The Facts
The Applications
The Analysis
The Position in Hong Kong

The recent case of Walker v Rome illustrates a difference in the treatment of interest on an award under the English Arbitration Act 1996 (the 1996 Act) and the Arbitration Ordinance of Hong Kong (the Ordinance).

The Walker Case involved the question of whether a court has power to award interest under Section 35A of the Supreme Court Act 1981 when giving leave to enforce an arbitral award as a judgment under Section 66 of the 1996 Act. Justice Aikens held that courts do not have such power, and in doing so highlighted the difference in the approach of Hong Kong and English legislation.

The Facts

The dispute arose out of contracts entered into in the late 1980s for the construction of ships. The purchasers of the ships had taken out insurance cover against the risk of default by the shipyard and cancellation of the contracts. The risks were reinsured. Marine Underwriters (the Reinsured) was the claimant in four arbitrations against the Reinsurer for excess of loss in relation to shipbuilding claims. The arbitrators found in favour of the Reinsurer and the Reinsured's claims were dismissed.

After hearing submissions from the parties, on October 19 1998 the tribunal held that the costs should "follow the event" and ordered that some of the costs must be paid within 21 days of the costs award. No application for interest on late payment of the costs had been made by the Reinsurer in the arbitration proceedings and no reference to interest was made in the costs award.

On March 11 1999 the Reinsurer applied for leave to enforce the costs award in the same manner as a judgment or order of the court pursuant to Section 66 of the 1996 Act. On May 7 1999 Justice Mance, upon the application of the Reinsurer, made an order stating that:

"… the [Reinsured] pay the [Reinsurer] interest at a rate to be determined by a commercial judge on further application and for the periods shown … hereafter continuing a rate likewise to be determined per day until satisfied."

The Applications

The Reinsurer subsequently made an application for an order to set the rate of interest as per Justice Mance's order of May 7. The application sought interest under Section 35A of the Supreme Court Act 1981. The application was slightly modified to take account of points raised by Justice Aikens, but essentially remained an application for the same interest as would accrue on a judgment.

The Reinsured made an application to have Justice Mance's order set aside. The Reinsured argued that the court had no power to award such interest where the arbitrators had not provided for post-award interest under the 1996 Act.

The Analysis

Justice Aikens' approached the question of whether a court has power to order post-award interest by comparing the regime under the 1950 Arbitration Act (1950 Act) to that under the 1996 Act. Under the 1950 Act, it was not necessary for arbitrators to grant post-award interest on a money award. Section 20 of the 1950 Act provided for automatic interest: "A sum directed to be paid by an award shall, unless the award otherwise directs, carry interest as from the date of the award."

Thus an arbitrator did not need to think of awarding post-award interest. Any application for the enforcement of an award under Section 26 of 1950 Act for judgment 'in terms of the award' would include post-award interest. Once the award had been converted into a judgment, judgment interest would accrue by virtue of the prevailing statutory provisions.

The regime under the 1996 Act is different. The automatic post-award interest provided for in the 1950 Act has been abolished. Under Section 49(4) of the 1996 Act, post-award interest is left solely to the arbitrator to decide:

"The tribunal may award simple or compound interest from the date of the award (or any later date) until payment, at such rates and with such rests as it considers meets the justice of the case, on the outstanding amount of any award (including … any award as to costs)."

The court concluded that an application for interest must be made to the arbitrator. If not, it does not fall for consideration. If an award is entered as a judgment under the 1996 Act then it would be entered 'in terms of the award' pursuant to Section 66(2). Thus, if the award does not carry or is silent on interest, judgment must be entered in those terms.

Justice Aikens was of the view that any attempt by the court to grant post-award interest would amount to an alteration by the court of the arbitrator's award. This would be contrary to the principle set out in Section 1(c) of the 1996 Act that the courts should not intervene in matters that are covered by Part 1 of the 1996 Act. That part includes Section 49(4) and also Section 66.

Justice Aikens concluded that the English court has no power to grant interest under Section 35A on a sum that is awarded by arbitrators but remains unpaid after the award, where the award is silent on interest.

The Position in Hong Kong

The position with regard to post-award interest in Hong Kong is different. Although the Ordinance has provisions similar to Sections 1(c), 49(4) and 66 of the 1996 Act referred to above, the Ordinance also has a provision that grants automatic interest on an award similar to that provided by Section 20 of the 1950 Act. Section 2GI of the Ordinance states: "Interest is payable on the amount of an award from the date of the award at the same rate as for a judgment debt, except when the award otherwise provides."

As a result, an arbitrator in Hong Kong has discretion to award such interest as is appropriate in the case. If he expressly states that an award should bear no interest then no interest will accrue, even if it is converted into a judgment. However, if the award is silent, it will carry interest. Therefore, if leave to enforce an award is given and the court enters judgment 'in terms of the award' (Section 2GG of the Ordinance), this will include post-award interest.

For further information on this topic please contact Craig Shepherd or Kenneth Mach at Herbert Smith by telephone (+852 2845 6639) or by fax (+852 2845 9099) or by e-mail ([email protected] or [email protected]).
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