No. VII.7 - Right to charge compound interest

Compound interest may be charged on interest.

The Principle provides that compound interest, i.e. interest on interest, may be charged. Such a case is given, e.g., where compound interest would provide a fair and commercially reasonable element of compensation to the innocent victim of a non-performing party, for example when the aggrieved party must take credit for the money not received from the other side and has to pay compound interest to its bank because banks typically charge compound interest. In such cases, the charging and awarding of compound interest is in line with the reasonable expectations of commercial parties. It is for this reason that compound interest is increasingly awarded by international commercial arbitrators either as trade usage, as a substantive rule of private law reflected in the present Principle or under an expressly agreed provision, e.g. Art. 26.6 of the LCIA Arbitration Rules.

Please cite as: "Commentary to Trans-Lex Principle ,"
Arbitral Awards
ICC Award No. 1930, YCA 2001, at 181 et seq.
ICC Award No. 5514, Clunet 1992, at 1022 et seq.
ICC Award No. 8908, ICC Bull. 10/No. 2 (1999), at 83 et seq.
ICSID Award of December 29, 2004, Ceskoslovenska Obchodni Banka A.S. v. The Slovak Republic, Case No. ARB/97/4,
ICSID: Compania del desarrollo de Santa Elena, S.A. v. Republic of Costa Rica, YCA XXVI (2001), 47 [also published in: 39 ILM 1317 (2000) et seq.]
Iran-US Claims Tribunal, Starrett Housing Corp. v. Iran, 16 IRAN-U.S. C.T.R., at 112 et seq.
Tecnicas Medioambientales Tecmed S.A. v. The United Mexican Stats, International Centre for Settlement of Investment Disputes, CASE No. ARB (AF)/00/2, May 29, 2003, at
Arbitration Rules
London Court of International Arbitration (LCIA) Rules
Court Decisions
BGH NJW 1991, at 832 et seq.
BGH WM 1993, at 586 et seq.
National Bank of Greece SA v. Pinios Shipping Co. No. 1 and another - The Maira, [1990] 1 All E.R. 78.
OLG Hamburg, DIS Mitt. 1990, at 51 et seq.
Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1996] A.C. 669
Westdeutsche Landesbank Girozentrale v. Islington London Borough Council, (1996) A.C. 669
Berger, Klaus Peter, International Economic Arbitration, Deventer, Boston 1993
Boyd, Stewart, Interest for the Late Payment of Money, 1 Arb.Int'l 1985, at 153 et seq
Cerina, Paolo, Interest as Damages in International Commercial Arbitration, Am.Rev.Int'l Arb. 1993, at 255 et seq.
Chitty On Contracts, Vol. II , 27th ed., London 1994
Clagett, Bruce M., Present State of the International Law of Compensation for Expropriated Property and Repudiated State Contracts, in: The Southwestern Legal Foundation (ed.), Private Investors Abroad, Dallas 1989, at 12-1 et seq.
Derains, Yves, note to ICC Award No. 5514, Clunet 1992, at 1029 et seq.
Gotanda, John Yukio, Damages in Private International Law, 326 (2007) Recueil des cours 83
Hobe, Stephan, Enteignung zu Zwecken des Umweltschutzes, Iprax 02, 249
Hunter, Martin/ Triebel, Volker, Awarding Interest in International Arbitration, 6 J.Int'l Arb. 1989, No. 1, at 7 et seq.
Jenks, Edward et al., A Digest of English Civil Law, London, Sydney, Calcutta, Winnipeg, Wellington 1921.
Jones, Douglas, Compound Interest as Damages - The Approach in Austrqalia an New Zealand, I.C.L.R. 2000, at 427 et seq.
Mann, Frederick Alexander, Compound Interest as an Item of Damage in International Law, in: Mann (ed.), Further Studies in International Law, Oxford 1990, at 377 et seq.
Martin-Pelegrin, Esther, Compound Interest as Damages and upon Damages for Breach of Contract, I.C.L.R. 1999, at 453 et seq.
Münchener Kommentar zum Bürgerlichen Gesetzbuch, ed.: Rebmann/Säcker, Bd. 7: Einführungsgesetz, Comment on Art. 32 by Dieter Martiny, 2nd ed., Munich 1990
Paget's Law of Banking, by Megrah, Maurice/Ryder, F.A., 9th ed., London 1982
Schmitz, Rochus, Zinsrecht, Münster, Hamburg 1993
Schmitz, Stephan, Allgemeine Rechtsgrundsätze in der Rechtsprechung des Iran-United States Claims Tribunal, Frankfurt a.M., Berlin, Bern 1992
von Hoffmann, Bernd, Inländische Sachnormen mit zwingendem internationalem Anwendungsbereich, 9 IPRax 1989, at 261 et seq.
Wetter, J.Gillis, Interest as an Element of Damages in the Arbitral Process, 5 IFLR, Dec. 1986, at 20 et seq.
Whose Arbitration is it anyway: The parties or the Arbitration Tribunal - an interesting question?, in: Newman, Lawrence W. / Hill, Richard D. (ed.), The Leading Arbitrators
Miscellaneous Legislation
United Nations, Responsibility of States for Internationally Wrongful Acts, 2001.
National Legislation
Civil Code Québec
Ethiopian Civil Code
French Code Civil
Verbraucherkreditgesetz - German Consumer Credit Law
Principles / Restatements
Principles of European Contract Law - PECL
Contract Clauses
There are currently no contract clauses.
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