Notes Of Cases
| DOI | http://doi.org/10.1111/j.1468-2230.1981.tb02759.x |
| Published date | 01 November 1981 |
| Date | 01 November 1981 |
NOTES OF
CASES
ARBITRATORS
AND
AWARDS
OF
INTEREST
THE
major criticism in the Law Commission’s report on interest
on
debt and damages, published in
1978,’
concerned loopholes left by
the Law Reform (Miscellaneous Provisions) Act
1934
for astute
debtors. Section
3
gave wide power to include interest in
a
judg-
ment in any proceedings tried in any court of record for the
recovery of any debt or damages. But debtors could delay payment
and avoid paying interest if, before proceedings commenced, they
tendered payment.’ The Law Commission felt the
1934
Act
remedied only partially the unfairness of the common law rule
confirmed in
London, Chatham and Dover Railway Co.
v.
S.E.
Railway CO.’
that interest was not payable unless
a
contract
so
provided. This injustice, particularly acute in times of high interest
rates, required legi~lation.~
One major omission from the Report was detailed consideration
of the power of arbitrators to award interest. This was probably
due to the belief that the
1934
Act applied powers to arbitrators6
as if they were courts of record and to the fact that the Law
Commission had been considering separately foreign money
liabilities, many disputes about which proceed to arbitration. How-
ever, the combination of inflation, currency fluctuation and high
interest rates make the question of arbitrators’ powers to award
interest “of the first importance”
(I
and it was this which the
Court of Appeal faced in
Tehno-Impex
v.
Gebr. van Weelde
Scheepvaartkantoor
B.
V.
‘I
Yugoslav charterers hired ships owned by the Dutch appellants.
Under a mistake of fact, U.S.
$30,000
for demurrage was overpaid
and reclaimed with interest. The claim was conceded and an arbi-
trator awarded the overpaid sum plus
7t
per cent. interest. The
key issues, however, concerned the owners’ counterclaim for breach
of contract in respect of late demurrage payments. The owners
1
The Law Commission,
Report
on
Interest,
Cmnd. 7229 (1978).
2
Ibid.
paras. 13, 32, 33; this was described in
Tehno-Impex
v.
Gebr. van
Weelde Scheepvaartkantoor B.V.
119801
1
Lloyd’s Rep. 484. 489 as an “indefen-
sible absurdity”; Lord Denning M.R. in the same case described such a debtor as
“nothing more nor less than a cheat” 119811 2 W.L.R. 821, 831. The rule that
interest is not recoverable where the plaintiff obtains judgment without trial,
e.g.
in default of appearance
or
defence, has been changed by the Court
of
Appeal in
Gardner Steel Ltd.
v.
Shefield Brothers (Profiles) Ltd.
[1978]
1
W.L.R. 916,
holding that a trial simply means a “determination”
of
the proceeding. This con-
struction
of
the 1934 Act, Drake
J.
recently stated
“
seemed to accord with com-
mercial sense”:
Alex Laivrie Factors Ltd.
v.
Modern Injection Moulds Ltd., The
Times,
May 19, 1981.
3
[
1893
J
A.C. 429.
4
Law Commission,
op.
cit.
para. 34.
5
Ibid.
para. 175, following the Court
of
Appeal in
Chandris
v.
Isbrandtserr
6
Tehno-Impex,
op.
cit.
[1981] 2 W.L.R. 821, 825,
per
Lord Denning
M.R.
7
Zbid.
,Moiler;
Co.
Inc.
[I9511
1
K.B.
240, and in
The Finix
[1978]
1
Lloyd‘s Rep. 16.
702
Nov.
19811
NOTES
OF
CASES
703
claimed interest from the due dates of payments until payment,
and further, as damages, interest upon that interest for the period
from payment to the arbitration award. The counterclaim was
concerned solely with the award of interest simpliciter, and interest
upon interest,
a
phrase which
“
aptly describes compound
interest.” The crucial issues were
(1)
can arbitrators award
interest under or by analogy with the
1934
Act which prohibits
the award of interest simpliciter and compound interest
’;
(2)
can
arbitrators award interest at common law; or
(3)
exercise Admiralty
jurisdiction?
(4)
If
the answer to
2
or
3
is affirmative, can they
award (i) interest simpliciter and/or (ii) compound interest?
At first instance, Parker
J.
rejected,1° while in the Court of
Appeal Lord Denning found
“
very dubious
”
l1
and Watkins
L.J.
excluded without discussion,12 the Law Commission’s proposition
that the
1934
Act powers could be exercised by arbitrators. Oliver
L.J., however, thought it
“
clear
”
since the
Chandris
case
l3
that
arbitrators did have power to award interest by analogy to the
1934
Act.14
The Court of Appeal therefore questioned the basis on which
arbitrators have awarded interest in the past. Indeed, it was because
the
1934
Act does not permit the award of interest simpliciter that
the arbitrator in this case felt unable to award interest. Anything
said on this was strictly
obiter;
and most discussion centred on
whether arbitrators could award interest at common law or under
Admiralty jurisdiction.
The common law rule is that interest may not be claimed for
non-payment of
a
contract debt unless the parties have
so
pro-
vided.15 Similar rules apply to damages in tort.16 In
Tehno-Zmpex,
Lord Denning
M.R.
argued that the common law rule was
a
rule
of practice
only
and not binding on arbitrators17: as monetary
conditions had altered radically, arbitrators should have
a
wide
discretion to award interest as damages within
Hadley
v.
Baxen-
dale
l8
whenever just and equitable to do
~0.l~
Oliver
L.J.
felt,
however, that the common law rule had been
so
long observed
that it was part of substantive law and bound arbitrators.20 Watkins
L.J.
also was not persuaded that the common law had changed.21
Miliangos
v.
George Frank (Textiles)
(No.
2)
119771
Q.B.
489, 496,
per
Bristow
J.
9
s.
3 (1)
(a).
10
Op.
cif.
11
Op.
cit.
p. 830 confirming his view in
The
Finir,
op.
cit.
but misrcading the
Law
Commission Report, para. 175, which far from considering this proposition
to
be
dubious, commented
it
as
being “sound” (para. 176).
12 Ibid.
pp. 844-845.
13
Op.
cif.
14
Op.
cif.
p. 833.
1.5
London,
Charham
and
Dover
Co.
case,
op.
cif.;
Law Commission,
op.
cit.
16
Law Commission,
ibid.
17
Op. cit.
p. 832.
18
(1854) 9 Exch. 341.
19
Op.
cit.
p. 832.
20
Ibid.
pp. 837-38; he also noted the difficulties in distinguishing rules of practice
21
Ibid.
p.
845.
para. 8.
from substantive
rules.
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