Risk, Return, and Restoration: A Fundamental Approach to Pre-Judgment Interest

Introduction

A successful civil litigation concludes with the issuance of a monetary judgment and an assessment of interest on the judgment amount. Known as pre-judgment interest, the assessed interest compensates the injured party for being deprived of access to the value of the judgment amount, and the returns that sum could have earned, over the pre-judgment period – between the cause of action and adjudication.

Unfortunately, existing methods for determining pre-judgment interest rates in legal and arbitration proceedings lack a clear theoretical and logical foundation. Today, rates are often set based on speculative assumptions2 or by statute with the result that the same case adjudicated in the same way can yield different interest assessments in different jurisdictions.3 Pre-judgment interest payments set using these methods are almost guaranteed to be incapable of properly restoring the claimant – the recognized rationale for assessing pre-judgment interest.4

This Article contributes to this important yet often overlooked topic in two ways. First, it demonstrates why current methods for setting pre-judgment interest rates fail to correctly restore claimants. Second, the Article proposes and establishes a financially sound alternative: using the litigation claim’s cost of carry5 to assess the pre-judgment interest rate.

The economic consequences of incorrectly assessed interest rates are substantial. Pre-judgment interest can constitute a large portion of the total judgment amount, sometimes exceeding the value of the underlying damages. Incorrectly set rates penalize one party while unjustly benefiting the other, creating perverse incentives. These incentives may encourage parties to act unfairly, potentially leading to unnecessary delays in litigation,6 and discouraging investment and economic growth.

The confusion surrounding pre-judgment interest largely stems from how parties interpret guidelines on the subject.7 Since the objective of full restoration is to erase the consequences of the illegal act related to the claimant’s inability to access its funds, practitioners often interpret this to mean that their job is to predict how the claimant might have invested its funds had the illegal act not occurred. Yet, this approach turns rate-setting into a speculative “what-if” exercise, and there is no basis to assume a rate derived from a hypothetical scenario is restorative. Recognizing this, a frequent argument made against rates set in this manner is that the claimant should not be restored using an interest rate tied to an imaginary asset that does not correspond to the risk the claimant assumed over the pre-judgment period.

A recent case highlights some of the flaws in current conventions. In 2024, Odyssey Marine Exploration (OMEX) received a verdict of $37.1 million against the Government of Mexico8 plus approximately $20 million in interest.9 However, none of the proceeds would be available to OMEX’s owners. Instead, the entire award would go to its litigation funder, with most of the money covering high interest charges associated with the litigation funder’s loan.10 OMEX owners were not restored because the pre-judgment interest the Tribunal assessed was tied to low-yielding Mexican government bonds,11 based on the flawed assumption that OMEX’s owners bore risks comparable to government bondholders. However, OMEX’s owners actually faced greater risks and thus higher costs to carry the claim. Compensating the claimant at a low pre-judgment interest rate while it was charged a high rate of interest reduced the value of the claimant’s compensatory award to zero over time.

In many regards, OMEX’s situation is not unique. As this Article demonstrates, none of the existing methods for assessing pre-judgment interest achieve full restoration.12 Full restoration can only be achieved by identifying the actual costs and missed opportunities experienced by the claimant over the pre-judgment period.13 Our fact-based approach addresses key criticisms of current methods and establishes a framework rooted in fundamental financial principles, offering a path toward industry-wide consensus.

This Article proposes that the pre-judgment interest rate must be set at a rate which offsets the cost of carrying the litigation claimover the pre-judgment period. Since the claimant was forced to hold the claim, it incurred real costs to carry that asset—equivalent to the returns it missed by being unable to invest that value elsewhere. These costs, often provable in financial contracts, are commercially realistic,14 and financially assessable. If the goal is full restoration, they must be reimbursed.

Since some states have laws requiring courts to apply statutorily or judicially fixed rates of pre-judgment interest,15 this Article may appear to be more immediately applicable to arbitration – indeed, this issue is a source of significant confusion within the international arbitration community.16 However, the economic foundation underpinning our methodology is highly relevant to litigation. Therefore, this Article has broad application to all dispute resolution mechanisms in which monetary damages are awarded, including litigation. This Article aims to improve the legal profession’s understanding of pre-judgment interest and persuade lawmakers in states with fixed statutory pre-judgment interest rates to amend their laws to allow for more flexibility where practical.

For clarity and to follow the convention in existing literature, this Article will use expropriation to describe the injury suffered by the claimant.17 Part I provides a more detailed account of pre-judgment interest. Part II categorizes and reviews existing theories and practices of pre-judgment interest. Part III shows that existing theories for assessing pre-judgment interest rates violate fundamental financial theory.18 Part IV proposes the cost of carrying the litigation asset as the correct rate for setting pre-judgment interest. Part V outlines the intuition behind the cost of carrying the litigation asset and the basic steps for estimating pre-judgment interest based on the proposed methodology. Part VI concludes.

I.    Pre-judgment Interest: a Primer

Pre-judgment interest compensates a claimant who has prevailed in litigation or arbitration for being wrongfully deprived of access to the judgment amount from the date of expropriation to the date of adjudication.19

Section A introduces the legal landscape of pre-judgment interest in litigation and arbitration, underscoring both systems’ shared goal of full restoration of the injured party to its state before the injury. Section B explains the economic rationales for assessing interest on the judgment or award amount. Section C provides an illustration of these economic rationales through the example of post-judgment interest, to distinguish it from pre-judgment interest and motivate our methodology. Section D demonstrates how pre-judgment interest is calculated in practice.

A.    Legal Landscape of Pre-judgment Interest: Full Restoration of the Injured Party

Pre-judgment interest is recognized as a necessary component of full compensation both in courts and in arbitration.20 Because pre-judgment interest is often fixed by judicial precedents and statutes, the issue of selecting the right pre-judgment interest rate is sometimes less salient in courts.21 It is more prominent in arbitration since arbitration provides greater flexibility in setting the pre-judgment interest rate.22

Although courts also consider ex ante policy issues such as providing the right incentives to parties,23 the fundamental goal of compensation is the same in both litigation and arbitration: full restoration of the injured party. In City of Milwaukee v. Cement Division, National Gypsum Co., the United States Court held that “the essential rationale for awarding pre-judgment interest is to ensure that an injured party is fully compensated for its loss” with the goal of “restoring a party to the condition it enjoyed before the injury . . . .”24

International arbitration shares the same principle of full restoration. The Chorzow Factory arbitration ruling in 1928 states that “[t]he essential principle . . . established by international practice and in particular by the decisions of arbitral tribunals . . . is that reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed.”25

This principle of full restoration of the injured party appears in recent arbitration guidelines26 and in the 2001 Draft Articles on the Responsibility of States for Internationally Wrongful Acts, published by the United Nations’ International Law Commission, which states that “[t]he responsible State is under an obligation to make full reparation for the injury caused by the internationally wrongful act .”27

B.    Economic Rationales for Assessing Interest

The judgment amount given at adjudication is the value needed to fully restore the claimant at the time of the expropriation. However, because the actual judgment or award is ordered significantly later at adjudication, pre-judgment interest needs to be added to compensate claimants for the time value of money.28 That time value requires a return which accounts for (1) inflation, (2) the opportunity cost of money, and (3) uncertainty or risk associated with the delay.29       

To illustrate, an investment in a one-year U.S. government bond will carry a relatively low yield because it is assumed to be a near risk-free investment, and the investor is essentially compensated only for inflation and the opportunity cost of money. For riskier investments, the corresponding interest rate or yield must increase to reflect the cost of bearing the risk of not realizing an expected return or suffering a permanent loss of capital. The greater the risk, the higher the rate of interest/return to compensate for the increased cost of bearing the risk.30

The controversy surrounding pre-judgment interest relates to disagreements over which risks and which opportunity costs, associated with the delay from litigation, need to be included in compensation to restore a claimant. Opportunity costs and risk are directly related because opportunity costs reflect the expected returns available in the next best alternative investment having similar or identical risk characteristics to the investment made.31 This implies that the central question with respect to solving for pre-judgment interest involves understanding the investment made – the asset that the claimant held over the pre-judgment period, related to the litigation, and the risks associated with that asset (we sometimes refer to this as the claimant’s “value at risk”). Understanding those risks, and the level at which they are priced, reveals the expected returns that were foregone in not making the next best investment (opportunity costs). The rate of pre-judgment interest must reflect those risks and the corresponding costs they imposed over the pre-judgment period.

This Article will identify the pertinent asset, and the risks related to that asset, which were borne by the claimant during the pre-judgment period. However, to motivate our method, first we examine post-judgment interest as an illustration and a point of comparison to pre-judgment interest.

C.    Illustration of Economic Rationales (Comparing Post-judgment Interest to Pre-judgment Interest)

The purpose of post-judgment interest is to compensate for the delay in payment of the total award/judgment amount32 post adjudication. At the conclusion of adjudication, the respondent is ordered to pay this rate on the outstanding balance of money owed to the claimant until the balance is paid. Assuming there is no room for further legal challenges, as a matter of law, this amount belongs to the claimant. Any further delay in payment after adjudication requires the respondent to compensate the claimant for (1) inflation, (2) the opportunity cost of money, and (3) risk associated with not being able to collect the money from the respondent during the post-judgment period.

The money owed is now a legal obligation of the respondent. This means that the asset held by the claimant is similar to a loan from the respondent.33 The forced or coerced loan theory34 therefore provides a good first approximation for the post-judgment interest, although it is not a perfect fit.35

By contrast, the risk component in pre-judgment interest is substantially different – primarily because there is not yet a legal obligation which would compel the respondent to pay the claimant.

D.   Calculating Pre-judgment interest

Pre-judgment interest is calculated by applying the pre-judgment interest rate to the original judgment amount, J, during the pre-judgment period.36 The final amount due at the date of judgment is usually calculated by compounding the annual rate of interest on the J over the pre-judgment period using the following formula:

J x (1+r)ᵗ

where t is the length of the pre-judgment period in number of years and r is the pre-judgment rate of interest.37

The total amount is highly sensitive to the pre-judgment interest rate and delay. For a sufficient period of time or a sufficiently large interest rate, the interest component of the award, given by the multiplier (1+r)ᵗ, can exceed the base judgment amount J. To demonstrate this sensitivity, the table below represents the multiplier generated for various interest rates and time periods (in years). 

Judgment Against Multiplier (1+r)ᵗ

For example, a pre-judgment interest rate of 5% compounded over a pre-judgment period of seven years gives a multiplier of 1.41. So, the total amount the respondent must pay is 1.41 times the original judgment amount J. A pre-judgment interest rate of 15% increases the multiplier to 2.66.

Thus, the multiplier makes a clear case that pre-judgment interest is critically important to the parties. Because the financial stakes can be very high, the principles underlying the determination of pre-judgment interest must be clarified.

II.   Existing Theories of Pre-judgment Interest

Despite the importance of pre-judgment interest to the parties to a litigation or arbitration proceeding and its significance to public policy, courts and arbitration tribunals have not been able to agree on a specific method for setting the rate.38 There are significant differences in approaches used by tribunals and proposed by legal scholars and professionals to determine pre-judgment interest.39 A 2016 study from PriceWaterhouseCoopers found that in 60% of awards, tribunals did not even address the reasons behind the interest awarded, and in the other 40% of awards the reasons were diverse.40

The following sections review existing theories for determining pre-judgment interest. We categorize existing methods into three types. Section A presents the most widely adopted approach: the use of a third-party rate that is independent of the immediate parties’ circumstances. Section B presents the coerced loan theory, which sets the pre-judgment interest rate at the borrowing rate of the respondent. Section C presents claimant-dependent approaches that use the weighted average cost of capital of either the claimant or the expropriated asset. Under all three types, the claimant’s pertinent asset is misidentified leading to false conclusions regarding risks faced and costs associated with those risks.

A.    Party-independent Interest Rates

The most widely adopted approaches in arbitration and in litigation assign pre-judgment interest by referencing a market-based index.41 This approach is also adopted in many state courts under what is known as a statutory rate.42 These approaches, in effect, adopt risk measures, unassociated with the claimant or the respondent, to estimate the risk component of pre-judgment interest.

Proponents of these methods often point to the idea that these rates offer a market-based and objective method for restoring a claimant.43 They may also argue that a claimant’s litigation risks are not the responsibility of the respondent.44

The logic used to justify these methods is that if the claimant had access to the judgment amount J over the pre-judgment period it could have invested it in the referenced market index over the pre-judgment period, and it is thus fair to compensate the claimant as if this happened. Proponents additionally argue that the rate is “commercial” because it references a rate that is quoted in the market (for instance U.S. prime rate or yield on U.S. Treasury Bills).45A market-based rate offers the court a relatively simple and expeditious method to calculate interest.

A specific version of this approach applies the risk-free rate,46providing compensation only for inflation and the opportunity cost of risk-free money. This risk-free approach implicitly assumes that the obligation of the respondent is not initiated until the moment the award is rendered; the claimant is only due the risk-free time value of money for the pre-judgment period because any other risks it faces during the pre-judgment period are not the responsibility of the respondent.47

B.    The Coerced Loan Theory

The “coerced loan theory” or “forced loan theory” was first developed by Professors Patell, Weil and Wolfson in the 1980s, and was further developed by Professors Knoll and Colon.48 The theory received endorsement by the Seventh Circuit.49 Professors Colon and Knoll characterize the theory as follows:50

The most important risk to which an award is subject is the risk that the respondent will default. The rate of return that compensates for both the risk of default and the delay in paying the award is the respondent’s borrowing rate. To the extent that the holder of an unsatisfied judgment would be treated in a bankruptcy action like the holder of unsecured debt, the proper interest rate is the respondent’s unsecured borrowing rate.

The logic behind this theory is that when the claimant was denied the asset by the respondent, it essentially took an ‘IOU’ from the respondent (thus the asset it held over the pre-judgment period was effectively a loan from the respondent) which would be repaid after the tribunal rendered its decision. Because it loaned the respondent money, the risk that the claimant shouldered over the pre-judgment period is the same risk faced by other unsecured creditors of the respondent.51 It follows that the claimant’s pre-judgment interest rate should be the same as the respondent’s borrowing rate.

The coerced loan theory compensates risk bearing by the claimant, attributing it to the probability of default by the respondent. The interest rate determined under the coerced loan theory therefore depends on the respondent’s risk characteristics.

C.    Claimant-dependent Theories

Some arbitration tribunals have adopted approaches that set pre-judgment interest based on the claimant’s financial characteristics such as its return on or cost of capital.52 Such measures typically lead to higher pre-judgment interest rates. Courts have enforced those high pre-judgment interest rates despite challenges that they violate public policy.53 For example, courts in Austria have enforced pre-judgment rates of 26 percent, 30 percent, and 35 percent—even when the rate exceeded national legal bounds.54

Some of these approaches make use of the weighted average cost of capital (WACC). WACC is the market-determined average price to fund a company, project, or asset.55 From the perspective of a company, it is the weighted average cost the company pays for its equity and debt funding. From an investor’s perspective, it is the average minimum required return that the investor “charges” or expects from the company when it purchases debt or equity securities. Estimating the WACC is a sophisticated task performed by valuation experts.56

1.   Claimant’s Cost of Capital (WACC) / Return on Capital

This approach uses the claimant’s WACC as a measure of the pre-judgment interest rate. This is the weighted average required return across all forms of investment that the claimant’s providers of capital demand for their investment.57 The rationale for using the claimant’s WACC to achieve full restoration is that it is reasonable to assume that if it had access to the judgment amount over the pre-judgment period, the claimant would have invested it in a manner that achieved the average return that its investors expected during the pre-judgment period. The method implicitly assumes that the claimant would have earned the same rate of return on the judgment amount of the expropriated asset as the market expected it to earn on average across all of its businesses or assets during the pre-judgment period.

A variant of this method uses the actual realized return on capital (ex post) during the pre-judgment period to set an interest rate.58

A 2007 ICSID arbitration decision considered the claimant’s average expected return on investment under an agreement, but then decided on a rate which arbitrators felt reasonably captured opportunity costs, without further justification:59

Having regard to Claimants’ business of investing in and operating water concessions, to the anticipated 11.7% rate of return on investment reflected in the Concession Agreement (which the parties had agreed to be appropriate having regard to the nature of the business, the term and the risk involved) and the generally prevailing rates of interest since September 1997, the Tribunal concludes that a 6% interest rate represents a reasonable proxy for the return Claimants could otherwise have earned on the amounts invested and lost in the Tocumán concession . . . .

2.   The Expropriated Asset’s WACC

A second approach shifts focus from the claimant’s portfolio of assets to the expropriated asset. This theory sets the pre-judgment interest rate at the expropriated asset’s weighted average cost of capital (also known as the project WACC) or the project’s expected return prior to expropriation.

Proponents advocating for the WACC of the expropriated asset argue that the claimant would have operated the project absent the expropriation.60 Therefore, to fully restore the claimant to the place it would have occupied absent the expropriation, it is logical to assume that the claimant would have earned the expected return on the value of the project at the date of expropriation over the pre-judgment period. This requires that the pre-judgment interest rate be set at the expropriated asset’s WACC.61

3.   Claimant’s Borrowing Rate

A third approach adopts the claimant’s borrowing rate to assess pre-judgment interest. Because the claimant did not have access to the judgment amount of the expropriated asset, this approach asserts it would have had to borrow (or otherwise finance) this amount in order to purchase a replacement asset. Viewing the expropriation as causing the claimant to increase its borrowing, this approach concludes that pre-judgment interest must compensate for the claimant’s cost of borrowing the additional funds.62

The Claimant’s borrowing rate was recently awarded in Mobil v Argentina. There, the Tribunal appointed an independent damages expert (Mr. Nils Janson) to assist it in calculating damages and pre-judgment interest.63 Mr. Janson assessed the situation and concluded that the opportunity cost of capital (discussed in Section C.1) was the correct rate to apply in an effort to fully restore the Claimants.64 The expert’s estimated interest rate was in fact even higher than the rate requested by the claimants.65 Even so, the Tribunal rejected these measures, finding them to be (1) “excessive to restore the Claimants to the position they would have been if the breach of the BIT had not taken place,”66 and (2) not reasonable “in view of the impact of the economic crisis in Argentina.”67 The Tribunal instead awarded a lower and more conservative rate – the claimant’s borrowing rate:68

Consequently, the Tribunal considers that it is appropriate and realistic to assume that the Claimants would have applied the required income, either to eliminate the existing debt or to avoid incurring additional debt. Therefore, the appropriate interest rate to be applied to the payment date should be the average interest rate that the Claimants would have paid in order to take out a loan from that date to the payment date. In the absence of clear evidence of the Claimants’ loan rate on the record, the tribunal will apply a widely recognized, conservative rate, namely the 6% that has been adopted in the awards of other tribunals of arbitration, including cases that involved Argentina as the Respondent, in which the updated rate at the date of the award was in the order of 6%.

III. Critiques of Existing Theories

The myriad theories of pre-judgment interest summarized in Part II show the degree of disagreement in the literature and in practice over which pre-judgment interest rate is appropriate to fully compensate the claimant.

Only one rate can achieve full restoration. This Part demonstrates that none of the existing theories supply that correct rate. None of the theories correctly identify the pertinent asset (the value at risk) held by the claimant over the pre-judgment period. Thus, they cannot correctly identify the risks taken or the costs of bearing the risks associated with the asset. Instead, each of the theories explicitly or implicitly speculates about an asset the claimant could have held, but did not actually hold, over the pre-judgment period to theorize about a pre-judgment rate.

Section A criticizes the claimant-independent approaches presented in Sections II.A and II.B. These approaches treat all claimants in the same manner and fail to identify the unique asset associated with the particular claimant’s claim. Claimants face different risks and costs, connected with their unique litigation asset. Pre-judgment interest must reflect such differences in the risks assumed.

In Section B, we criticize the existing claimant-dependent theories presented in Section II.C, which focus on the wrong asset(s) held by the claimant and therefore incorrectly estimate risks and costs borne by the claimant.

Section IV provides a numerical example and a logical proof supporting our theory, which is distinct from all existing theories outlined in Section II. Since only one interest rate can provide full restoration to a claimant in general, it follows that the proof in Section IV also demonstrates that all existing theories are not capable of restoring a claimant. 

A.    Criticizing Claimant-Independent Theories

Theories that are claimant-independent would provide the same pre-judgment interest rate, and therefore the same compensation, to two claimants facing different risks and thus different costs related to the recovery of the same judgment amount. 

In general, any party-independent approach referenced in Sections II.A and II.B cannot achieve the goal of fully restoring the claimant to the state prior to the injury. Such theories do not identify the pertinent asset owned by the claimant during the pre-judgment period but instead speculate about returns the claimant would have earned had the claimant owned an index-based asset.69

Proponents of index-based approaches point to the fact that the rates produced by this method are “commercially realistic” which is a requirement embedded in the principles of restoration.70 Yet the reasonableness of a rate is not tied to whether it is subjectively seen as linked to an appropriate index. A rate is commercially realistic to the extent that it is commercially matched, in an arms-length transaction, to the risks attached to the asset that commands the rate. Thus, since the claimant has not owned an asset during the pre-judgment period (related to the litigation) whose risks were matched to those of a market index, it is inappropriate to argue that an index rate is commercial in this situation.

From a policy perspective, using claimant-independent rates to assess pre-judgment interest may create perverse incentives. A respondent would be motivated to expropriate high expected return projects if it knew that, in the worst-case scenario where it loses the case, its cost of capital would be set at a low statutorily set or market-based rate. Selective illegal expropriation may yield a positive expected return to the respondent as a result.

B.    Criticizing Existing Claimant-Dependent Theories

With full restoration of the claimant as the goal, a number of scholars have astutely pointed out that the correct pre-judgment interest rate must reflect the opportunity cost for the claimant.71 However, existing methods to estimate the opportunity cost for the claimant are problematic because they fail to identify the claimant’s value at risk – the asset it held or the investment it was compelled to make related to the expropriation. Without a clear identification of the asset held or the investment compelled, lost opportunities cannot be gauged accurately.

Risks of assets held by the claimant that are unrelated to the litigation should not be included in the consideration of pre-judgment interest. The claimant’s WACC, or the average return on capital of the claimant (Section II.C.1), is not an accurate indicator of pre-judgment interest rates because they measure the required return (or actual return) for the claimant’s complete portfolio of assets, which contains items unrelated to the claim.72

Focusing on the expropriated asset’s WACC (Section II.C.2) evaluates the expected returns and risks of the expropriated asset if it had not been expropriated. This approach assumes that the claimant would have operated the expropriated asset had the expropriation not occurred. It then provides the claimant with the expected return for the asset over the pre-judgment period as if it had not been expropriated.

This measure is problematic because it is speculative. It requires evaluation of a counterfactual situation that involves holding an asset that has, in fact, been expropriated. Thus, it compensates the claimant for risks not taken, which do not impose a cost.

More critically, the measure overlooks the salient costs the claimant has faced over the pre-judgment period. The risks of holding the expropriated asset as measured by expected returns prior to expropriation are not the same as the risks of actually holding a litigation claim asset during the pre-judgment period.

To illustrate, consider the expropriation of $1,000 cash, which is risk free to the claimant owner. The expropriation turns the risk-free cash into a risky litigation asset because the claimant may fail to prevail in litigation. To compensate for such a risk, a higher interest rate is necessary than the risk-free rate. Yet, using the expropriated asset’s WACC would mean compensating the claimant at the risk-free rate of cash. This rate would fail to compensate the claimant fully because, during the pre-judgment period, the claimant was holding a risky litigation asset rather than a risk-free asset.

Finally, adopting the claimant’s cost of borrowing (the third approach in Section II.C.3) is problematic for a number of reasons. First, if that borrowing is secured as a general obligation that is not specific to the litigation claim, then it does not capture the costs associated with the claim. Similar to the first approach, this measure is inaccurate because only a part of the risks accounted for by the claimant’s cost of borrowing are related to the actual risk borne by the claimant due to the expropriation. Second, it is inappropriate to use pre-judgment interest to compensate a claimant for the costs of a loan unrelated to the claim, and which is paid for using the return on the investment generated by the loan proceeds.  Last, in the case where the borrowing is secured only by the claim, this would capture the risks of the claim, but the comprehensive costs of the claim would evaluate not just debt, but other forms of capital across the asset’s capital stack. Debt is relatively low cost because it has priority of repayment over other forms of capital.

To conclude, none of the three existing approaches relying on the claimant’s financial characteristics achieves full compensation of the claimant during the pre-judgment period. These approaches focus on the wrong asset or portfolio of assets held by the claimant, and therefore do not capture the risks and costs borne by the claimant specific to the litigation.

IV. Pre-judgment Interest Rate at the cost of Carrying the Litigation Asset

This Part presents the main proposal of this Article. Our starting point is the same as Professors Knoll and Colon:73

We use the term judgment asset to mean the claim the plaintiff has against the defendant at the time the defendant injures the plaintiff, later replaced with an award from the court. The court’s task is to set the return on the judgment asset that is appropriate for the risk, so that the value of the judgment asset will equal that of the lost asset or offset the new liability.

As Professors Knoll and Colon note, the claimant (or plaintiff) has held a litigation or judgment asset over the pre-judgment period. As a result of this circumstance, the claimant has been burdened by the costs connected to the risk of holding that claim, and the pre-judgment return must therefore be set to offset those costs if the claimant is to be fully restored.

We use the subscript LA to distinguish the litigation asset from the expropriated asset, denoted by subscript Asset.

Every litigation asset has its own set of distinct risks which are quantified into a rate—the cost of carrying (COC) the asset.74 Full compensation of the claimant would entail setting the pre-judgment interest rate at the cost of carrying the litigation asset.75 This result is first illustrated through a numerical example in Section A, followed by a formal proof in Section B.

Intuitively, full restoration requires returning a claimant to a position equivalent to that which it occupied immediately before the asset was expropriated. Full restoration therefore entails that the claimant be made indifferent between holding the asset immediately before its expropriation and holding the litigation asset (coerced investment) after the expropriation during the pre-judgment period.76 In other words, full compensation means the return on the coerced investment, in the form of pre-judgment interest ordered if the claimant prevails, must exactly cover the cost of carrying the litigation asset over the pre-judgment period. That cost of carry reflects the risks embedded in the litigation asset, thus our method connects the risks of the underlying asset (LA) with the return of that asset. None of the other proposed theories correctly match the return demanded for holding the actual asset that the claimant carries over the pre-judgment period with the risks of holding that asset. Connecting risk and return is a foundational concept in capital markets.77

Professors Colon and Knoll have identified the litigation asset (or the judgment asset, using their terminology) and have even alluded to our methodology in a discussion about using the claimant’s borrowing rate to determine the rate of pre-judgment interest:78

. . . Only in rare instances do the new investors invest solely in the claim. In such cases, the new investors bear the same risks as those borne by the plaintiff; one can then measure the cost to the plaintiff of waiting as the interest rate the plaintiff pays to its new investors to bear that risk.

They are correct in that the claimant’s borrowing rate rarely captures only the risks associated with the litigation asset or claim (because the claimant usually owns more than one asset and thus its loans may be secured by other assets). However, they have overlooked the fact that there are practical means for estimating the costs specific to the claim that don’t rely on the claimant’s borrowing rate.

Our methodology is distinguished from others because it references an actual asset held by the claimant, tied to the litigation, to assess real risks, costs, and lost opportunities absorbed by the claimant over the pre-judgment period using market rates. Existing methods often rely on unnecessary speculation about an asset not held by the claimant or not directly related to the litigation.

A.    Proof by Numerical Example

We use a numerical example to illustrate problems under existing theories and motivate the proof of our theory.

 Imagine a respondent expropriated a claimant’s asset valued at $1,000. The claimant immediately moved for litigation or arbitration, which took years to resolve.

Consider two possibilities: (1) Claimant A’s probability of prevailing in the claim was close to 100%; and (2) Claimant B’s probability of prevailing was only 10%.

Assume all else is equal. If you agree that Claimant A’s situation was better than Claimant B’s immediately after the injury, it follows that Claimant B received greater injury and must receive a greater level of compensation than Claimant A to be made whole, or fully restored, to its position immediately before the injury.79

But this is not how the legal system treats the two cases – even though restoration is the typical goal of compensation. If the claimant prevails in the case, the respondent will be ordered to pay the claimant (i) $1,000 in damages and (ii) interest on the $1,000 for the pre-judgment period (the delay between the expropriation and the adjudication). Under most existing theories of pre-judgment interest,80 Claimants A and B would receive the same total amount of compensation with the same pre-judgment interest rate assessed on the $1,000 for the pre-judgment period.  Yet the same compensation cannot possibly provide full restoration to the two claimants because Claimant A would not trade its stronger claim for Claimant B’s claim prior to adjudication.81

For example, the coerced loan theory discussed above, and used by the ICSID Tribunal in OMEX, views the claimant as holding a loan that it has unwillingly made to the respondent over the pre-judgment period. The coerced loan theory assesses pre-judgment interest at the borrowing rate of the respondent to account for the default risk of the respondent. Because the respondent’s default risk doesn’t change based on who has loaned it funds, each of the Claimants would receive the same pre-judgment interest on the $1,000 (the borrowing rate of the respondent) in addition to the $1,000 damages amount.

But the same total amount cannot make both claimants whole.82 Claimant B suffered more harm than Claimant A during the pre-judgment period because the Claimants held different litigation assets with different risk profiles. Higher risks imply higher costs to carry those risks according to fundamental economic theory.83 This can be demonstrated by measuring the costs that each claimant bore over the pre-judgment period to carry the litigation asset.84 The claimant must be compensated for these costs if the end goal is to restore the claimant to the point of indifference.

Our theory accounts for such cost differentials. The claimant expropriated the respondent’s asset valued at VAsset=$1,000 at time T1. The claimant moved for arbitration or filed suit immediately. Five years later at time T2=T1+5 years,85 a decision was made. The decision was favorable to the claimant, and the respondent was ordered to pay the claimant (1) VAsset=$1,000 with (2) pre-judgment interest assessed on the $1,000.

At a pre-judgment interest rate of r, the claimant will receive a total return TRLA on the litigation asset at time T2:

TRₗₐ = $1,000 x (1+r)⁵, 

where the base compensation of $1,000 is compounded at the pre-judgment interest rate r five times corresponding to the pre-judgment period of t = 5 years.

At the time of expropriation, the claimant lost the asset valued at $1,000 and was coerced into holding a litigation asset that would pay the claimant TRLA at time T2 if, and only if, the claimant prevailed in litigation. Full restoration of the claimant requires the claimant be made indifferent between holding $1,000 (the asset’s value immediately prior to expropriation) and holding the litigation asset that gives return TRLA ($1000 and its pre-judgment interest over the period) at time T2 if the claimant prevails.

The litigation asset, like all financial assets, has its own cost of capital. We use COCLA to denote the cost of carrying the litigation asset. We outline methods for estimating COCLA in Part V. Note that COCLA gives the market assessment of the risk associated with the litigation asset. It follows that the value of the litigation asset, VLA, at T1 is

The equation above calculates the fair market value of the litigation asset at time T1 (at expropriation), which is given by the cash flow of TRLA paid at time T2 if the claimant prevails in the claim, discounted by the WACC (or cost of carry) of the litigation asset. The denominator is raised to the power of five to account for the five years which have passed between expropriation and when the award is rendered. Discounting takes place at a market-determined rate of COCLA to account for inflation, the opportunity cost of money during the five years, and the risk of the investment return (claimant prevailing in the claim) of the litigation asset.86

To fully compensate the claimant, the expropriated asset’s value (VAsset) must be equivalent to the litigation asset’s value VLA such that the claimant is indifferent between holding the asset immediately before its expropriation and holding the litigation asset after its expropriation before the litigation is closed. This requires VAsset = VLA. Substituting in the expressions for these values gives:

The equality holds if and only if

B.    Formal Proof

The total return on the litigation asset, TRLA, is what the claimant obtains t years later at adjudication if the claimant prevails. It includes the base compensation of the value of the expropriated asset VAsset brought forward in time by compounding it at a pre-judgment interest rate r for the prejudgment period of t years:

If the claimant seeks financing for this litigation asset on the market, its weighted average cost of capital COCLA can be estimated.87 This rate in turn enables us to estimate the value of the litigation asset (coerced investment) at T1:

The claimant loses its asset at time T1 valued at VAsset. In its place, the claimant gains a litigation asset (investment) with VLA. To fully compensate the claimant, it follows that the expropriated asset’s VAsset must be equivalent to the litigation asset’s VLA. Substituting the two expressions above into this equality gives:

The next Part outlines the estimation of COCLA. Estimating the cost of capital can become sophisticated, technical and nuanced. We will not endeavor to develop the technical means of measuring COCLA in this Article.88 The main purpose of this Article is to highlight the importance of shifting the focus of the debate: the pre-judgment interest rate should be assessed on the correct asset and must take account of the correct costs.

V.   Discussion

Part IV established that the correct pre-judgment interest rate is equal to the cost of carrying the litigation asset. The determination of an asset’s cost of carry is a sophisticated task handled by valuation experts. We will not go deep into technicalities concerning its calculation. Nevertheless, it is important to note that the cost of carrying an asset is a recognized rate that has been used to set pre-judgment interest rates: arbitration tribunals have accepted its use (unfortunately, usually referencing the cost of capital pertaining to the wrong asset).89

In this Part, we limit our discussion to the intuition behind the use of the measure and the feasibility of estimating the rate. Part A provides introductory information to help understand the concept behind the cost of carrying a litigation claim. Part B provides an analogy to show how holding assets with risks imposes a cost even if those costs are not always overtly apparent.90 Part C defines the cost of carry or WACC and provides a simple example of its calculation. Part D shows the importance of using the correct asset’s WACC. Part E provides information specific to measuring the cost of carrying a litigation asset. Part F details how the market for litigation funding provides proof of the costs involved in carrying a litigation claim. Last, Part G responds to the idea that litigation risks should not be compensated through pre-judgment interest

A.    Making Sense of a Claim’s Cost of Funding

The costs of funding specific to a litigation claim (the litigation claim’s WACC or COCLA), are not always easy to understand or detect. In our hypothetical example, when a claimant’s only asset was expropriated, prices of the claimant’s publicly traded debt and equity securities might decrease, implying a higher cost of capital. Yet, no additional currency would leave the claimant’s accounts as a result of this higher cost of funding. If the claimant were a large company with a portfolio of assets, or a private company, then a market signal from its securities might not be evident. The lack of explicit incremental cost, more than anything else, may explain why so many professionals fail to take these costs into account.

When a claimant is forced into litigation, the fair market value tied up in its legal claim cannot be deployed elsewhere. That restriction has a measurable financial consequence: the claimant incurs a real cost for holding the claim over the course of the proceedings. One way to understand this is to view the claim as an involuntary investment. Just as with any other investment, capital is locked into an asset, and the owner must bear the risks associated with it until resolution.

In capital markets, the price of bearing risk is reflected in the expected rate of return investors demand when pricing the asset.91 If an asset is risky, investors insist on a higher return to justify committing their funds.92 The same principle applies to litigation. The riskier the litigation claim, the higher the expected return; and the higher the expected return, the higher the cost to the claimant. By holding a litigation claim rather than another asset with similar risk characteristics, the claimant foregoes the return that an alternative investment would have produced. This forgone return is the opportunity cost of capital, and it represents the cost of carrying the litigation claim.

We see the relationship between risk and return more explicitly when a claimant takes litigation funding during the pre-judgment period – financing secured by the claim alone (non-recourse funding). For instance, a litigation funder might take 20% of the award value for funding the claim if it believes it is a “sure thing,” but 50% of the award value for a riskier claim. The riskier the situation, the greater the proportion of the final award the claimant must offer to secure the funding (i.e. the higher its cost of funding). The fact that the claimant’s financially assessable damage is positively correlated with the risk of the claim provides direct support for our theory.

Often financially assessable damage exacted by the cost of funding related to the claim is not obvious. This might be the case when the claimant has no need to raise funding and is a private enterprise. Or it may be the case when the claimant is a large company, and the costs to carry the asset are buried in financials that average across all the lines of business. Regardless, the costs of carrying an asset are present whether or not they are obvious. Bearing risk is always costly, even if the costs are not seen explicitly as dollars leaving the claimant. We show this in the analogy in the next section.

It is important that we distinguish between the cost to carry the claim (expressed as a rate) versus the dollar costs of pursuing the claim (which are mainly legal expenses, court costs, expert fees, etc.). These two costs are independent of one another and should not be confused. Pre-judgment interest was not designed to compensate for legal and other expenses related to bringing the claim to judgment.

B.    An Analogy – Understanding the Costs of Carrying Risk

We analogize the discussion in the previous section to a horse race to help drive home our point. Like all analogies, the one below is not perfect. Nonetheless, reading it may help to underline why an efficient restoration solution requires that asset owners be compensated for risks they absorb, even if the costs of absorbing those risks are not readily apparent.

Suppose you go to the horse races and place a $25 wager on a horse who is one of the favorites at 4:1 odds (meaning you will win $100, plus the return of your $25, if your horse wins). Yet, after your wager is placed the racetrack announces that your horse’s jockey, who is the best and most experienced in the race, has become ill and has been replaced by his brother who has never ridden a horse.

The odds on your bet go from 4:1 to 40:1 with the change in jockey (the fact that odds fluctuate until post time means that you do not lock in your expected return (cost of capital) until that time). This increase in odds creates the potential for restoration should your horse win. The underlying asset changed, and thus the risks changed for you, the ticketholder. As the risk of your underlying asset increased (your ticket is the asset) the expected return had to increase to compensate you for the increased risk and to make you indifferent relative to your position prior to the change. The increase in odds was determined by market forces related to the general wagering at the racetrack which assesses risk. Instead of winning $100 on your bet, you now stand to win $1,000 on the wager should the unlikely occur and your horse win—compensating you for your increased cost of capital.93 

Observe that the face value of your ticket did not change, and no additional money left your pocket. The ticket retained its $25 value because the increase in odds changed the ticket’s expected return creating the condition for indifference. The evidence of an increase in costs due to the increased risk is seen in the increase in odds (increase in cost of capital) – not in dollars spent. 

It is your lucky day. Against the odds, your horse wins the race. Yet, when you get to the ticket window to claim your substantial winnings you find the racetrack owner waiting for you with a team of financial consultants and legal experts. They are debating how you should be restored after the jockey change – for whatever reason they are oblivious to the odds that were set prior to the race.

One in the group offers that you made a loan to the track when the track took the original ticket from you, essentially replacing it with a ticket representing a different jockey, and you should thus be paid back your investment of $25 plus interest at the racetrack’s cost of debt (8% per annum) which would mean interest of approximately $0.01 for the twenty minutes you held the ticket (coerced loan theory). A different consultant says that you should be compensated at the odds that were in force when you first went to the window because this reflects the payoff had the jockey not fallen ill (analogous to the illegal act not occurring). A lawyer argues that you should receive your initial investment plus interest at the risk-free rate because the racetrack is not responsible for the risk you took – this works out to one half a penny of interest. Finally, another party argues that it would be fair to pay you interest at a commercial rate that he saw in the newspaper that morning because this is a rate that makes him feel comfortable and which seems reasonable.

None of these consultants and lawyers have made the fundamental connection that links the risk of the asset underwritten with its expected return and cost of funding. You unwillingly took the risk of holding a ticket whose payoff depended on a horse with a dubious jockey, and there was a market-determined mechanism for paying you to accept that risk – one that would cover the high cost of capital associated with your ticket. The consultants and lawyers ignored the market pricing of that risk, and your costs for bearing that risk. Just as many lawyers and arbitrators today do not recognize the costs of funding for holding a claim over the pre-judgment period, the lawyers in our analogy cannot see that the key impact of changing the jockey was the high cost of capital (high risk) you were forced to bear and the financially assessable damage that the higher cost of capital caused. Ignoring that cost does not make it go away, however. It can only be erased by fully offsetting that additional cost with a restorative payment (a payment that offsets your higher cost of capital).

We can bring the horse race analogy into the world of litigation and pre-judgment interest. Just as the underlying asset secured by your wager changed to represent a claim on a different horse and jockey combination for the same ticket, the claimant’s asset fundamentally changed after the expropriation. It went from being an operating project to a litigation claim with its own set of risks. Similarly, the cost of capital or expected return changed in both cases because of a change in risk profile attributed to each of the new underlying assets.

As a ticketholder, you did not see additional dollars leave your pocket to mark the added cost of holding a riskier ticket, but instead the odds on your ticket increased significantly. A claimant would experience the same phenomenon – the added risk of holding a litigation asset might not create an explicit cost that resulted in more dollars going out the door, but it would lead to a higher cost of capital related to the value at risk. Only if funding needs to be raised are these costs explicitly crystallized and evidenced in dilution (or higher interest costs).

Just as the horse race ticket holder is compensated for the risk taken over the period while the asset is held (assuming a positive outcome) so must the litigation claim holder be compensated for risk taken if restoration is to be achieved. The odds are not posted on a board for the litigation claim, but we can measure the market-derived cost of capital for the claim over the pre-judgment period.

C.    Defining Cost of Carry or WACC

The cost of capital for an asset, the cost of carrying the asset, or the weighted average cost of capital (WACC) for that asset generally refer to the same concept or rate.94 That is the average rate that investors charge the asset owner to finance that asset. It is calculated by assessing the costs of the individual components that make up the asset’s funding, weighting these components, and then summing the weighted rates.

For example, let us assume an asset is comprised of 70% equity with a 14% cost, 10% preferred equity with a 12% cost and 20% debt with an 8% cost as shown in the table below.

This asset’s WACC is calculated by summing the weighted average of these costs:

70% * 14% + 10% * 12% + 20% * 8% = 12.6%

D.   Not All WACCs are Created Equal

WACC is the market-determined weighted average price for funding an enterprise, project, or asset. From a company’s perspective, it’s the average cost the company pays for its equity and debt funding (or any in-between funding). From an investor’s perspective, it’s the average minimum required return that the investor charges the company (or prices its securities to yield) when it purchases debt or equity securities issued by the company. The cost of capital generally moves in the opposite direction of the price of a company’s securities – a lower price for a share of stock or bond means a higher cost of capital and a greater expected return all else equal.

Historically, the pre-judgment WACC most often proposed by claimants is the WACC associated with the expropriated operating project (that project’s WACC). The argument traditionally made by parties advocating for this WACC is that absent the breach the claimant would have operated the project, and thus to restore it to the place it would have occupied but for the breach, the average expected return for the project is fair compensation. Yet, as noted previously, the logic behind this theory falls short as the claimant should not be compensated for risks not taken.

Another WACC measure that is sometimes used is the claimant’s WACC – the average rate investors demand to fund the company’s portfolio of assets. The argument made by claimants who advocate this rate of pre-judgment interest is that but for the breach they would have had access to the asset in question’s value, and it is logical to assume that they would have earned the company’s average expected return on that value. A claimant wouldn’t make an investment that was expected to earn less than its WACC because doing so would lead to a negative economic outcome. Again, however, the claimant didn’t face an average project’s risk in relation to the litigation claim, so it shouldn’t be compensated as if it had.

It is critical that readers understand the difference between the various WACC rates. The measure proposed in this paper is the WACC or cost of capital (or cost of carry) associated with the claim over the pre-judgment period – this is different from the WACC attributed to the expropriated project or the claimant’s portfolio of assets.95 The rates underwrite different assets with dramatically different risk profiles and costs of capital.

The pre-judgment claim’s cost of capital COCLA is not a hypothetical rate. The claimant has been burdened by it over the pre-judgment period, and the claimant may have contracts and market data to prove its cost of carrying the claim.

E.    Measuring COCLA: the Cost of Carrying the Litigation Asset

Deriving the cost of carrying a litigation asset can be tricky, depending on the type of capital which funds the claimant and the frequency with which its value is updated to reflect market conditions. The costs of capital are weighed by investors in real time and can thus change over time, and the costs are not usually explicitly stated. For instance, the rate of interest charged on a bond is explicitly shown when the bond is issued, but the actual cost of capital attached to the bond will vary based on macro and asset-specific factors reflecting the perceived risk of expected cash flows from the bond over time. If the risk of the asset underlying the debt increases, the cost of capital will increase.96

Where the claimant owns a single asset which was expropriated and seeks funding during the pre-judgment period to support its litigation claim, the calculation of the cost of funding is not overly difficult. This is particularly true if the claimant’s equity trades in public markets so that its shares are marked to market each day. Yet it is not very often the case that one finds such transparency into the pricing of risk related specific to a litigation claim.

Often a claimant owns a portfolio of assets, and the cost to carry a specific asset cannot be assessed by looking at the claimant’s overall WACC. For instance, a large public corporation may have multiple business lines with only one of the businesses involved in a specific claim. We cannot measure the litigation asset’s cost of capital by looking at the cost of the company’s publicly traded equity since that cost of equity measures investors’ expectations for the entire portfolio of the claimant.

Fortunately, a fairly robust market exists for funding litigation assets in private transactions. When a litigation asset is funded by investors, or when investors make a binding bid to fund a litigation claim, a market assessment of the cost involved to fund the claim can be conducted. Thus, during the pre-judgment period, the claimant’s legal team can obtain a real-time measure of the cost of carrying the litigation asset.

For example, if investors offer a rate of 20% on a loan secured by the litigation claim, this implies that the litigation asset’s cost of debt is 20%. And, in the absence of an assessment on the cost of equity, this figure would give us the lower bound on the cost of carrying the litigation asset since debt constitutes the least risky portion of the litigation claim’s capital stack.97

Even if the claimant could self-fund the costs of pursuing its claim, conducting a competitive process to price the claim’s risks could help it demonstrate the costs it has carried over the pre-judgment period.98 This would require that the financing be secured solely by the outcome of the proceedings,99 so the financing must not be a general obligation of the claimant.

As use of the COCLA to set pre-judgment interest rates gains acceptance over time, it will become easier to determine the rate for specific claims. Litigation funding has become a large industry with many players.100 Large litigation funders could create proprietary databases and sell access to them to help predict expected returns (same as cost of capital) for litigation claims with different risk profiles based on historical transactions. The data could be made more useful if categorized in a manner that allowed users to refine search results by specific industries, types of claims, or along other helpful lines. Such a database could guide the determination of the cost to carry litigation assets as a secondary check for the figure estimated based on market-test methods.

F.    Litigation Funding

A robust market currently exists offering litigation funding to claimants.101 That funding is often extended based solely on the outcome of the litigation and not secured by other assets.102 These arrangements support our methodology in that third parties validate, in arm’s length transactions, the fact that a litigation asset exists, and that holding a litigation asset implies a cost that is directly related to the risk of that asset, and that cost is assumed by the claimant.

Assume a claimant holds no assets other than the litigation asset and has no source of income. It must seek funding from litigation financiers to pursue its claim. The riskier the claim’s circumstance, the more award the claimant will have to surrender to the litigation funder to secure the same amount of financing. All else equal, this would reduce the amount of award available to the claimant (increasing a liability owed to the litigation funder). Thus, if the goal of pre-judgment interest is to restore a claimant, the riskiness of the claim must be considered. 

G.   Potential Objection to Restoring Claimants for the Risk of Litigation

Several legal scholars have argued that costs originating from litigation risks are not eligible for compensation under pre-judgment interest.103 Those making these arguments assert that pre-judgment interest should not be used to compensate for the risk that a plaintiff might lose a case (or that a court may make an error).104 This line of thought would invalidate compensating the claimant for carrying the cost of the litigation claim because some of the risks embedded in the claim will be considered non-compensable litigation risks.

The objection is not sound for a number of reasons. First and foremost, the idea contradicts the fundamental premise of restoration. The claimant carries the cost of holding risk at a rate that takes into account all pertinent risks – that rate does not exclude judicial risks. Withholding compensation from the claimant for risks tied to the litigation invalidates a large portion of the costs the claimant has faced over the period. As such, pursuing pre-judgment interest under this theory necessarily involves partial rather than full restoration even though the principles of restoration specifically demand full restoration.

Second, the concept of awarding interest is fundamentally premised on the idea of compensating for litigation risks, making attempts to exclude these risks both illogical and impractical. As noted by Professor Roman Weil, all methods of awarding interest require compensation for the time value of money. 105 And because the delay associated with time value of money calculations (or the term of the pre-judgment period) is undoubtedly a litigation risk, all methodologies award interest for litigation risk.106 According to Professor Weil, the idea that we should accept some litigation risks, such as delay, while disallowing others, such as judicial error and the risk of losing, relies on inconsistent logic.107

Distinguishing the risks tied to litigation from those that are not can be difficult or even impossible. A number of scholars have argued that litigation risks should be excluded, but the risks connected to the defendant defaulting on its obligation to the plaintiff (assuming judgment for the plaintiff) should not.108 Yet, just like any other contingent liabilities of the defendant, litigation risks may influence the risk of the defendant defaulting, meaning that the risks of a defendant’s default implicitly include litigation risks.

It may be argued further that the risks of litigation do not qualify for consideration because a winning plaintiff has not borne the risk of losing and thus should not be paid as if it had. This argument expresses hindsight bias – the tendency to believe, after an outcome is known, that it was more predictable or less risky than it was before the outcome was determined. While this academic line of thought ignores risk and uncertainty in the case of a winning plaintiff, the winning plaintiff is not afforded the same luxury since ignoring a cost does not make it go away.

Fortunately, we are not restricted to making abstract legal arguments about the risks and costs the plaintiff has borne over the pre-judgment period as the market may provide a definitive and objective answer. The plaintiff is “charged” for the risk it bore regardless of our views regarding the certainty of the case. In the unlikely event that there is zero risk for a plaintiff before a judgment is rendered (as these proponents argue), then the litigation claim would be priced by litigation funders as if it were a risk-free asset.

Going back to the horse race analogy,109 the chance of loss is the predominant risk for which ticketholders must be compensated. That compensation is based on appropriate, market-based odds. We compensate the ticket holders in that manner because there is a real cost to absorbing the possibility of losing the investment. We do not disqualify winning bettors from their earnings by explaining to them that their risks were not realized because they won. Nor do we compensate the winning ticketholder with a small interest rate payment that reflects the risk of the racetrack going bankrupt during the 20 minutes the ticket was held. Likewise, a plaintiff who has been coerced to invest the fair market value of its claim in a litigation asset faces the risk of losing its investment and should be compensated appropriately for that risk.

VI. Conclusion

Pre-judgment interest is of great financial importance. However, recent surveys highlight uncertainty with regard to which pre-judgment interest rate is applicable.110 Arbitration tribunals often do not supply a rationale for their chosen rate.111 When they do, the explanations given are often not in agreement with other awards, and they usually do not adhere to fundamental concepts of finance.112 The uncertainty in this particular corner of the legal field has bred a behavioral response anchoring on the concept of “reasonable commercial rate,” often defaulting pre-judgment interest rates to low rates published in financial newspapers, 113—but such solutions do not achieve full restoration.

There is little disagreement in the legal community regarding the practice of using pre-judgment interest to compensate a claimant for the risks it bears during the pre-judgment period. Virtually every theory on the subject acknowledges risks and the need to compensate against the cost to carry those risks. According to established financial theory, risk is embedded in time value of money calculations, and the cost of bearing risks is captured in both cost of capital calculations and in foregone returns, or opportunities lost. Understanding risks borne over the pre-judgment period provides a measure of both the costs the claimant faced, and the returns it missed.

Disagreements over pre-judgment interest center around which risks (related to the claimant’s position with respect to the injury) the claimant faced, and the asset that is tied to, or explains, those risks. The important contribution our methodology makes is the elimination of speculation in setting pre-judgment rates by identifying the litigation claim as the key asset held by the claimant related to its value at risk. The litigation claim captures the claimant’s risks, the costs of carrying those risks, and the returns the claimant missed when it was coerced to substitute its original asset for an investment in the litigation asset. Adopting our methodology thus eliminates the need to speculate about returns the claimant could have earned absent the breach—the costs to carry the litigation asset are, by definition, equal to the expected returns from opportunities it was not afforded in similar risk assets, as its judgment value was effectively tied up in the litigation.

It is clear that the asset held because of the injury wasn’t a legal debt of the respondent, a market index, or the expropriated project. The claimant didn’t assume risks associated with those fabricated investments and it shouldn’t be compensated as if it had.

The correct solution exists to fully restore a claimant to the position it would have occupied but for the expropriation. Supported by financial theory, logical proof, and often by contracts with litigation funders, this solution is grounded in the reality of costs that a claimant has faced over the pre-judgment period and doesn’t rely on speculation. If we fail to acknowledge the costs of capital related to the litigation asset, and the opportunities foregone related to those costs, full and fair restoration is not possible.

Although the estimation of this measure may open further debate, if parties, judges, arbitrators and lawmakers keep in mind the fundamental financial principles outlined in this Article, they will come much closer to the correct pre-judgment interest rate than relying on existing methods.

While our proposal is more likely to have immediate application to arbitration (given arbitration’s flexibility with respect to interest rates), the same analysis readily applies to litigation. We hope that this Article will provide support to lawmakers who seek to revise the current prevalent practice of assigning statutory pre-judgment interest rates, where practical, to compensate for pre-judgment delays as statutory rates are undoubtedly creating inefficient outcomes.

• See infra Part II.
• See, e.g., Interest – Pre & Post Judgment, White and Williams LLP,

  https://perma.cc/JFD7-D88P (showing the approaches adopted by different states for pre-judgment and post-judgment interest in tort negligence claims and contract cases).

• See infra Part I.A.
• We use the term “cost of carry” loosely to provide an intuitive understanding of the concept. The technical term, which we explain later in the paper, is the weighted average cost of capital attached to the litigation asset, or cost of capital in short. Infra Part V.E.
• Yijia Lu & Nuno Garoupa, Pre-Judgment Interest Rates: Strategic Considerations, Am L. Econ. Rev. (2026) (Demonstrating strategic delays caused by incorrectly assessed interest rates).
• See infra Part I.A (discussing guidelines provided by courts and cases).
• Odyssey Marine Expl., Inc. v. United Mexican States, ICSID Case No. UNCT/20/1, Award, 545, 821 (Sept. 17, 2024).
• The interest rate assessed on the judgment amount was the Mexican government treasury bond rate. Id. at 802.
• Jen Morre et al., Third-party Funder is the Only Winner in Odyssey Marine Exploration’s Suit Against Mexico, Inequality.Org (Oct. 21, 2024), https://perma.cc/C53Z-R368.
• OMEX owners were not restored because the Tribunal relied on the coerced loan theory that asserts that the company essentially extended a loan to the Mexican government for the value of the project when the project was expropriated and should thus be compensated at the rate of a Mexican government bond. See Odyssey, ICSID Case No. UNCT/20/1 at 802. Numerous scholars have contributed to the coerced loan theory. See James Patell et al., Accumulating Damages in Litigation: The Roles of Uncertainty and Interest Rates, 11 J. Leg. Stud. 341 (1982); Michael Knoll, A Primer on Pre-judgment interest, 75 Tex. L. Rev. 293, 353–54 (1996); Jeffrey Colon & Michael Knoll, Pre-Judgment Interest, Litigation Services Handbook: The Role of the Financial Expert 3 (Roman Weil et al. eds., 6th ed. 2017).
• The principles of restoration aim to return the claimant to the spot it would have occupied but for the breach. Seeinfra Section I.A. Many have interpreted this concept to mean that we need to imagine or speculate about what the claimant would have done with the project over the pre-judgment period, and compensate them for that lost opportunity. See infra Parts II & III.
• Opportunity costs are defined as the expected returns that are foregone in an asset having similar or identical risk to the chosen asset. See Jonathan Berk & Peter Demarzo, Corporate Finance 178–80, 433–60 (6th ed. 2024).
• A commercially realistic rate is one that is struck in a commercial, free and open market arrangement. The rate proposed in this article is commercially realistic because the litigation claim is priced and its risk assessed by third parties who buy that risk from the claimant/seller in a commercial arrangement. See Tiago Duarte-Silva & Aaron Dolgoff, Prejudgment Interest: What is a “Normal Commercial Rate?”, Kluwer Arb. Blog (Feb. 7, 2017), https://perma.cc/GTF5-WGVT.
• See, e.g., White And Williams LLP, supra note 2; see also  John Keir & Robin Keir, Opportunity Cost: A Measure of Pre-judgment interest, 39 Bus. L. 129, 140-145 (1983) (surveying judicial decisions with regard to pre-judgment interest).
• See M. Alexis Maniatis et al., A Framework for Interest Awards in International Arbitration, 41 Fordham Int’l L. J. 821, 823–24 (2018) (reviewing two studies that demonstrate the lack of uniformity in the justification of pre-judgment interest); see also James Dow, Pre-Award Interest, Damages In International Arbitrations Guide (John Trenor ed., 5th ed. 2022) (demonstrating variations in the way pre-judgment interest is awarded in ICSID arbitrations).
• The claimant is the person filing a claim in arbitration – similar to the plaintiff in litigation. Similarly, the party against whom the claim is filed in arbitration is the respondent (defendant in litigation).
• Seeinfra Parts II & III.
• Knoll, supra note 11 at 294.
• Jeffrey Colon & Michael Knoll, Prejudgment interest in International Arbitration, 4 Transnat’l Disp. Mgmt. 1 (2007); see also Aaron Dolgoff & Tiago Duarte-Silva, Prejudgment Interest: An Economic Review of Alternative Approaches, 33 J. Int’l Arb. 99, 107-14 (2016) (reviewing arbitration cases that awarded pre-judgment interest).
• Dolgoff & Duarte-Silva, supra note 19, at 99–100; Hugo Acciarri & Nuno Garoupa, On the Judicial Interest Rate: Towards a Law and Economic Theory. 4 J. Eur. Tort L. 34, 36 (2013).
• See sources cited supra note 16.
• See Acciarri & Garoupa, supra note 20, at 44–51.
• 515 U.S. 189, 195–96 (1995) (cited in Colon & Knoll, supra note 20 at 4).
• The Factory at Chorzów (Ger. v. Pol.), Judgment, 1928 PCIJ (ser. A) No. 17, at 1, 47 (Sept. 13, 1928), https://perma.cc/HCV2-GTKG.
• See, e.g., International Arbitration Practice Guideline: Drafting Arbitral Awards Part II – Interest, Chartered Institute of Arbitrators 1, 5 (2016), https://perma.cc/7KK8-N6WB (“The amount of interest should be designed purely to compensate a receiving party for being kept out of its money and provide it with a form of commercially realistic restitution without punishing the paying party.”).
• G.A. Res. 56/83, Responsibility of States for Internationally Wrongful Acts, art. 31.1 (Dec. 12, 2001), https://perma.cc/NSW4-NDYV.
• Knoll, supra note 11 at 294.
• See, e.g., Catherine Cote, Time Value of Money (TVM): A Primer, Harv. Bus. Sch. Online (June 16, 2022), https://perma.cc/92RY-4JZL.
• See Berk & Demarzo, supra note 12, at 178–80.
• Opportunity costs are defined as the expected returns that are foregone in an asset having similar or identical risk to the chosen asset. Seeid. at 178–80, 433–60.
• The total amount is the sum of the judgment amount and the pre-judgment interest.
• In practice, other circumstances can additionally change the risk profile: for instance, the obligation may not have a term, or the respondent may be challenging the ruling. These are, however, secondary effects.
• Seeinfra Section II.B.
• To illustrate, the rate should be higher if the defendant has an opportunity to appeal, if there is no fixed term for repayment, or if the defendant’s obligation is subordinate to other loans. Notably, there can be a wide difference in government bond rates depending on the term of maturity.
• Knoll, supra note 11. at 303–05.
• For more sophisticated methods that take taxation into consideration, see Colon & Knoll, supra note 10, at 6–11.

• Maniatis et al, Dorobantu & Nunez, supra note 16, at 823.
• Id.; see Colon & Knoll, supra note 19, at 2.
• Maniatis et al., supra note 15, at 824 (citing PriceWaterhouseCoopers, Dispute Perspectives: Tribunals’ Conflicts on Interest (2016), https://perma.cc/2ADM-PSFH).
• Colon & Knoll, supra note 10, at 6; Dolgoff & Duarte-Silva, supra note 19, at 107–12 (showing that third-party indices are used in almost all arbitration cases); see supra note 14 and surrounding text (discussing the wide spread use of fixed statutory or judicial rates in state courts).
• See supra note 15.
• See, e.g., Hrvatska Elektroprivreda d.d. v. Republic of Slovenia, ICSID Case No. ARB/05/24, Award, ¶ 553 (Dec. 17, 2015) (“The Tribunal observes that it is common in investment treaty cases to tie the interest rate to LIBOR – although in the present case, where the currency is euros, it is more appropriate to use EURIBOR. This represents an objective, market-orientated rate, well suited to ensuring that the consequences of the breach are indeed wiped out.”) (Authors’ note: EURIBOR and LIBOR are Euro Interbank Offered Rate and London Interbank Offered Rate, respectively. They aggregate free market rates over a large panel of banks. See Berk & Demarzo, supra note 13, at 991.).
• Michael Knoll & Jeffrey Colon, The Calculation of Prejudgment Interest 1, 13 (Penn Carey Law Faculty Scholarship, Working Paper No. 114, 2005) (citing Franklin Fisher & R. Craig Romaine, Janis Joplin’s Yearbook and the Theory of Damages, 5 J. Acct. Auditing & Fin. 145, 147–48).
• Dolgoff & Duarte-Silva, supra note 19, at 107–12.
• There are a few choices for the risk-free rate: e.g., the London Interbank Offered Rate [hereinafter LIBOR], which measures the risk-free cost of borrowing, U.S. Treasury bill rates of various durations, and so on. See, e.g., Dan Harris et al., A Subject of Interest: Pre-award Interest Rates in International Arbitration, The Brattle Group 1, 2 (June 1, 2015), https://perma.cc/B9AC-WA6W.
• Id. at 3.
• Seeinfra Part II and the surrounding text.
• See Colon & Knoll, supra note 19, at 11 n.31.
• See id. at 11–12.
• Since that risk is characterized efficiently by participants in public bond markets, it is only a matter of applying the interest rate on the respondent’s bonds having maturities that match the pre-judgment period to determine the multiplier and to calculate the total award. There is disagreement over whether an average of yields corresponding to short-term maturities rolled over during the pre-judgment period should be used or whether the yield from a single maturity matching the term of the pre-judgment period better reflects the risk taken over the period. Maniatis et al., supra note 16.
• Return on capital is an ex-post measurement of actual returns. Cost of capital is determined by investors ex-ante and is a measure of expected return.
• Kristin Pauley & Steven Reisberg, An Arbitrator’s Authority to Award Interest on an Award until “Date of Payment”: Problems and Limitations, 1 Int’l Arb. L. R. 25, 27 (2013) (citing Evaluation Consult Ltd. (New Zealand) v. The Independent State of Papua New Guinea, Case No. 306221/046 (2005), XXX Y.B. Comm. Arb. 421 (Austria Oberster Gerichtshof)).
• Id.
• See infra Section V.A for a more thorough discussion.
• See infra Section V.B (outlining the steps of estimating WACC).
• The cost of capital provides the lower bound needed to fully restore the claimant. Under the further assumption of a perfectly competitive financial market where no supernormal profit can be made, the claimant’s return on capital is the same as its cost of capital.
• Colon & Knoll, supra note 11, at 12–13.
• Comapñiá de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3 (formerly Compañià de Aguas del Aconquija, S.A. and Compagnie Générale des Eaux v. Argentine Republic), Award, ¶ 9.2.8 (Aug. 20, 2007) (emphasis added).
• Dolgoff & Duarte-Silva, supra note 19, at 100.
• Id.
• Colon & Knoll, supra note 11, at 5.
• Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic ICSID Case No. ARB/04/16, Decision on Disqualification of Tribunal Expert (Spanish), 40 (Mar 23, 2015) (Refusing Argentina’s request to remove Mr. Nils Janson as a tribunal expert).
• Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. v. Argentine Republic ICSID Case No. ARB/04/16, Award (Spanish), 279 (Feb. 25, 2016).
• Id. at 287.
• Id. at 290 (“ . . . el Tribunal considera que el uso del WACC . . . como tasa de actualización sería excesivo para restituir a las Demandantes a la posición en la que habrían estado si la violación del TBI no hubiera tenido lugar” (authors’ translation)).
• Id. (“En vista del impacto de la crisis en la economía Argentina[], el Tribunal considera que no es razonable aplicar la tasa sugerida por las Demandantes a fin de actualizar los daños.” (authors’ translation)).
• Id. at 292 (“En consecuencia, el Tribunal considera que es apropiado y realista suponer que las Demandantes habrían aplicado el ingreso exigible, sea para eliminar la deuda existente o evitar incurrir en deuda adicional. Por lo tanto, la tasa de interés apropiada que ha de aplicarse a la fecha de pago debería ser la tasa de interés promedio que las Demandantes habrían pagado a fin de tomar un préstamo desde esa fecha hasta la fecha de pago. En ausencia de pruebas claras de la tasa de préstamo de las Demandantes en el expediente, el Tribunal aplicará una medida conservadora ampliamente reconocida, a saber, el 6% que se ha adoptado en laudos de otros tribunales de arbitraje, incluidos casos que involucraban a Argentina en calidad de Demandada en los que la tasa de actualización a la fecha del laudo estaba en el orden del 6%.” (authors’ translation) (emphasis added)).
• A numerical example in Section IV.A provides an illustration that claimant-independent approaches cannot provide full restoration.
• Chartered Institute of Arbitrators, supra note 24, at 5.
• See Acciarri & Garoupa, supra note 20, at 39; Keir & Keir, supra note 14, at 149; John Y. Gotanda, A Study of Interest, Interest, Auxiliary & Alternative Remedies in International Arbitration – Insitute Dossier V 168 (Inst. Of World Buis. L of the Int’l Chamber of Com. ed., ICC Pub. No. 684 E, 2008). Opportunity costs are the foregone returns not realized in an investment with similar risk to the chosen investment. It is equal to the WACC or the cost of carrying a specific asset or investment.
• If the claimant has only one asset which is expropriated, then the claimant’s cost of capital (WACC) is the same as the claim’s WACC.
• Knoll & Colon, supra note 44, at 6.
• For the purposes of this paper, we use the term “cost of carrying the litigation asset” in a colloquial manner to explain the concept with wording that may be intuitive to readers who lack a background in finance. In terms that financial professionals will understand, this concept is identical to the weighted average cost of capital or WACC for the asset. See, e.g., James Chen, Understanding Cost of Carry: Key Definitions, Models, and Factors, Investopedia (Sept. 03, 2025), https://perma.cc/2Z2J-ENH2. In addition, we use the term “cost of carrying” rather than WACC because, in our experience, legal professionals often automatically assume WACC refers either to the cost to carry the expropriated asset or to the claimant’s WACC which captures the risk of all of its assets.
• A discontinuity may exist in the function that determines the cost of carrying the litigation asset because of the immediate increase in risk associated with the damage. This discontinuity is sometimes expressed in litigation funding payouts as a fixed sum independent of time. For example, the OMEX agreement with its litigation funders stipulates a fixed sum of 300% in addition to the cumulative amount. Second Amended and Restated International Claims Enforcement Agreement, § 7.4(b), Ex. 10.1 to Odyssey Marine Exploration, Inc., Form 8-K (Dec. 18, 2020), https://perma.cc/ZNC6-XPR9.
• Financial professionals will note that the point of indifference is equivalent to a zero Economic Value Add (“EVA”) solution. At zero EVA the costs to carry an asset are perfectly met with the return of the asset. EVA is the firm’s economic profit. Corporate Finance Institute, Economic Value Added (EVA) — Definition, Formula (2025), https://perma.cc/88RB-U9XV. In a perfectly competitive market there are no economic profits in the long run N. Gregory Mankiw, Principles of Economics (10th ed. 2024), 300-1. This framework gives the Court a point to which it can aim for restoration in a non-speculative manner. It reminds the Court that the job of pre-judgment interest is to restore – or compensate against a loss—to bring a claimant to zero EVA (indifference). This means we need to identify the loss (caused by the cost to carry) rather than speculate about awarding a return when we can’t identify the loss that requires that offsetting return or speculate about an imagined asset held by the claimant. Zero EVA points to the efficiency of the proposed solution – the plaintiff is neither overcompensated nor undercompensated in a zero EVA solution; its costs are just offset with a corresponding return.
• See,e.g., Berk & Demarzo, supra note 12, at 313–412.
• Colon & Knoll, supra note 13, at 5.
• The indifference condition dictates substantially different restoration amounts for the two claimants.
• See infra Sections II.A & II.B.
• The willingness to trade would imply indifference; but no reasonable claimant would trade a risky claim for a less risky claim for the same yield.
• Assume an individual owns both Claim A and Claim B. For the coerced loan theory to hold true, that individual would have to value the claims equally despite the vast differences in probabilities of a positive outcome for each. A rational actor, however, would not willingly trade his or her stake in Claim A for the stake in Claim B given the probabilities/risks attached to the two claims.
• Berk & Demarzo, supra note 13, at 104–48.
• Costs can be measured by seeking funding that is tied solely to the outcome of the litigation. See infra Sec. V.F.
• The delay of five years is picked for illustration purposes. The delay can be any amount of time.
• Note that there are numerous risks embedded in COCLA. In addition to the risk of a faulty judgment, many other risks may be present. Those risks include but are not limited to risks around timing, strategy, execution of strategy, skills of counsel and opposing counsel, allowance of witnesses and certain testimony, etc.
• See infra Part V.E.
• For example, COC is estimated in fairness opinions that go into public filings in M&A transactions. COC is used to value businesses. It often serves as a hurdle rate when making investment decisions. DVFA. (2023). See DVFA, Guidelines for the preparation of fairness opinions 24 (2023), https://perma.cc/S9RG-PJR7 (discussing hurdle rate and WACC). WACC and COC are equivalent. Seesupra note 74 and accompanying text.
• See infra Section II.C.
• Part A and Part B are adapted from Scott Vincent & Yijia Lu, Mispriced Justice: Fixing Pre-Award Interest in International Arbitration (Antonin Scalia Law School Law & Econ. Research Paper, August 2025), which focuses on pre-award interest in international arbitration.
• Berk & Demarzo, supra note 12, at 198.
• See id.
• Dynamic odds (odds that fluctuate based on wagering) in parimutuel betting on horse races mean that perceived increases in risk can be priced by market participants (bettors) in real time prior to the start of the race. The repricing of risk changes the odds and thus the payouts connected to each horse/jockey combination. When the risk changes specific to a wager, the payout will fluctuate to reflect that change based on betting patterns, offering a method for “restoring” the bettor for the increased/decreased risk. In modern racetracks, payout adjustments are made automatically by software that evaluates the betting pool in real time.  The face value of a racetrack ticket remains fixed. What changes continuously is the payout (odds), which is recalculated based on the proportion of the pool corresponding to a particular horse or outcome.  Traditionally, this function was performed manually by a bookmaker or a tote operator rather than by software. SeeParimutuel Betting, EQUINEEDGE (last visited Jan. 5, 2026), https://equinedge.com/glossary/betting-basics/parimutuel-betting (defining pari-mutuel wagering as a pool betting system); Georgina Torbet, The Economics of Match Betting, INOMICS (Jan. 28, 2019), https://inomics.com/blog/the-economics-of-match-betting-1360344 (explaining how arbitrage opportunities arise in betting markets).

• See Berk & Demarzo, supra note 13, at 494–510.
• The operational WACC is a proposed rate based on a view of the way experts believe the market would price funding for a project that was not expropriated (a hypothetical scenario whose risk is captured in a hypothetical rate). The claimant’s WACC describes the cost of holding all of the claimant’s assets – a rate that should have been met with a return on each of its assets except the arbitration claim. Note that in the example of our hypothetical single-asset claimant, the claimant’s WACC and the claim’s WACC would be the same.
• If bonds are traded, then the price of the bond would decrease.
• Debt in general carries less risk than equity and therefore has a lower cost. P. Brusov et al., Capital Structure Theory: Past, Present, Future, 11 Math. 616 (2023) 1, 3. Applying this principle, we could just use the cost of debt as the cost of the claim and ignore the equity portion that the claimant owned, content in the fact that the correct number would be higher than 20% but comforted in the fact that the 20% number is easy to defend as it was determined in an arm’s length transaction, with multiple bidders.
• In a situation where a claimant with many assets has self-funded the claim with low-cost capital, it is tempting to fall into the trap of assuming that the claimant is not burdened with the actual costs of carrying its claim asset. The costs of carrying the claim are related to the risks of the claim, and not to the risks of the claimant’s balance sheet more generally, so this thinking is mistaken. If that claimant were to attempt to sell a piece of the claim it had self-funded, backed only by the outcome of the claim, then it would have a clearer view on the pricing of the risks specific to the claim it had funded.
• This is known as non-recourse funding. See Zeqing Zheng, Fee-Splitting vs. Independent Judgment in Portfolio Litigation Financing of Commercial Litigation, 34 Geo. J. Legal Ethics 1383, 1386 (2021).
• See,e.g., The Growth of Litigation Attorneys in the US and the Rise of Litigation Funding, Larson Maddox (Sept. 2023), https://perma.cc/8SHT-G3WR.
• Robert B. Fuqua, How Litigation Funders Have Improved the Quality of Settlements in America, 27 Harv. Negot. L. Rev. 613, 625–26 (2020).
• Id.
• See, e.g., Roman L. Weil, Compensation for the Passage of Time, Litigation Services Handbook: The Role Of The Accountant As Expert (Roman L. Weil, Micheal, J. Wagner & Peter B. Franks eds., 2d ed. 1995) 1, 2-5; Knoll & Colon, supra note 44, at 7.
• See, e.g., Weil, supra note103, at 2-5. The risks of litigation are diverse and not restricted to judicial error. A claim’s risk may include agency risks, timing risks, risks of various stakeholders with different incentives exerting influence on strategy, uncertainty around quantum and quantum strategy, uncertainty around the ability and effectiveness of plaintiff’s counsel to properly execute arguments, uncertainty about the strategy of the defendant’s counsel, risk around the plaintiff’s liquidity, as well as many more uncertainties that inform calculations of risk and required return.
• See Roman L. Weil, Compensation for the Passage of Time, Litigation Services Handbook: The Role Of The Accountant As Expert 37.1, at 4 (Roman L. Weil, Micheal, J. Wagner & Peter B. Franks eds., 2d ed. 1995) (“Therefore the [] argument, carried to its logical conclusion, implies no compensation to the plaintiff for the passage of time.”) (cited in Knoll &Colon, supra note 10, 16.8, at 13).
• Id.
• Id.
• See, e.g., Knoll & Colon, supra note 44, at 6; See, e.g., Weil, supra note 103, at 4.
• Infra, Part V.B.
• PriceWaterHouseCoopers, supra note 40; see also Dow, supra note 16.
• PriceWaterHouseCoopers, supra note 40

   (finding 60% of the cases surveyed did not explain the concept attached to the pre-judgment interest awarded in a sample of 1000 cases).

• Id.
• See Dolgoff & Duarte-Silva, supra note 19, at 107 (explaining that “reasonable commercial rate” often translates to a near risk-free rate or a slightly higher rate such as LIBOR.)