Texas Construction Law Blog

A recent opinion from the Fourth Circuit Court of Appeals^[1] highlighted a seemingly minor issue that can have huge future consequences: how to determine pre- or post-award interest on amounts that depend on contingent events in arbitration proceedings. From 2007 to 2008, a series of disputes arose between Kellogg, Brown & Root (“KBR”) and its subcontractor First Kuwaiti General Trading and Marketing Co. (“FKTC”) arising out of the Iraq War (which began in March 2003).

Background

These disputes involved multiple subcontracts and purchase orders with various dispute resolution rules, i.e., ICC, LCIA, ICDR. Consequently, the parties entered into a consolidated arbitration agreement (“Arbitration Agreement”), which set forth a process for resolving multiple disputes in a single ICDR arbitration before the same arbitral tribunal (the “Tribunal”). One of the key issues faced by the parties involved threatened litigation from the United States Government (“USG” or “Client”) against its Prime Contractor KBR relating to several of its subcontracts with FKTC.

In this connection, the parties entered into stipulations/contingent settlements (“Stipulations/Contingent Settlements”) that provided that certain funds were not disputed subject to the resolution of claims asserted or threatened by the USG against KBR. The parties were aware of these contingent claims at the time they entered into the Stipulations/Contingent Settlements but did not know when such claims would be resolved. Those contingent claims were eventually resolved when one dispute between KBR and the USG concluded at the end of 2020 and another dispute concluded in June 2022.

Claim for Interest

At various times during the arbitration, FKTC sought to undo the Arbitration Agreement by asking for a release of the funds referenced in the Stipulations/Contingent Settlements and sought awards of interest on such funds. The Stipulations did not contain any mention of the issue of pre-award or post-award interest.

During the arbitration and in subsequent court proceedings, FKTC took the position that the Stipulations/Contingent Settlements were essentially an “agreed judgment” or a “settlement agreement.” Regardless of the characterization, KBR’s position was that the Stipulations/Contingent Settlements did not contain any reference to interest. 

Result

KBR prevailed on its primary counterclaim in the final arbitration award and FKTC sought to recover interest on these Stipulations/Contingent Settlements because it alleged a loss of use of those funds from 2009 to 2022. Both the Tribunal and the Courts concluded that such interest could not be added later to a final award/final judgment. The amount of claimed interest on the Stipulations/Contingent Settlements exceeded $28 million.

While arbitrators generally have latitude in decisions on pre-award interest rates applied to awards, certain states have extremely high statutory rates. For example, practitioners in international arbitrations with an arbitral seat in New York have sought interest at a statutory rate that exceeds 9%. In this situation, the calculation of the amount of interest on an arbitration award can be even more significant than rates typically applied to judgments in Federal courts.

Lesson Learned

The key lesson here is to address the issue of interest on arbitration awards in the arbitration agreement, a procedural order, or in the Stipulations/Contingent Settlements themselves. This is especially true in situations with potentially long dormant periods while awaiting future, contingent events in a forum with high potential rates of interest.

[1] First Kuwaiti Gen. Trading & Contracting W.L.L. v. Kellogg Brown & Root Int'l, Inc., 141 F.4th 522 (4th Cir. 2025)