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D J Walker (and others) v. Christoper William Rome (and others).
(England and Wales) High Court of Justice (Queen's Bench Division,
Commercial Court), Atkins J., 10th September 1999.
Award on Costs - no post Award
interest sought or awarded on costs not paid by the ordered date for
payment - cost awarded not paid by date ordered - whether court could,
on application to enforce award as a judgment, order interest to be
paid on the unpaid balance - s. 35A of the Supreme Court Act 1981 -
the Judgement Act 1838 as amended - whether court's power to order
interest under s. 35A ousted by ss. 1(c), 49(4) and 66 of the
Arbitration Act 1996.
Facts:
Purchasers of ships from shipyards in Eastern Europe frequently
arranged insurance cover against risks of default and cancellation of
contracts by those yards. The insured risks included loss of deposits
and stage payments made. These risks were, in turn, reinsured on the
London Market. There was also widespread excess of loss reinsurance of
those risks on the London Market. The excess of loss reinsurance
contracts provided for arbitration.
Because of economic and political difficulties in Eastern Europe
during the early 1990s, there were widespread cancellations and
defaults by shipyards and many insurance claims were made by
purchasers. The purchasers' insurers claimed against the reinsurers
who, in turn, claimed against the excess of loss reinsurers. Disputes
arose under many of the excess of loss reinsurance contracts and were
referred to arbitration. Because of the deluge of disputes, a
Framework Agreement was signed by all relevant parties in March 1997.
This provided for a tribunal to be appointed to hear and determine
four arbitrations as lead cases. The marine underwriters ("the
reinsureds") in the four lead cases were the Claimants in the
arbitrations. The excess of loss reinsurers ("the reinsurers")
were the Respondents.
The tribunal found in favour of the reinsurers. The reinsureds'
claims were dismissed in four reasoned Awards dated 20th May 1998, the
question of costs being reserved. The reinsureds' application for
leave to appeal was dismissed and, meanwhile, the tribunal heard
submissions on the question of costs and made an Award on Costs. By
that Award the tribunal held that costs should be paid by the
reinsureds within 21 days of the award (a date in November 1998). The
Award dealt with four classes of costs. The first two classes
consisted of the fees and expenses of the tribunal (including the
venue and shorthand writer) and the tribunal's costs of the Award on
Costs. The Award provided that if the reinsurers had paid these costs
they should be reimbursed by the reinsureds. The third and fourth
classes, with which the court was not concerned, concerned with the
parties' own costs. The Award on Costs did not deal with the question
of whether interest should accrue on sums that were not paid by
reinsureds by the ordered date; no application having been made to the
tribunal for an award of post Award interest.
The reinsureds did not pay the reinsurers the sums due to them in
respect of the first two classes of costs by the ordered date,
although they subsequently paid most of the ordered sum. A balance of
some £2,700 remained outstanding in May 1999 when the court gave
leave to enforce the Award on Costs as a judgment pursuant to s. 66 of
the Arbitration Act 1996. The court's order included a provision that
the reinsureds pay the reinsurers interest, to be determined upon
further application by a Commercial Judge, for the periods that the
various sums of costs remained unpaid after the date for payment
ordered in the Award on Costs.
The reinsurers applied to the court to set the rate of interest,
seeking interest under s. 35A of the Supreme Court Act 1981 for the
period before judgment was entered. They accepted, following an
observation by the court, that once judgment was entered any interest
after that date would be payable under the Judgement Act 1838 as
modified by s. 44 of the Administration of Justice Act 1970. The rate
payable to be that fixed by the statutory instrument in force at the
time that judgment was entered.
The reinsureds applied to set aside the court order for the payment
of interest. They contended that the court had no power to award
interest under s. 35A of the Supreme Court Act 1981 in circumstances
where an Award was made under the Arbitration Act 1996 and the
tribunal had not, itself, granted post Award interest, even if the
Award was subsequently entered as a judgment pursuant to s. 66 of that
Act (the principal issue). Alternatively, they contended that, if the
court had the power to award interest, it should not, in the exercise
of its discretion, do so where there was no application for post Award
interest before the arbitral tribunal and it had not awarded such
interest.
Held: The key to the principal issue lay in contrasting the powers
given to arbitrators under the 1950 Act, in particular ss. 20 and 26,
with the 1996 Act regime, in particular ss. 49(4) and 66. Under the
1950 Act when arbitrators made a money Award they did not need to
think of granting post Award interest since, by s. 20 of that Act, a
money Award automatically attracted interest at the Judgement Act rate
unless the arbitrators specifically made an award to the contrary.
When a money Award was entered as a Judgment under s. 26 of the 1950
Act, the Judgment would be for the principal sum and any pre Award
interest awarded by the arbitrators and the post Award interest that
the principal sum and any pre Award interest automatically carried
pursuant to s. 20 of the 1950 Act up to the time that the judgment was
entered. Once the Award was converted to a Judgment, the Judgement
Act/Administration of Justice Act regime would continue so that
further interest would accrue.
The Arbitration Act 1996 (the 1996 Act) made important changes to
the way in which post Award interest was dealt with. Under s. 49(4) of
that Act, it is left solely to the arbitrators to decide whether and,
if so, what post Award interest should be granted. If an Award was
entered as a Judgment, it had, under s. 66(2) of the 1996 Act, to be
entered "in terms of the Award". If there was no Award of
post Award interest the Judgment had to be entered in those terms. Any
attempt to add s. 35A Supreme Court Act 1981 interest at that time
would amount to an alteration by the court of the arbitrators' Award.
Section 1(c) of the 1996 Act stated, as a principle, that the court
should not intervene in this way. Thus, the combined effect of ss.
1(c), 49(4) and 66 of the 1996 Act was that the court had no power to
grant interest under s. 35A of the Supreme Court Act 1981 on a sum
which was awarded by arbitrators but remained unpaid after their
Award. If, contrary to this conclusion, these provisions did not oust
the court's power to award post Award interest under s. 35A of the
Supreme Court Act 1981, then the court should not, in the exercise of
its discretion, grant such interest.
The unfortunate consequence of this conclusion was that the
reinsureds had been able to delay, without penalty, paying very large
sums in costs that should have been paid promptly in November 1998.
But this only emphasised how important it was for those involved in
arbitrations under the 1996 Act to appreciate the change of regime
brought about by that Act. If a party wanted post Award interest, it
had to apply to the arbitrators for under s. 49(4) of the 1996 Act. If
the arbitrators forgot to award post Award interest, the party had to
apply immediately for a correction or further award under s. 57(3) of
the 1996 Act.
For the Applicants: Mr N Calver (instructed by Messrs Norton Rose).
For the Respondents: Mr C Butcher (instructed by Messrs Clyde &
Co).
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