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The Unpredictability Paradox: Punitive Damages and Interest in International Arbitration

The Unpredictability Paradox: Punitive Damages and Interest in... I. INTRODUCTION The subject of remedies in international arbitration is generating considerable discussion. And perhaps no two issues have garnered more attention than those of punitive damages and interest. But what do they have in common? On the surface, not much. Punitive damages are awarded primarily to punish especially wrongful conduct, not to compensate an injured party. In contrast, interest is a sum given for the loss of use of monies owed; its main purpose is to fully compensate the aggrieved party for all damage caused by the breach.2 However, in international arbitrations, interest and punitive damages share one important characteristic: neither is very predictable. This common trait is particularly problematic. As the United States Supreme Court recently noted, predictability is essential to a fair and well functioning adjudicatory system.3 This is particularly true with respect to international arbitration. To the extent that results are unpredictable, parties may view arbitration as unfair and fail to choose it as a means for resolving disputes. In addition, lack of predictability prevents parties from settling cases and thus robs the system of its efficiency.4 In this article, I will examine why awards of punitive damages and interest are unpredictable. I will http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of World Investment and Trade Brill

The Unpredictability Paradox: Punitive Damages and Interest in International Arbitration

Journal of World Investment and Trade , Volume 10 (4): 19 – Jan 1, 2009

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Publisher
Brill
Copyright
Copyright © Koninklijke Brill NV, Leiden, The Netherlands
ISSN
1660-7112
eISSN
2211-9000
DOI
10.1163/221190009X00303
Publisher site
See Article on Publisher Site

Abstract

I. INTRODUCTION The subject of remedies in international arbitration is generating considerable discussion. And perhaps no two issues have garnered more attention than those of punitive damages and interest. But what do they have in common? On the surface, not much. Punitive damages are awarded primarily to punish especially wrongful conduct, not to compensate an injured party. In contrast, interest is a sum given for the loss of use of monies owed; its main purpose is to fully compensate the aggrieved party for all damage caused by the breach.2 However, in international arbitrations, interest and punitive damages share one important characteristic: neither is very predictable. This common trait is particularly problematic. As the United States Supreme Court recently noted, predictability is essential to a fair and well functioning adjudicatory system.3 This is particularly true with respect to international arbitration. To the extent that results are unpredictable, parties may view arbitration as unfair and fail to choose it as a means for resolving disputes. In addition, lack of predictability prevents parties from settling cases and thus robs the system of its efficiency.4 In this article, I will examine why awards of punitive damages and interest are unpredictable. I will

Journal

Journal of World Investment and TradeBrill

Published: Jan 1, 2009

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