNIDROIT Principles is also available in M.J. Bonell, The UNIDROIT Principles in Practice. Case Law and Bibliography on the Principles of Commercial Contracts (New York, 2002). See also supra note 4.

32
F. Marrella, La nuova lex mercatoria. Principi UNIDROIT ed usi dei contratti del commercio internazionale (Padua, 2003) especially pp. 390-489.

33
Petrobart Ltd v. Kyrgyzstan, SCC Case No. 126/2003, IIC 184, March 29, 2005, available at: <http://www.investmentclaims.com>.

34
Similarly, the arbitral tribunal of the Russian Federation Chamber of Commerce and Industry in Case No. 100/2002, available at: <http://cisgw3.law.pace.edu/cases/040519r1.html>, stated that "the CISG does not does provide for interest rate nor for the method of its calculation (art. 78 CISG). Art. 395 of the Russian Civil Code provides that the interest rate is to be determined with respect to the bank rate in the country of the creditor's place of business on the day on which the payment was performed. When making a ruling on the recovery of the debt, the Tribunal can grant a creditor's claim taking into account either the bank rate on the day of the bringing of the action or on the day of making an award. [The buyer's] representatives insisted on the application of the bank rate fixed on the day of the bringing of the action, that is, July 5, 2002. The Tribunal granted [the buyer's] request. As in Russia, the creditor's ([buyer's]) place of business, there is no interest rate in Indian rupees, the Tribunal had recourse to an international practice established in such situations and which is reflected in the UNIDROIT Principles (art. 7.4.9(2)). In accordance with this practice, 'the rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment'." See also Supreme Economic Court of the Republic of Belarus, Case No. 7-5/2003, May 20, 2003, available at: <http://cisgw3.law.pace.edu/cases/030520b5.html>.

35
Art. 9:508 (ex Art. 4.507) provides as follows: "(1) If a payment of a sum of money is delayed, the aggrieved party is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short-term lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due. (2) The aggrieved party may in addition recover damages for any further loss so far as these are recoverable under this Section."

36
Art. 17 provides as follows: "(1) A receiving bank that does not comply with its obligations under article 8(2) is liable to the beneficiary if the credit transfer is completed. The liability of the receiving bank is to pay interest on the amount of the payment order for the period of delay caused by the receiving bank's non-compliance. If the delay concerns only part of the amount of the payment order, the liability shall be to pay interest on the amount that has been delayed."

37
The Directive was published in OJ L 200 of August 8, 2000.

38
It is worth noting that the Directive is not applicable to payments made as remuneration for commercial transactions or to transactions involving consumers.

39
On the impact of the EC Directive on late payments on the CISG rule on interest, see M. del Pilar Perales Viscasillas, 'La Ley 3/2004 y la Directiva 2000/35: pasado, presente y futuro e impacto en el Derecho Mercantil', REDUR (2007) p. 5 ff. According to the opinion of this author, the Directive "funcionara integrando las lagunas del regimen vienés".

40
Rechtbank van Koophandel Hasselt, Scanlift Nederland BV v. Belgium Coach Service BVBA, Case No. A.R.06/1436, May 10, 2006, available at: <http://cisgw3.law.pace.edu/cases/ 060510b1.html>.

41
Internationales Schiedsgericht der Wirtschaftskammer Österreich, Case No. SCH-4921, May 11, 2006, unpublished but available in Diritto del Commercio Internazionale (2007) p. 456 ff.

42
See C. Brower and J. Brueschke, The Iran-United States Claims Tribunal (The Hague, 1998), for the cases decided by the Tribunal; C. Brower and J.K. Sharpe, 'Awards of Compound Interest in International Arbitration: The Aminoil Non-Precedent', in Liber Amicorum in Honour of Robert Briner (Paris, ICC, 2005) p. 155 ff. One clear position in favour of awarding compound interest in a case decided by the Iran-US Claims Tribunal is that expressed by Holtzmann, in his Concurring Opinion in Starret Housing Corporation, Starret Systems, Inc., et al. v. The Government of the Islamic Republic of Iran, Award No. 314-24-1, August 14, 1987, in Iran-US CTR (1987) 112 ff., arguing that "only an award of interest on a compound basis can adequately compensate Starret [claimant] for the damages it suffered due to the Respondent's wrongful taking" (at 252).

43
Iran-US Claims Tribunal, Sylvania Technical Systems, Inc. v. The Government of the Islamic Republic of Iran, Award No. 180-64-1, June 27, 1985, in Iran-US CTR (1985) 298 ff.

44
The Tribunal was composed of Bockstiegel (Chairman) and Mostafavi and Holtzmann (members).

45
Iran-US Claims Tribunal, McCollough & Company, Inc. v. Ministry of Post, Telegraph and Telephone, Award No. 225-89-3, April 22, 1986, in Iran-US CTR (1986) 35.

46
The Tribunal was composed of Virally (Chairman) and Brower and Ansari (members).

47
See the Concurring and Dissenting Opinion of Judge Brower on the issue of interest, supra note 45, at 42 ff.

48
The first case in which the above-mentioned construction was adopted in order to found the ICSID jurisdiction and the competence of the Tribunal was the decision on jurisdiction in the S.P.P. v. Egypt case of 1985, ICCA Yearbook (1991) p. 19 ff. The comments on this decision have been numerous and generally favourable. Cf., also for further references, I Shihata and A. Parra, 'The Experience of the International Center for Settlement of Investment Disputes', Foreign Investment Law Journal (1999) p. 304 ff.; E. Gaillard, 'L'arbitrage sur le fondement des traités de protection des investissements', Revue de l'arbitrage (2003) p. 883 ff; G. Sacerdoti, 'Investment Arbitration Under ICSID and UNCITRAL Rules: Prerequisites, Applicable Law, Review of Awards', ICSID Review (2004) p. 1 ff; A. Giardina, 'International Investment Arbitration: Recent Developments as to the Applicable Law and Unilateral Recourse', in A. Del Vecchio, (ed.), New International Tribunals and New International Proceedings (Milan, 2006) p. 42 ff.

49
BIT clauses relating to the settlement of disputes (with reference to the ICSID mechanism) were first considered a sufficient legal basis for ICSID arbitration in the A.A.P.P. v. Sri Lanka case of 1990, and then rapidly consolidated. Cf. S. Alexandrov, 'The "Baby Boom" of Treaty-Based Arbitrations and the Jurisdiction of ICSID Tribunals. Shareholders as Investors under Investment Treaties', Journal of World Investments and Trade (2005) p. 387 ff.; M.R. Mauro, 'Nuove questioni in tema di arbitrato fra Stato ed investitore straniero nella recente giurisprudenza dei tribunali ICSID', in Riv. Dir. Int. Priv. Proc. (2006) p. 67 ff.

50
Chapter XI of NAFTA, at Art. 1115 ff., provides the mechanisms of disputes resolution. Art. 1120 contains the reference to ICSID arbitration for disputes of investors and host states. Cf. G. Marceau, 'NAFTA and WTO Settlement Rules. A Thematic Comparison', Journal of World Trade Law (1997) p. 25 ff; A. De Mestral, 'The North American Free Trade Agreement: A Comparative Analysis', Recueil des Cours, Vol. 275 (The Hague, 1998) p. 255 ff.

51
On the mechanisms for the settlement of disputes between investors and host states provided for by the Energy Charter Treaty, and particularly its Art. 26, see J. Touscoz, 'Le Traité de la Charte de l'énergie. Aspects juridiques', Revue de l'énergie (1996) p. 494 ff; R. Babadji, 'Le traité sur la charte européenne de l'énergie', Annuaire Français de Droit International (1996) p. 872 ff; T.W. Waelde (ed.), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (The Hague, 1996); A. Giardina, 'Energy Charter Treaty', Enciclopedia degli Idrocarburi, Vol. IV (Rome, 2007) p. 551 ff.

52
It seems worth recalling that for decades BITs were considered mere interstate instruments, incapable of constituting the basis for direct claims of foreign investors against host states before international arbitral tribunals. Only in 1990 (cf. supra note 50), the case law was initiated, permitting investors to file direct international claims against states responsible for the violation of the treatment obligations assumed with the BITs.

53
Reference was and is frequently made to a statement by M. Whiteman, Damages in International Law, Vol. III, (Washington, 1943) p. 1997, according to which "few rules within the scope of the subject of damages in international law … are better settled than the one that compound interest is not allowed". Cf. Brower and Sharpe, supra note 42.

54
On these famous cases and the question of the legal regime of state contracts as directly governed by public international law, see J. Verhoven, 'Droit international des contrats et droit des gens', Revue belge de droit international public (1978-1979) p. 209 ff; B. Stern, 'Trois arbitrages, un meme problème, trois solutions', Revue de l'Arbitrage (1980) p. 5 ff; A. Giardina, 'State Contracts: National versus International Law?', The Italian Yearbook of International Law (1980-1981) p. 147 ff. For a new examination of the issue in the light of the recent developments in the law of international investments, see C. Leben, 'La théorie du contrat d'Etat et l'évolution du droit international des investissements', Recueil des Cours, Vol. 302 (The Hague, 2003) p. 207 ff.

55
International Legal Materials (1982) p. 976 ff. On the interest issue as decided in the case, see Brower and Sharpe, supra note 42.

56
For a convincing explanation of the case along the lines indicated in the text, see Brower and Sharpe, supra note 42, at pp. 159 and 160 ff.

57
It is well known that doctrine and case law substantially share the view that this expression allows the parties to also select non-national rules of law, such as the UNIDROIT Principles and the Principles of European Contract Law (PECL). For references in this respect, see A. Giardina, 'La legge regolatrice dei contratti di investimento nel sistema ICSID', Riv. Dir. Int. Priv. Proc. (1992) p. 677 ff; C. Schreuer, The ICSID Convention. A Commentary (Cambridge, 2001) p. 549 ff.

58
Reference is made here to the well-known annulment decisions in the Kloeckner v. Cameroon case of 1985 and the Amco v. Indonesia case of 1986. Cf. M. Reisman, 'The Breakdown of the Control Mechanism in ICSID Arbitration', Duke Law Journal (1989) p. 739 ff.

59
YB Com. Arb. (1983) p. 133 ff.

60
On the Agip SpA case, see the commentary by Derains, supra note 6, at 114 ff. The author submits that the rather moderate decision of the Tribunal on the issue of interest, especially on the issue of compensatory interest for debts in foreign currencies, was the result of the request made by the claimant, which could not be overcome by the Tribunal without pronouncing ultra petita.

61
Available at: <http://icsid.worldbank.org/ICSID/FrontServlet>.

62
Available at: <http://www.investmentclaims.com/IIC_62_(2003).pdf>.

63
The reason for this conclusion was the following: "The calculation of the compensation itself already fully compensates Claimant for the damage suffered. Awarding simple interest compensates the loss of use of the principal amount of the award in the period of delay."

64
Available at: <http://icsid.worldbank.org/ICSID/FrontServlet>; also reproduced in Rivista dell'Arbitrato (2001) p. 111 ff., with commentary by A. Giardina, 'Diritto internazionale e diritto interno in tema di espropriazione: il momento della valutazione del bene espropriato e l'interesse da applicare'. Cf. C.N. Brower and J. Wong, 'General Valuation Principles. The Case of Santa Elena', T. Weiler (ed.), International Investment Law and Arbitration (London, 2005) p. 747 ff., in particular p. 768 ff.

65
The Tribunal held that "[i]t is not the purpose of compound interest to attribute blame to, or to punish, anybody for the delay in the payment made to the expropriated owner; it is a mechanism to ensure that the compensation awarded the Claimant is appropriate in the circumstances. In the instant case, an award of simple interest would not be justified, given that … for almost twenty-two years, CDSE has been unable either to use the Property for the tourism development it had in mind when it bought Santa Elena or to sell the Property. On the other hand, full compound interest would not do justice to the facts of the case, since CDSE, while bearing the burden of maintaining the property, has remained in possession of it and has been able to use and exploit it to a limited extent. Consequently, Claimant is entitled to an award of compound interest adjusted to take account of all the relevant factors." In this case, the Tribunal granted the claimant USD 16 million in compensation for a property valued at USD 4.15 million at the time of the "taking" 22 years earlier. This global result was reached by the Tribunal based on a semi-annual compound interest of about 6.40% that was added to the assessed original value of the property taken.

66
Available at: <http://icsid.worldbank.org/ICSID/FrontServlet>.

67
The Tribunal held that "[t]hus, in determining the applicable interest rate, the guiding principle is to ensure 'full reparation for the injury suffered as a result of the internationally wrongful act'. The Tribunal considers that the rate of interest to be taken into account is not the rate associated with corporate borrowing but the interest rate the amount of compensation would have earned had it been paid after the expropriation. Since the awarded compensation is in dollars, the Tribunal considers that the average rate of interest applicable to US six-month certificates of deposit is an appropriate rate of interest."

68
Available at: <http://icsid.worldbank.org/ICSID/FrontServlet>.

69
Available at: <http://icsid.worldbank.org/ICSID/FrontServlet>.

70
ICSID case No ARB/02/16, IIC 304, 2007. The Tribunal held "that interest … will be computed at the successive 6-month LIBOR rates, plus a 2% annualized premium or portion thereof. Interest shall be compounded semi-annually." The Award is available at: <http:// www.investmentclaims.com/IIC_304_(2007).pdf>.

71
The Tribunal also considered that "[a]s to post-Award interest, contrary to Respondent's submission, the current trend in investor-State arbitration is to award compound interest. Respondent relies on the statement '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' … While the Iran-U.S. Claims Tribunal echoed Ms. Whiteman's statement, tribunals in investor-State arbitrations in recent times have recognized economic reality by awarding compound interest … Accordingly, the Tribunal determines that interest is to be compounded on a monthly basis in the present case."

72
The Tribunal noted that "[i]n the Tribunal's view, interest is part of the 'full' reparation to which the Claimants are entitled to assure that they are made whole. In fact, interest recognizes the fact that, between the date of the illegal act and the date of actual payment, the injured party cannot use or invest the amounts of money due. … The Tribunal is of the opinion that compound interest would better compensate the Claimants for the actual damages suffered since it better reflects contemporary financial practice."

73
It is worth nothing that the Tribunal, having awarded compound pre-award interest, did not apply the same interest for the post-award period, but simple interest at a rate of 6%.

74
The expression is adopted in at para. 4.b of Annex B (Expropriation) to the US Model BIT of 2004, as well as in Annex B 13 (1) to the Canadian Model BIT, also of 2004. The purpose of the annexes is to define expropriation, including indirect or creeping expropriations but excludes those measures "designed and applied to protect public welfare objectives such as public health, safety, and environment [which] do not constitute indirect expropriations".

75
This case law has recently been confirmed by the decision of the European Court of Human Rights of March 6, 2007 in the Scordino v. Italy (No. 3) case, available at: <http://cmiskp.echr.coe.int/ tkp197/portal.asp?sessionSimilar=5257002&skin=hudoc-en&action=similar&portal= hbkm&Item=3&similar=frenchjudgement>. Cf. also the references to previous and consolidated case law in the decision.