'5.2. Error within the meaning of Article 29(1) ICC Rules

The general principle is that the award terminates the arbitrators' jurisdiction and is binding upon the parties (res judicata; see Article 28(6) ICC Rules1).

However, given the need to provide the parties with a mechanism enabling them to obtain, subject to certain time limits and to compliance with the requirements of due process, the interpretation or the correction of the award, Article 29(1) ICC Rules 1998 reads:

[…] the Arbitral Tribunal may correct a clerical, computational or typographical error, or any errors of similar nature contained in an Award […]

Correction thus appears only possible with respect to clerical, computational or typographical error or errors of similar nature. This means that where the arbitration rules or the procedural law allow the arbitrators to correct clerical errors, that remedy cannot be used to alter the meaning or substance of the decision.2

Whether or not an error is of the nature covered by Article 29 may not always be obvious, and in different jurisdictions there may be disparate views on this subject. Ultimately, however, it is for the Arbitral Tribunal to determine whether an error falls within the scope of Article 29(1).3

In their Motion to Correct Award …, Claimants contend that, while the Tribunal intended to award prejudgment interest at 9%, the statutory rate in New York, it inadvertently used the wrong interest rate when calculating damages.

The computation in the Final Award of the damage incurred by Claimants as a result of the loss in value of [the X] shares was based upon the calculations provided at the hearing by Claimants' expert ...

The expert's analysis relied on the discounted cash flow valuation method of enterprises. This implies that the anticipated development of a company is taken into consideration in order to determine the market value of the company, that is, what a third party would pay for the purchase of the said company. The Arbitral Tribunal was thus asked to look for the diminution of the economical value of the company at stake and consequently for diminution of the price a potential buyer would have paid on the reference date if he had known of the tax assessments.

Subject to the adjustment of the relevant holding of [the X] shares from 100% to 91,5866% of the issued capital stock and the deduction of the [tax] penalty (as the negative cash flow arising from the penalty payment had been inappropriately accounted for), the Arbitral Tribunal, in accordance with [the expert]'s recommendation, computed the cash outflows of [X] on the days of the three tax notices and determined the value [X] would have had on [the closing date], had such outflows been known back then. Amongst the three different interest rates (US risk-free, NY statutory, [Asian state] risk-free) used by the expert, the Arbitral Tribunal then decided to apply the US risk-free rate - which in the expert's opinion provided for a better reflection of economic value - over the period starting from the day of the Closing … and ending on the assumed date of the Final Award …

In light of that decision, the Arbitral Tribunal took as its base figure the amount presented on [the expert]'s revised Exhibit 2, submitted by Claimants during the hearing, as the figure resulting from the discounting of cash flows back to the date of the Agreement and bringing them forward to the anticipated award date using the US risk-free rate ...

Adopting the US risk-free rate upon [the expert]'s suggestion, as it reflected economic reality more truthfully, was intentional. The Arbitral Tribunal did not apply it inadvertently to the detriment of the statutory 9% rate. To the contrary, using its discretion, it considered that there was nothing objectionable to such calculation and regarded the application of the US risk-free rate as a better solution in the present case.

Therefore, the use of the US risk-free prejudgment interest rate in preference to the statutory rate does not constitute a computational error or an error of similar nature within the meaning of Article 29(1) justifying correction of the Final Award. The Arbitral Tribunal believed and, for that matter, still believes that it was the appropriate rate, which would reflect the actual loss Claimants had suffered in their investment following the tax assessments.

5.3. Mandatory nature of statutory prejudgment interest rate of 9% under NY Civil Practice Law & Rules [CPLR] § 5004

In their Reply to Respondents' comments on Claimants' Motion to Correct Award …, Claimants further argue that the 9% statutory rate under CPLR § 5004 is mandatory under New York law in contract claims.

As already mentioned, this is not an argument which this Arbitral Tribunal could entertain in the framework of an application to correct its Final Award: if the Arbitral Tribunal had erred, this would be by way of legal reasoning and not the result of a clerical, computational or typographical error.

The Final Award … states that prejudgment interest is regarded as an element of complete compensation under New York law (Medcom Holding Company v. Baxter Travenol Laboratories, Inc., and Medtrain, Inc., 200 F 3d 518, 519-520). Pursuant to CPLR § 5001, it is recovered upon a sum awarded inter alia because of a breach of performance of a contract and computed from the earliest ascertainable date the cause of action existed (e.g., breach of the agreement). The New York statutory rate is to be applied when a sum has to be paid as a compensation for the temporary deprivation of otherwise owed money.

With regard to the applicable rate, CPLR § 5004 further provides that interest shall be at the rate of nine per cent per annum, except where otherwise provided by statute.

While the authorities presented by Claimants support the mandatory nature of the statutory interest rate under New York law, Respondents have provided the Arbitral Tribunal with authorities to the contrary arguing that it is, by way of exception, a matter of discretion, particularly where the remedy granted is equitable in nature, where the remedy is granted by an arbitral tribunal and where the agreement between the parties indicates that an interest rate other than the statutory rate is more appropriate.

For the reasons stated below, the Arbitral Tribunal need not address these sometimes contradictory assertions.

5.4. Duty of the Arbitral Tribunal to apply a mandatory rule under governing law within an international arbitration

The question arises as to whether the New York statutory rate is applicable in this arbitration, irrespective of any mandatory nature.

The parties have agreed to an ICC Paris arbitration (seat) and that New York substantive law will govern. It is unnecessary to determine whether it is substantive or procedural law, which should govern pre-award interest. Clearly, the aforementioned New York statute was enacted to apply to civil procedure in the Courts of the State of New York and before the judges thereof.

Furthermore, "the existence of such a contractual stipulation does not guarantee that the interest claim will be resolved in accordance with it. In Grove-Skanska v. Lockheed Aircraft Int'l AG, for example, the contract stipulated that the laws of the state of New York should govern both the substantive and procedural aspects of the agreement. The tribunal, however, ruled that provisions of the New York Civil Practice Laws and Rules, then prescribing a rate of interest in breach-of-contract actions of 6% per annum, were inapplicable because these laws, in their view, pertained only to court actions, not international arbitrations. Relying instead on general principles of law, the tribunal held that the claimant was entitled to a "realistic rate of interest" on the amounts owed."4

Additionally, in exercising their discretion in respect of procedural matters, arbitrators are not, as Article 15(1) ICC Rules makes clear, required to apply the procedural rules of any national law, and indeed this is not normally appropriate. Not only are such rules often designed for judicial, rather than arbitral, proceedings, but they also may not be suited to the needs of an international dispute.5

Nevertheless, while Article 15(1) ICC Rules allows the Arbitral Tribunal to disregard the "rules of procedure of a national law", ICC arbitrators, like all arbitrators, must pay attention to the mandatory procedural laws of the place of arbitration, as the breach of such law may, in most countries, serve as a basis for setting an award aside. Arbitrators may further take into account the mandatory procedural rules of a country where enforcement of their award is likely to be sought, irrespective of the possible grounds for setting it aside at the place of arbitration.6

According to the preamble of the New York Civil Practice Law & Rules, these rules merely apply to civil procedure in the Courts of the State of New York and before the judges thereof. Moreover, on the one hand, the arbitration clause in the Agreement (see Article 13.3 Agreement) provides that the arbitration shall be conducted pursuant to the Rules of Arbitration of the International Chamber of Commerce (ICC Rules) and on the other hand, it is specified (see Article 15.12 Agreement) that the Agreement shall be governed and construed in accordance with the laws of New York, USA, applicable to contracts made and entirely performed with the State of New York.

Hence, in compliance with Article 15 ICC Rules, the Arbitral Tribunal may ignore the aforementioned procedural rule, in spite of Claimants' argument as to its mandatory nature.

Besides, the place of arbitration is Paris and not New York. None of the parties is headquartered in New York. It is highly implausible that a party would seek enforcement of the award in the State of New York.

Furthermore, and particularly with regard to awarding interest at an appropriate rate, it should be emphasized that arbitrators do not necessarily refer to the law governing the contract to set such rate7 and that there exists a marked tendency in international commercial arbitration to award interest as is reasonable and fair, as well as to recognize a broad latitude to arbitral tribunals in determining what they consider "reasonable and fair". This is well summed up in an often quoted ICC award:

dans le cadre d'un arbitrage international, cette détermination n'est pas gouvernée par des règles rigoureuses et précises. La tendance générale qui se dégage, en doctrine et dans la pratique arbitrale internationale, est de laisser à l'arbitre une grande liberté dans la fixation de ce taux […] Celui-ci n'est pas tenu de se référer au taux légal d'un système juridique national, qu'il s'agisse de celui de la loi contractuelle ou de celui du lieu d'arbitrage […] Comme le relèvent de nombreuses sentences arbitrales, les intérêts moratoires sont alloués pour réparer le dommage résultant du fait que le créancier a été privé, pendant un certain délai, de l'usage et de la disposition des sommes qu'il aurait dû recevoir. Leur taux doit être raisonnable, et fixé en tenant compte de toutes circonstances pertinentes […] (ICC Case No. 6219, in Clunet (JDI) 117 (1990) 1047, 1048-1049).8

which in free translation reads:

within the framework of an international arbitration, this determination is not governed by rigorous and precise rules. The general tendency in legal literature and international arbitral practice is to grant arbitrators substantial latitude in fixing that rate […] the latter are not required to refer to the rate provided by one national legal system, whether the one governing the contract or the one of the place of arbitration […] As mentioned in numerous arbitration awards, interest for late payment is awarded to repair damage resulting from the creditor's deprivation for a certain period of time of the amounts he should have received. Its rate must be reasonable and fixed taking into consideration all relevant circumstances […]

Within such latitude arbitrators may accordingly prefer one solution to another depending on the actual circumstances. Applying the statutory rate is not necessarily the best method to remedy a creditor's prejudice.9

Claimants' having been deprived from the date of the breach of the Agreement until the date of Final Award of the sum corresponding to the loss in value of the purchased [X] shares, the Arbitral Tribunal acknowledged their right to interest ...

Applying the New York statutory rate was not opportune for many reasons. The New York legislator enacted the 9% rate out of local, economical, social and other considerations, which have little to do with an international arbitration. This is what [the expert] emphasized when he indicated that the US risk-free rate makes more economical sense.

[The expert] (and the Arbitral Tribunal) did take an economic approach rather than an overly legalistic approach: for instance, [the expert] (rightfully) discounted the payments back to the date of the Agreement (rather than back to the date of a notice of default) and then brought them forward to the assumed date of the Final Award.

As a matter of fact, the statutory rate of interest and the discount rate used by [the expert] are not of the same nature, the first one aims at compensation for a damage and thus starts running as of the breach (or as of the notice of default10). [The expert] used the second one to value a party's investment and thus took the day of the Agreement as the relevant date.

In view of the above, the Arbitral Tribunal disregarded the statutory interest rate under New York procedural law in favour of the US risk-free rate as the latter amounted to a better indication of economic value.

Consequently, there is no need for correction, by virtue of Article 29 ICC Rules, of the calculation presented in the Final Award. Claimants' Motion to Correct Award is not founded and shall be dismissed.'

1
Editor's note: References are to the 1998 ICC Rules of Arbitration.

2
See Fouchard/Gaillard/Goldman, On International Commercial Arbitration, The Hague 1999 (Ed. Kluwer Law International), § 1414 and 1416; see also Swiss Federal Court decision in the Philippe Holzmann A.G. and Nord France S.A. v. Entreprise industrielle S.A. (Re: Eurodisneyland), Official Report Of Federal Court Decisions, 126 (2000) 111 524, English summary in International Arbitration Law Review Volume 4 Issue 2 May 2001, Sweet & Maxwell London.

3
See Derains/Schwartz, A Guide to the New ICC Rules of Arbitration, Ed. Kluwer Law International 1998, p. 300.

4
See Gotanda, Supplemental Damages in Private International Law, 1998 Kluwer Law International, p. 46.

5
See Derains/Schwartz, op. cit. (supra note [3]), p. 211.

6
See Derains/Schwartz, op. cit. (supra note [3]), p. 212.

7
See ICC Case No. 6840, 1991 in Arnaldez/Derains/Hascher, Collection of Arbitral Awards 1991-1995, 1997 Kluwer Law International, 467, 473.

8
See also excerpts in ICC International Court of Arbitration Bulletin, Volume 3 / N° 2, p. 15 et seq., 22; see also Gotanda, op. cit., p. 43 et seq.

9
See ICC Case No. 6754, 1993 in Arnaldez/Derains/Hascher, op. cit. (supra note 6), 600, 605; see also ICC Case No. 6653, 1993 in Arnaldez/Derains/Hascher, op. cit. (supra note 6), 512, 524; Derains, "Intérêts moratoires, dommages-intérêts compensatoires et dommages-intérêts punitifs devant l'arbitre international", in Etudes offertes à Pierre Bellet, Paris 1991, p. 101-121, 106; Karrer, "Transnational Law of Interest in International Arbitration", in Gaillard, Transnational Rules in International Commercial Arbitration, Dossier of the Institute of International Business Law and Practice, Paris 1992, 223-231, 229.

10
See Ledgard v. Bull, 119 N.Y. 62, 23 N.E. 444, 447-448 (1890).