02 Dec Awards of Interest in Arbitration [2001] 2 MLJ lxxxv

Synopsis

This article deals with the entitlement of a successful claimant in arbitration proceedings (including a respondent who succeeds in a counterclaim) to have included in the award an amount in respect of interest on the principle sum awarded in his favour; and with the accumulation of interest on the award itself from the date of the award until the date of payment. Generally, interest from the date of the award until the date of payment is purely statutory whereas the arbitrator’s power to award interest generally is based on contract or claim by way of proof of special damages.

Introduction

The House of Lords in London, Chaltam & Dover Railway Co v South Eastern Railway Co1 held that ‘at common law, in the absence of any agreement or statutory provisions for the payment of interest, a court has no power to award interest, simple or compound, by way of damages for the detention (that is, the late payment) of a debt’. Based on this ratio decidendi, there is no right of action to recover interest, as damages or otherwise, upon any monies (whether debts or damages) for any period in which such monies are wrongfully withheld.

While the House of Lords in President of India v La Pintada Cia Navigacion SA2 recognized the injustice inherent in the rule, it nevertheless affirmed that the rule was too well settled to be departed from other than by legislation. The court explained that the ratio applied only to claims for interest by way of general damages, and did not extend to claims for special damages. The rule in London, Chaltam & Dover Railway Co v South Eastern Railway Co3 has, therefore, survived. It is, however, subject to a number of exceptions.

On the other hand, the general rule at common law established in Page v Newman4 was that an arbitrator had no inherent jurisdiction to award interest, nor had he any such jurisdiction arising from statute. He derived such jurisdiction from an implied term by a submission to arbitration that the arbitrator should have power to decide the issues on the subject of the reference according to the law which would be applied in the courts.