Interest on Damages and the Discontinuation of LIBOR
Is Now the Time to Revisit the Choice of Interest Rate for Interest Awards?
The interest element of an award of damages can be a significant part of the overall outcome of an arbitration. However, despite the amount at stake, interest can often receive relatively little discussion in the parties’ statements of case and in the Tribunal’s award.
It is relatively common for Tribunals to award interest at a rate based on LIBOR, often with some premium applied. However, LIBOR will begin to be discontinued from the end of 2021 and so parties, experts and Tribunals will no longer be able to rely on it as a reference rate. This provides a timely opportunity to reflect on the purpose of an award of interest on damages and how best to achieve that purpose.
In this article, Tim Battrick and Tim Richards of FTI Consulting’s Economic and Financial Consulting practice review potential approaches to calculating pre-award interest in international arbitration, including the use of LIBOR. With the discontinuation of LIBOR from 2021, they set out a potential economic framework for determining the appropriate interest rate.