Settling international financial disputes through arbitration is very important for any foreign company. However, it may prove to be a very time-consuming process at times. Let’s try & analyze how long it takes for a party to get a compensation after winning their arbitration case. We’ll also be looking into forced confiscation of funds & property (or the so-called legal expropriation).
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The time elapsed between forced confiscation of funds/property & award is never the same, and nor is the time elapsed between the award & actual compensation. Dissimilar rates of interest can significantly affect the sum of damages, too. They play a major part in the process of resolving financial disputes through arbitration.
Resorting to arbitration for resolving international financial disputes is a common practice. But does it really take that much time? Not that much, actually. In arbitration, the plaintiff acts as a creditor, while the defendant acts as a borrower. The idea behind interest rates is to compensate a lender for depreciation of money caused by passage of time, and risks connected to a borrower’s failure to repay the loan. Consequently, it is riskiness or creditworthiness of a borrower that should ultimately be taken into account when determining the amount of interest rate.
Determining the amount of interest rate requires prognosticating the financial status of an investor in case of non-occurrence of the proposed actions.
Forced confiscation of money/property in arbitration is considered illegal only if no fair or provisional compensation is paid.
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If no proposed action is suggested, investors do not stand to get any compensation. Nevertheless, they could have earned money by making use of the property they could have had starting from expropriation to the award. Hence, interest rates are calculated by taking into account the time that has elapsed between confiscation of property/finance & the award.
As far as limitations imposed by international investment treaties are concerned, arbitration courts can select the rate of interest that will be applicable. Depending on the chosen rate of interest, the compensation amount that is awarded to an investor will change significantly. Therefore, an arbitral tribunal may have a hard time choosing an appropriate rate of interest applicable to compensation.
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Paying interest prior to the award will compensate financial losses suffered by an investor due to confiscation of funds. Therefore, establishing the rate of interest requires the arbitration court to determine the manner in which an investor might use the money which they would lose if they had it in the period between expropriation & the award.
Whether the court decides to compensate a plaintiff by considering the time factor, or risks connected to the defendant’s default, it is ultimately a legal issue.
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