WFU Law School
Law & Valuation
1.4.1 Pre-judgment interest

In re Amoco Cadiz

In the Matter of: Oil Spill by the Amoco Cadiz
954 F.2d 1279 (7th Cir. 1992)

The suit was brought by the government of France, as well as private French citizens and businesses, against the Amoco Oil Company when one of Amoco’s supertankers, the Amoco Cadiz, ran aground in the North Sea and dumped millions of gallons of oil on the Brittany coast in 1978.

The litigation continued for thirteen years. When the case reached the Seventh Circuit in 1992, the court awarded the plaintiffs $65 million in damages and $148 million in prejudgment interest. The power of compounding interest and the sharp increase in inflation during the late 70’s and early 80’s, along with other factors considered by the court, combined to make the prejudgment interest more than double the principal damages award.

Open this simple spreadsheet to see how quickly the interest grew in the Amoco Cadiz case: Prejudgment Interest in the Amoco Cadiz Case.

Below is an excerpted version of the Seventh Circuit opinion. In Section VII-G the court focuses on the question of prejudgment interest, the case's "big-ticket" item. Consider whether the court's approach is justifiable. For interest rates on US 12-month notes, see ARM Indexes: Treasury Securities, 1970-1979, 1980-1989 / 1990-1999. See Prejudugment spreadsheet / Class spreadsheet - 2004.


In The Matter Of: Oil Spill By The Amoco Cadiz Off The Coast Of France On March 16, 1978.
United States Court of Appeals for the Seventh Circuit, 954 F.2d 1279 (1992)

Case Summary Procedural Posture: The court consolidated appeals from the United States District Court for the Northern District of Illinois, Eastern Division, from a default judgment against shipbuilder defendant, the denial of oil compnay defendant's petition asserting a right under The Limitation of Liability Act, 46 U.S.C.S. § 183(a)(1851), and damages award against defendants, jointly and severally, for damages involving the 1978 oil spill off the coast of France.

Judges: Before Bauer, Chief Judge, Easterbrook, Circuit Judge, and Fairchild, Senior Circuit Judge.

Opinion: Per curiam.

On the morning of March 16, 1978, the supertanker AMOCO CADIZ broke apart in a severe storm, spewing most of its load of 220,000 tons of Iranian crude into the seas off Brittany. The wreck resulted in one of the largest oil spills in history, damaging approximately 180 miles of coastline in one of the most important tourist and fishing regions in France. The clean up took more than six months and involved equipment and resources from all over the country. The disaster has had lasting effects on the environment, the economy, and the people of Brittany, and has resulted in numerous lawsuits. Thirteen years later, the matter is before us. In this consolidated appeal, we are asked to resolve a myriad of issues involving jurisdiction, liability, and damages. Before we begin, a brief history of the litigation and its cast of characters is in order.

I.

A.

[The Court described the origins of the Amoco Cadiz, born of an agreement between the shipbuilder, Asitlleros Espanoles, S.A. ("Astilleros") and Standard Oil Company of Indiana (now called Amoco). The ship was designed according to the American Bureau of Shipping's ("ABS") Rules for Building and Classing Steel Vessels. The ABS inspected the steering gear on three occasions and pronounced it in working order.]

B.

[The Amoco Cadiz was chartered by Shell International Petroleum from a subsidiary of the Amoco International Oil Company ("AIOC").]

C.

[In February 1978, Amoco Cadiz took on a load of crude oil from Iran and Saudi Arabia, destined for Rotterdam around the Cape of Good Hope. As the tanker approached western Europe, it sailed into a storm. Due to the storm, the steering gear completely failed. The Amoco Cadiz ran aground despite a concerted rescue effort, which led to an oil slick eighteen miles wide and eighty miles long. 4,400 men and 50 vessels were dispatched to aid in the clean up operations at sea. The infusion of oil upset the delicate ecosystem along the coastline, destroying algae and ruining oyster and lobster beds. Especially hard hit was the Breton economy. Brittany is France's second most important tourist region after the Riviera. The claimed overall cost to France was an estimated $100,000,000 at the 1978 rate of exchange.]

II.

[Various parties brought lawsuits against Amoco and Astilleros, such as the Republic of France, French administrative departments of Cotes du Nord and finistere ("the Cotes du No parties"), numerous municipalities, individuals, businesses and associations. In addition, Petroleum Insurance Limited ("PIL"), Royal Dutch Shell's subrogee, sought to recover from Amoco for loss of the oil cargo. The various federal actions were bifurcated and resulted in the court finding Amoco Corporation, Astilleros, and Amoco Production Company jointly and severally liable to France, the Cotes du Nord parties, the French claimants, and to PIL.

As for the consolidated damages issues, the district court awarded PIL 11,212,349.50 pounds sterling for the loss of Shell's oil cargo. The lower court also awarded PIL prejudgment interest, but denied its request for compounded interest. Subsequently, the court amended its opinion by awarding PIL statutory costs and by setting the annual prejudgment interest rate at 7.22 percent. The final award to PIL was 21,215,954.68 pounds sterling.

With regard to the other plaintiffs' damages, the district court applied French law and ordered an award to cover costs of clean up and restoration incurred by France, the Cotes du Nord parties, and the French claimants. The court awarded statutory costs as well as compound prejudgment interest at an annual rate of 7.22 percent for a total of nearly 600 million French francs. Soon after, these consolidated appeals followed.]

III.

[The Court of Appeals reviewed Astilleros' argument that each case against it should have been dismissed for lack of personal jurisdiction. However, the Court held that the doctrine of law of the case established on interlocutory appeal from a default judgment on the issue of liability precluded Astillero from contesting in personam jurisdiction on appeal from final judgment.]

IV and V.

[The Court then turned to the question of liability, asking "[w]hat caused the steering system to fail and whose fault was it?" The Court eventually determined that there was sufficient evidence in the record to support a finding that the oil spill was the result of negligence, inter alia, on the part of the shipowner and related entities that rendered the Amoco Cadiz unseaworthy and caused its gounding.]

VI.

[The Court also addressed the district court's denial of the Amoco parties' petition asserting a right to limited liability in the event that they were found to be legally responsible for the grounding of the Amoco Cadiz. The Court of Appeals held that neither the shipowner nor related entities were entitled to limitation of liability under the Limitation of Liability Act of 1851.]

VII.

A - F

[The Court held that French entities were entitled to an award that covered the costs incurred by the French navy in assisting the the oil spill cleanup. In addition, the Court stated that the claim reduction rule for dealing with contribution claims would not be adopted. French syndicates had standing to assert claims on behalf of private businesses, but French trade associations had no such standing. French communes could not recover damages separate and apart from private businesses who recovered lost profits, such as reputational damage in the absence of proof of specific loss to the communes themselves. The shipowner could also provide arguments based on foreign law regarding the computation of damages for loss of cargo. The Court also held that the value of the cargo should be determined by its value at the intended destination, including an appropriate market price for the costs of transporting the cargo. The value of the cargo should not have been reduced for any "shrinkage" that occurred during shipment. Finally, the damage award for the shipper's subrogee should have been denominated in dollars, which was the method used by all parties to the transaction.]

G.  

The district court awarded the French plaintiffs a principal amount of roughly 340 million francs, or about $61 million at the current rate of exchange, and the owners of the cargo approximately Lire 11.2 million, or $ 19.8 million at the current exchange rate. Because the accident occurred so long ago, the largest issue in the case is prejudgment interest. This could be anywhere from nothing (Amoco's preferred position) to compound interest at the U.S. prime rate (the plaintiffs' preferred position), which implies a multiplier of more than 3.3.

 The district court first rejected Amoco's argument that "inequitable" conduct by the plaintiffs should lead to a denial of all interest. Next it briefly stated that an award of compound interest was appropriate under the law of the forum. Finally it explained the choice of a rate:

 This court notes recent legislation on the subject of post-judgment interest applicable in federal courts, and has utilized the same rule both for pre-judgment interest and post-judgment interest.

The federal statute on the subject of post-judgment interest, that is, 28 U.S.C., Section 1961, provides that interest shall be calculated from the date of the entry of the judgment at a rate equal to the coupon issue yield equivalent as determined by the Secretary of the Treasury of the average accepted auction price for the last auction of 52 week United States Treasury bills settled immediately prior to the date of the judgment. The Director of the Administrative Office of the United States Courts is charged with distributing notice of that rate and any changes in it to all federal judges. That notice has been distributed and the current interest rate is 7.22 percent. While this amount is not binding on the federal courts in the area of pre-judgment interest, it does serve as a guide or benchmark suitable to the circumstances of this case and is adopted by the court as the pre-judgment interest rate. When making recommendations on the motions for reconsideration, Special Master McGarr rejected a claim that inflation (in France or the United States) justified a higher rate. We reproduce his discussion of this question:

 France argues also that inflation in France has been great since the date of the oil spill and that the court should give consideration to the decline in the value of the franc. It is the function of the court to hear claims, in this case stated in francs, to adjudicate their validity and to fix judgment amounts based on the evidence. The external circumstances affecting the value of a currency are not relevant to the judgment amount. Had France experienced deflation and increased value of the franc, plaintiffs would have benefitted. Either way, it is a circumstance outside the control of the court and the parties, and outside the pale of relevance to the court's determinations.

 Another aspect of this issue is whether inflation, although not recognized to vary [*1331] the amount of the judgment, should be recognized to affect the court's judgment as to the pre-judgment interest rate. France argues that high interest rates are a result of inflation and that inflation therefore justified a higher interest rate than the 7.22 percent the court allowed.

 The court, having rejected the argument that inflation is a factor to be considered by the court, must reject this argument also, based as it is on an effect of inflation. With respect to PIL's request for interest, the court said the following -- and again we reproduce the full discussion:

 35. PIL is entitled to prejudgment interest.

 36. English courts do not award compound interest except in cases of fraud and other exceptional circumstances which are of no relevance to this action. Applying English law, as contemplated by the Charter Party and bills of lading, PIL would have no reasonable expectation [**159] of recovering compound interest on any judgment that would be entered. The court ultimately applied the same 7.22% rate, but without compounding, to PIL's award. It allowed the 7.22% rate to stand with respect to all plaintiffs even though by the time of judgment the postjudgment rate exceeded 8%.


 1.

 We start with a discussion of principles. Part VII.G.2 addresses arguments peculiar to the French parties, and Part VII.G.3 all arguments concerning PIL.

"Prejudgment interest is an element of complete compensation". West Virginia v. United States, 479 U.S. 305, 310, 93 L. Ed. 2d 639, 107 S. Ct. 702 (1987). See also, e.g., General Motors Corp. v. Devex Corp., 461 U.S. 648, 655-56, 76 L. Ed. 2d 211, 103 S. Ct. 2058, 217 U.S.P.Q. (BNA) 1185 (1983); Gorenstein Enterprises, Inc. v. Quality Care-USA, Inc., 874 F.2d 431, 436-37, 10 U.S.P.Q.2D (BNA) 1762 (7th Cir. 1989); Williamson v. Handy Button Machine Co., 817 F.2d 1290, 1297-98 (7th Cir. 1987). Money today is not a full substitute for the same sum that should have been paid years ago. Prejudgment interest therefore is an ordinary part of any award under federal law.

By committing a tort, the wrongdoer creates an involuntary creditor. It may take time for the victim to obtain an enforceable judgment, but once there is a judgment the obligation is dated as of the time of the injury. In voluntary credit transactions, the borrower must pay the market rate for money. (The market rate is the minimum appropriate rate for prejudgment interest, because the involuntary creditor might have charged more to make a loan.) Prejudgment interest at the market rate puts both parties in the position they would have occupied had compensation been paid promptly.

 To see this, consider what would have happened if the French parties had borrowed $ 60 million to finance the cleanup in April 1978, and Amoco had put that sum in trust to fund an award of damages (just as Amoco actually put 77 million francs in trust in France). The victims would have had to pay the market rate of interest, which at times during this case has exceeded 20% per annum. If they arranged to repay the debt in a single balloon payment at the end (when they recouped from Amoco), and if the rate of interest averaged 12%, then by April 1991 the victims would owe their creditors $ 262 million. Meanwhile the trust fund, lending out its assets at the market rate of 12%, would have grown to $ 262 million. Scores would be fully settled if Amoco tendered its interest in the fund: it would thus "pay" $ 60 million as of 1978, and the victims would receive $ 60 million as of 1978; the lenders who financed the cleanup would receive full payment for the use of their money. (We use these dates and rate only as illustrations; the periods and rates actually used in this case differ. We also disregard taxes.)

 Victims who finance their own cleanup lend to themselves; forced to devote money to a project not of their own choosing (money they otherwise could have lent out at the market rate of interest), they are entitled to compensation for the "hire" of this capital. See Fishman v. Wirtz, 807 F.2d 520, 555-60 (7th Cir. 1986); id. at 580-82 (separate opinion). Tortfeasors who choose to reinvest their money in their business (as Amoco has done) rather than create a trust fund must believe that the returns in their enterprise exceed the market rate. Having earned this higher rate of return for the duration of the litigation, they are in no position to complain when called on to pay prejudgment interest. An injurer allowed to keep the return on this money has profited by the wrong. So we reiterate the holding of Gorenstein -- one almost compelled by Devex and West Virginia -- that compound prejudgment interest is the norm in federal litigation.

 Interest at what rate? Surely the market rate. That is what the victim must pay -- either explicitly if it borrows money or implicitly if it finances things out of cash on hand -- and the rate the wrongdoer has available to it. To return to the trust fund example, if the market rate were 12% it would be unthinkable to set a prejudgment rate of interest at 7.5%, order Amoco to turn over $ 154 million to the victims (the value of $ 60 million invested at 7.5% compound interest for 13 years), and authorize Amoco to retain the other $ 108 million. The victims would owe their creditors $ 108 million, and the tortfeasor would be the wealthier. Yet that would be the upshot of computing pre-judgment interest at less than the market rate -- an effect that does not depend on the existence of an express trust but is as powerful if the victims and the tortfeasor both use internal financing. All of this is just the flip side of discounting to present value in a tort case for future loss. See Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 533-53, 76 L. Ed. 2d 768, 103 S. Ct. 2541 (1983); O'Shea v. Riverway Towing Co., 677 F.2d 1194, 1199-1201 (7th Cir. 1982). As prepaid damages must be reduced at a market rate that takes account of inflation, so postpaid damages must be increased.

 What, then, is the market rate? Some of the district judge's discussion, coupled with his use of the rate on Treasury securities as of the date of his opinion, implies that the court thought that the market rate is the rate for safe securities at the end of the case. Yet as we pointed out in Gorenstein, when expressly disapproving use of the postjudgment rate for prejudgment interest, 874 F.2d at 4356-37, an involuntary tort creditor is not safe. The defendant may go out of business (or encounter less serious reverses), or hide assets, during the litigation. Any market interest rate reflects three things: the social return on investment (that is, the amount necessary to bid money away from other productive uses), the expected change in the value of money during the term of the loan (i.e., anticipated inflation), and the risk of nonpayment. The best estimate of these three variables is the amount the defendant must pay for money, which reflects variables specific to that entity. Amoco has publicly traded notes and debentures; a court could draw an interest rate directly from them. As we suggested in Gorenstein, 874 F.2d at 437, unless it engages in such refined rate-setting, a court should use the "prime rate" -- that is, the rate banks charge for short-term unsecured loans to credit-worthy customers. This rate may miss the mark for any particular party, but it is a market-based estimate.

 Although Gorenstein did not elaborate on this, it should be plain that the market rate in question is the one during the litigation -- when the defendant had the use of money that the court has decided belongs to the plaintiff -- not the going rate at the end of the case. See Ohio River Co. v. Peavey Co., 731 F.2d 547, 549-50 (8th Cir. 1984); SCNO Barge Lines, Inc. v. Sun Transportation Co., 775 F.2d 221, 226 (8th Cir. 1985). It is 13 1/2 years since the AMOCO CADIZ ran aground. Market rates have been above 20% and below 10% for different portions of the period. As it would be inappropriate to award prejudgment interest at a 20% rate if that happened to prevail in the last week of a case (and the rate had been 5% for the preceding decade), so it is inappropriate to use a low rate such as 7% for which money may be rented at the conclusion, when higher rates persisted during the bulk of the case. The district court's remark (when denying the French parties' motion for reconsideration) that inflation is irrelevant to the choice of a rate of interest reflects a misunderstanding of the relation between inflation and interest rates. The market rate includes a prediction of inflation -- which is why it is necessary to use the rates in force during the case and not whatever rate prevails at the end.

 2.

 The district court resolved the French plaintiffs' claims under the law of France. Prejudgment interest is an element of damages -- it is used to make the victim whole. Rules for prejudgment interest therefore usually come from the law defining the elements of damages. In diversity cases governed by Erie, federal courts look to state law to determine the availability of (and rules for computing) prejudgment interest. E.g., Residential Marketing Group, Inc. v. Granite Investment Group, 933 F.2d 546, 549-50 (7th Cir. 1991); Art Press, Ltd. v. Western Printing Machinery Co., 852 F.2d 276, 278-80 (7th Cir. 1988). In cases governed by federal law, courts look first to the statutes, devising federal common law only if they have been authorized to do so. One would think, therefore, that prejudgment interest on the French plaintiffs' claims depends on French law -- just as the district judge held that prejudgment interest on PIL's claims depends on British law. Nonetheless, the district court applied American law to the French plaintiffs' request for prejudgment interest. Amoco has not challenged that decision, and the French plaintiffs say (without contradiction) that Amoco agreed in the district court to the use of American law on this subject. On appeal Amoco says only that French law is an "equitable" consideration affecting the district court's choice of a rate of interest. We decide the case on the parties' assumption that our law applies -- while reserving for decision in another case whether this assumption is accurate.

 Amoco does not try to defend Judge McGarr's conclusion that the statutory postjudgment rate should be used as the prejudgment rate. It maintains, instead, that the French plaintiffs should count themselves lucky. Because the district court could (and in Amoco's view should) have declined to award any prejudgment interest, Amoco insists that the French plaintiffs are not entitled to an increase. Although the French parties reply that Amoco has not preserved this argument because it did not take a cross-appeal on this question, Amoco is free to defend its judgment by invoking arguments that failed to persuade the district court. Massachusetts Mutual Life Insurance Co. v. Ludwig, 426 U.S. 479, 48 L. Ed. 2d 784, 96 S. Ct. 2158 (1976); Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 439 (7th Cir. 1987). It cannot obtain a favorable alteration in the judgment without a cross-appeal, United States v. American Railway Express Co., 265 U.S. 425, 435, 68 L. Ed. 1087, 44 S. Ct. 560 (1924), but it may urge in defense of the judgment any argument preserved below -- even an argument the logical implications of which would call for a different judgment. United States v. New York Telephone Co., 434 U.S. 159, 166, 54 L. Ed. 2d 376, 98 S. Ct. 364 n.8 (1977); Robert L. Stern, When to Cross-Appeal or Cross-Petition -- Certainty or Confusion?, 87 Harv. L. Rev. 763 (1974).

 According to Amoco, three equitable considerations support a denial of all interest -- and perforce a limitation of interest to 7.22%. First, this has been a lengthy case, so that interest has mounted dramatically. Much of that delay is attributable to the French plaintiffs, Amoco submits. Second, the French plaintiffs (especially the Cotes du Nord parties) submitted inflated, even fraudulent, claims. Third, French courts do not award compound prejudgment interest.

 Although Amoco submits that Judge McGarr took these things into account when setting the 7.22% rate and did not mechanically follow the statutory postjudgment rate, we have a different view. The district court referred to the statutory rate -- and not at all to these equitable considerations -- when selecting the rate. Moreover, the district court used the same statutory postjudgment rate for PIL, to which none of these three considerations applies. Thus to the extent Amoco is arguing for a favorable exercise of discretion, it has had its day and lost. Whatever discretion the district judge possesses to act on these equitable grounds has not been exercised in Amoco's favor.

 Many cases say that district courts have discretion to adjust the rate of interest or deny interest altogether. E.g., Heiar v. Crawford County, 746 F.2d 1190, 1201 (7th Cir. 1984). Discretion is not unbridled; it is exercised under law. "Discretionary choices are not left to a court's 'inclination, but to its judgment; and its judgment is to be guided by sound legal principles.'" Albemarle Paper Co. v. Moody, 422 U.S. 405, 416, 45 L. Ed. 2d 280, 95 S. Ct. 2362 (1975), quoting from United States v. Burr, 25 F. Cas. 30, 35 (No. 14,692d) (CC Va. 1807) (Marshall, C.J.). What reasons would justify an exercise of discretion against the prevailing plaintiff? We remarked in Williamson that "substantial, unexplained delay in filing suit might be such a reason, because delay shifts the investment risk to the defendant, allowing the plaintiff to recover interest without bearing the corresponding risk." 817 F.2d at 1298. The Supreme Court reinforced this in West Virginia by stating that laches could justify a denial of interest. 479 U.S. at 311 n.3. A court also may deny interest when it is too difficult to determine which parts of an award are eligible. Daniels v. Pipefitters' Ass'n Local 597, 945 F.2d 906, 925 (7th Cir. 1991). Beyond these hints, courts have done little to sketch the limits of acceptable discretion. Limits there must be -- for what is the point of computing the principal amount of damages in intricate detail if the judge may turn around and increase (or reduce) the value of that award by a factor of three on the basis of vague equitable concerns? "We must not invite the exercise of judicial impressionism. Discretion there may be, but 'methodized by analogy, disciplined by system.' Cardozo, The Nature of the Judicial Process, 139, 141 (1921). Discretion without a criterion for its exercise is authorization of arbitrariness." Brown v. Allen, 344 U.S. 443, 496, 97 L. Ed. 469, 73 S. Ct. 397 (1953) (Frankfurter, J.).

 None of the three considerations Amoco offers could support a denial of interest even had the district court been inclined to exercise its discretion in Amoco's favor. Start with the passage of time: this is a reason to award interest, not to deny it. Amoco does not contend that the plaintiffs delayed in filing suit, and although 13 years is a regrettably long time to reach final decision, it is not uncommon for a case of this magnitude. As for exaggerated and fraudulent claims: these may be a basis of sanctions under Fed. R. Civ. P. 11 and 37, but sanctions must be proportioned to the wrong. No one would suppose that the appropriate sanction for filing even a bushel basket full of bogus claims is a $ 100 million fine. Yet that is Amoco's position. Return to the trust fund example: Amoco ponies up $ 60 million in April 1978, and by April 1991 the fund contains $ 262 million. The district court must apportion this fund between the parties. Could a court even think of saying: "Complete redress of the plaintiffs' injuries calls for an award of the entire $ 262 million, but because many of the claims during the course of the litigation were inflated, I shall award the plaintiffs $ 149 million and return the other $ 113 million to the defendant."? Not a chance. This is, however, the consequence of interest at the rate of 7.22% rather than 12% -- and Amoco's preferred position (no interest) implies a penalty of $ 202 million for exaggeration.

 We explained in Frantz v. United States Powerlifting Federation, 836 F.2d 1063 (7th Cir. 1987), that in choosing a sanction for misconduct a judge should not simply toss out a legitimate claim by the offending party. "The method of getting to a sanction should be characterized by intellectual discipline". Id. at 1066. See also In re Central Ice Cream Co., 836 F.2d 1068 (7th Cir. 1987). If the French plaintiffs have offended at all, even $ 5 million would be an excessive sanction; yet Amoco demands a sanction in the hundreds of millions. Indeed, we doubt that any adjustment of interest rates on this account could be sustained after West Virginia. The district court in that case declined to award interest on "equitable" grounds, including excessive delay (Amoco's first point) and the difference between federal and state law (a cousin to Amoco's third). The Supreme Court's treatment was curt: "The District Court held that whether interest had to be paid depended on a balancing of equities between the parties; the Court of Appeals rejected such an approach, as do we." 479 U.S. at 311 n.3.

 The right way to deal with exaggerated claims is to cut down on those claims, not to deny interest on proven entitlements. One has only to return to the discussion of Plougrescant in Part VII.A of this Opinion to see how severely the district court cut back many of the claims. Fiddling with the rate of interest would be double counting after these exclusions. The right way to deal with fraudulent claims is to impose explicit, reasoned, and measured sanctions on those who present such claims. (On the view we take of the case, it is not necessary to decide whether any of the claims was "fraudulent"; we note, however, that the French plaintiffs provide at least superficially plausible explanations for the claims to which Amoco attaches that label.) The right way to deal with French law on prejudgment interest is to decide whether it governs. If it does, apply it; if it does not, then apply American law (as the district judge did) rather than attempt some compromise between the bodies of law. (The parties strenuously dispute what French law provides by way of prejudgment interest; our approach allows us to be agnostic on the subject.)

 We hold that the French plaintiffs are entitled to prejudgment interest at the market rates that prevailed during the 1980s. The district court started the interest period at the end of 1979; the French have not contested this delay on appeal. The French parties say that the average prime rate during the 1980s was 11.9%. Amoco does not contest this and does not suggest that it paid a lower rate on its own debt. Because Amoco has not challenged the proposed rate of 11.9%, we adopt it. Because Amoco has not challenged the computation that leads the French plaintiffs to conclude that the interest factor through the date of judgment creates a multiplier of 3.3162, we adopt that figure also. On remand the district court shall apply this multiplier to the judgment recomputed according to the decisions made elsewhere in this opinion.

 Amoco has little reason to shed crocodile tears. Exxon reportedly spent $ 2 billion to clean up the oil the EXXON VALDEZ spilled off Alaska; it has agreed to pay another $ 1 billion as damages and to pay a criminal fine of $ 125 million. Amoco will be called on to pay only $ 61 million plus interest to redress a spill that not only was larger but also occurred in a more densely populated area. Calling the $ 61 million the result of inflated or fraudulent claims taxes credulity.

 3.

 The district court awarded PIL the same 7.22% rate of interest as it had the French plaintiffs but without compounding. It held that British law does not allow compounding; the court did not explain the choice of 7.22% as the rate.

 Amoco does not contend that the United Kingdom prescribes any rate of interest other than the market rate. For reasons we have already given, 7.22% is not the market rate and is not justifiable on any other ground. Even the "equitable" arguments Amoco asserts against the French plaintiffs are unavailable against PIL. We therefore hold that PIL is entitled to prejudgment interest at the prime rate. PIL contends that the average rate between the catastrophe and judgment is 12.31% per annum. (This exceeds the rate the French plaintiffs have calculated, because it includes the high-interest period between March 1978 and the end of 1979, which was excluded from the French plaintiffs' claim.) Again Amoco does not contest this calculation. On remand the district court shall increase the rate of prejudgment interest in PIL's case to 12.31%.

The parties agree that courts of the United Kingdom award simple rather than compound prejudgment interest. The La Pintada, [1984] 2 Lloyd's Rep. 9, 17. Relying on Miliangos v. George Frank (Textiles) Ltd., [1977] 1 Q.B. 489, 497, PIL insists that England treats interest as a procedural rather than substantive matter, so that the law of the forum governs. What is the law of the forum? Now looms the spectre of renvoi, for American courts treat prejudgment interest as a substantive question, which by the charter party and bills of lading is to be decided under British law. There are several ways to escape from this predicament -- an infinite loop being excluded by the terror of having a case under advisement forever, and other sufficient reasons. See University of Chicago v. Dater, 277 Mich. 658, 270 N.W. 175 (1936); Restatement (2d) of Conflict of Laws § 8. The easiest trap door, and the one appropriate here, is to deny that the foreign jurisdiction refers back to the forum's law.

 Miliangos is an ambiguous case. Justice Bristow says that British courts treat prejudgment interest as a question of forum law. But he also says that a British court should use the discretion it possesses under its domestic law to produce an award that tracks the one the court supplying the substantive rule would think appropriate. Switzerland supplied the substantive rule in Miliangos, and the court applied simple interest at the Swiss rate. There are two ways to understand this outcome. One, which Amoco favors, is that Miliangos does not "really" treat interest as a question of forum law but instead flexibly matches the award to the substantive rule -- an approach that, Amoco insists, means simple interest. The other understanding, which PIL favors, is that the United Kingdom has no rule at all: although it believes that simple interest provides adequate compensation, it will go with the flow, and if some other jurisdiction has a different view, that is fine with Her Majesty's courts. In modern American argot, the argument is that the United Kingdom has no "interest" in the method of computing interest. England does not point to forum law (inviting the forum to point back); it simply does not care, and then the forum naturally applies its own law.

 Of only one thing can we be sure: had this case been filed in the United Kingdom, it would have been decided under British substantive law, and PIL would have received simple prejudgment interest. Is there any reason why the location of the forum should call for a different result? Perhaps it would be Amoco's comeuppance if the filing in the United States (to take advantage of the Limitation of Liability Act) should ricochet and generate compound interest. The only argument we can see for changing the rule of law with the forum -- given our strong preference for enforcing the rules the parties chose -- would be that litigation in the United States takes longer than litigation in the United Kingdom. Could it be that the English approach reflects the fact that when cases end quickly, there is not much difference between simple and compound interest? Would an English court switch to compounding when the case drags on for more than 13 years? Britain's dominant principle of damages is restitutio in integrum -- that is, restoration of the injured party to the position it occupied before the wrong. Although England believes that simple interest accomplishes this end, it might have a different view in long-running litigation. Compound prejudgment interest will give PIL 100% of the value of the cargo; simple interest, after 13 years, produces only 57.5%.

 Although it is tempting to follow this reasoning to the conclusion that PIL is entitled to compound interest, no data available to us suggest that large-stakes commercial litigation in the United Kingdom comes to judgment faster than in the United States. Too, PIL has not cited any case suggesting that in the United Kingdom compounding would be allowed in drawn-out contests. That leaves us with two dominant considerations: If the suit had gone to judgment in England, PIL would have had simple interest; and courts of the United States treat prejudgment interest [*1337] as a question of substantive law, pointing us to the English rule. Both potential forums thus can produce the same result, without violence to the law of either. Parties may provide for compound interest by contract; by incorporating the law of the United Kingdom without a separate provision on this question, the parties assented to simple interest. Commerce depends on honoring contracts rather than finding creative ways to get 'round them after the fact, and we honor the parties' bargain by affirming the district court's conclusion that PIL's prejudgment interest should not be compounded.

 VIII.

 To sum up: all decisions on jurisdiction and liability are affirmed. The computation of damages is affirmed with the following exceptions:

1. France is entitled to an additional 3.5 million francs (before interest) for the expense of the cleanup.

2. L'Union des Commercants et Artisans de Tregastel and L'Union Pleumeuroise Pour la Defense des Interets des Commercants et Artisans lack standing, and the awards in their favor are vacated.

3. The award in favor of PIL shall be made in dollars, and the 0.5% deduction for shrinkage shall be eliminated.

4. The French plaintiffs are entitled to compound prejudgment interest at a rate of 11.9% per annum from January 1, 1980, implying a multiplier of 3.3162.

5. PIL is entitled to simple prejudgment interest at the rate of 12.31% per annum from March 16, 1978. The case is remanded for the entry of judgment in accordance with this opinion.

1.4.1 Pre-judgment interest

©2003 Professor Alan R. Palmiter

This page was last updated on: January 26, 2004