Supreme Court allows interest on arbitration costs awarded in final award under s.34 of Arbitration Act 1954.

[2004] IESC 16

THE SUPREME COURT

202/01

Denham J.

Murray J.

Hardiman J.

IN THE MATTER OF THE ARBITRATION ACT, 1954 – 1980

and

IN THE MATTER OF AN ARBITRATION AGREEMENT

Between:

TADGH HORAN

Plaintiff/Appellant

and

THOMAS QUILTER

Defendant/Respondent

JUDGMENT of Mr. Justice Hardiman delivered the 1st day of March, 2004.

1. This case raises a net point of some complexity.

2. The plaintiff and the defendant are both veterinary surgeons. In the year 1989 they entered into a partnership. Unfortunately

disagreements soon arose between them as to the affairs of the partnership. They agreed to refer their differences to the arbitration

of Mr. Joseph Dundon, Solicitor. The arbitrator held a number of hearings between 1992 and 1996. He made an interim award in

September, 1992, a second interim award in June, 1993 and a final award on the 26th November, 1996. Both the interim awards

expressly reserved for a future award the question of costs. In the final award, paragraph 5 provided:-

“I award the applicant his costs of the reference together with witnesses expenses”.

3. The “applicant” referred to is the plaintiff in the present proceedings.

4. He applied to the High Court for an order pursuant to s.41 of the Arbitration Act, 1954 which provides as follows:-

“An award on an arbitration agreement may, by leave of the Court, be enforced in the same manner as a judgment or

order to the same effect, and where leave is so given judgment may be entered in terms of the award”.

5. The High Court, by order dated the 2nd July, 2001 provided that:-

“It is ordered pursuant to s.1 of the Arbitration Act, 1954 that the plaintiff be at liberty to enforce the said arbitration

award in the same manner as a judgment or order to the same effect”.

6. It was further ordered “that the plaintiff to recover against the defendant the sum of £30,331.65 and costs of these proceedings

when taxed and ascertained”.

7. The learned High Court judge (O’Higgins J.) is recorded in the order as refusing to grant interest pursuant to s.22 of the Courts Act,

1981. This provision appears to relate to pre-judgment interest. In any event on the hearing of this appeal no claim was advanced by

virtue of that Section.

8. The sole question on the hearing of this appeal was to whether interest on the sum of £30,331.65 (being the amount of the

plaintiff’s Bill of Costs submitted on foot of paragraph 5 of the Arbitrator’s award) should run from the date of that award, the 26th

November, 1996 or from the date of the High Court judgment enforcing the award, the 2nd July, 2001.

Statutory provisions.

9. Section 34 of the Arbitration Act, 1954 provides:-

“A sum directed to be paid by an award shall, unless the award otherwise directs, carry interest as from the date of the

award and at the same rate as a judgment debt”.

10. The plaintiff says that the term “sum” includes a sum which is unquantified at the time of the award, but quantified later. The

defendant says that the award in this case does not refer to any “sum” because that terms refers exclusively to a quantified sum, a

specific sum of money. He says that s.34 simply does not refer to interest on costs. In so far as this may be considered a lacuna, the

defendant points out, it has been filled by the Arbitration (International Commercial) Act of 1998. But this provision does not apply to

an arbitration commencing before the date of its coming into operation.

11. Despite this difference, the parties are agreed that the order of a court for the payment of costs by one party to another, where

such costs are not quantified, has the effect of triggering interest from the date of the order. But the defendant says this does not

apply to an award of costs by an arbitrator, firstly because an arbitrator has no power to order interest on costs and secondly

because his award is not an order proper.

“Sum”.

12. Both sides contend that the word “sum” should be given its ordinary and natural meaning. But they are not agreed as to what this

meaning is. The Oxford English Dictionary defines the word broadly enough, it seems to me, to include each side’s preferred

connotation, referring to both “some quantity or amount of money” and “a quantity of money of a specified amount”. The examples

from usage given in the OED reflect this distinction precisely: in one set of examples the information communicated is merely that

something was done or exchanged in consideration of some sum of money; in the other examples the actual amount is specified. It

does not appear, therefore, that the present problem can be resolved wholly on the basis of the ordinary and natural meaning of the

word “sum”. But it is important to note that the ordinary and natural meaning extends to each sense in which the parties contend the

word should be interpreted here.

Analogy with Court awards.

13. The question of whether an award of costs made by a court, which requires to be quantified later by an official, carries interest

from the date of judgment or the date of qualification, has been vigorously debated for upwards of 150 years. The history of this

debate is meticulously traced in the judgment of Fennelly J. in Clarke and McCarthy v. The Commissioner of An Garda Síochána

[2002] 1 I.R. 207. This judgment, in turn, draws on the scholarly judgment of Murphy J. in Hickey v. Norwich Union Fire Insurance

Limited (unreported High Court 23rd October, 1987).

14. The historical position revealed by those redoubtable researches is one which is complex, obscure and changeable. It is also

remarkable for the emphatic manner in which judicial luminaries since about 1844 have pronounced quite contrary views as to whether

it is (apart from technicality) more just that interest on costs should run from the date of the decree awarding them, or from the later

date when they are ascertained.

15. At common law no interest was payable on a judgment, whether for costs or otherwise. A separate action had to be started to

recover it. This position was altered by the passing of the Debtors Ireland Act, 1840 which mirrored a legislative provision of 1838

having effect in the rest of the former United Kingdom. This Act had the following provisions of relevance to the question of interest

on judicially awarded costs:-

“(26) Every judgment debt due upon any judgment not confessed or recovered for any penal sum for securing principal

and interest shall carry interest at the rate of £4.00 per centum per annum from the time of entering up the judgment…

and such interest may be levied under a writ of execution on such judgment.

(27) All decrees and orders of the Court of Chancery… and all rules of any of the Superior Courts of Common Law whereby

any sum of money or any costs, charges, or expenses, shall be payable to any person, shall have the effect of judgments

in the Superior Courts of Common Law”.

16. The Sections cited, actually described by Fennelly J. in the case cited above as “these venerable provisions”, are still central to

the ascertainment of the date for which interest runs on judicially awarded costs. The same judgment traces the long period in the

19th Century (and into the 20th Century in Ireland) during which the Courts of Common Law and those of Equity differed on the dates

from which they awarded interest. This was because of a difference, entirely technical in nature, in the view which the respective

court took of the phrase “the time of entering up the judgment”. This phrase occurs in s.26 of the Debtors Ireland Act, 1840 and was

also used in the exemplar of that Act, the Judgments Act, 1838.

17. The approach of the Courts of Common Law was based on the proposition that, in construing the statutory phrase, they were

entitled to look to the practice of the Courts at the time the Act was passed. Thus, in Fisher v. Dudding (1841) 9 Dowl. 872, Erskine

J. said:-

“In putting an interpretation upon this clause of the Statute, we must look at the practice of the Court to see what is the

‘entering up’ of the judgment, and it appears to me that the entry of the incipitur in the Master’s Book must be taken to

be that entering up which is contemplated, and although the judgment may afterwards be more formally recorded in the

role, yet that is not the entering of the judgment from which the interest must be calculated”.

18. The view of the Courts of Chancery was expressed by Lindley L.J. in Boswell v. Coaks (1887) 57 L.J.Ch. 101:-

“The right to interest on costs depends upon the [1838 Act] and by Section 20 of that Act the Court is empowered to

make orders framing new rules, and under that Section the Court of Chancery by consolidating orders issued a form of

writ of fi. fa. according to which interest on costs was to run from the date of the Taxing Master’s certificate. There was

no similar practice at common law, where the interest always ran from the date of the judgment”.

19. It will thus be seen that the difference between the Common Law and the Chancery practice turned on matters of bare

technicality. Just how bare, and how oddly based on historical happenstance, these differences were is fully explored in the judgment

of Maule J. in Fisher v. Dudding: but I forbear to burden this judgment with too detailed an explanation of historical developments

already obscure when chronicled by Maule J. 163 years ago.

20. Since “entering up the judgment” is a term of art, it was no doubt proper for the Judges who had to construe that phrase, shortly

after the passages of the respective Acts of 1838 and 1840, to consider the meaning of that term in the actual practice of the

Courts at the time the Act was passed. But there appears to me to be less justification for construing the Act, at a great remove

from the time of its passing, in accordance with the changing practices. Certainly it is deplorable that, as Fennelly J. says at page

211 of the judgment already cited “Some of the decisions turn, not on the terms of the Sections but on versions of the footnotes to

the forms attached to the Rules of Court”.

21. Whatever the position may have been in the past, the process of “entering up” is now governed by Order 41 Rule 6 of the Rules

of the Superior Courts of 1986. This provides:-

“Particulars of every judgment or order of the High Court shall be entered in proper books to be kept for that purpose and

the judgment or order shall be filed in the Central Office every judgment or order pronounced or made by the High Court

when so filed shall be deemed to be duly entered”.

22. Apart from the unfortunate technicality arising from a construction of the 1838 and 1840 Acts based on the obscure practices of

the Victorian Courts, there emerged at an early date a more principled approach. This is exemplified in the following passage from

Newton v. Grand Junction Railway Company (1846) 16 M.W. 139. Alderton B., arguendo, said:-

“Then, as to the interest, there is an uncertain amount which is in the wrong pocket, and is there bearing interest; I see

no injustice in saying, that as soon at is reduced to certainty, that interest should be paid. Whatever be the sum, it is

fructifying in the wrong pocket”.

23. I would also say that the statutory phrase “ Any sum of money or any costs, charges, or expenses”, (emphasis added) appearing

in s.27 of the Act of 1840 appears to me to extend to those costs charges or expenses before, as well as after, ascertainment.

24. In Hunt v. Douglas (Roofing) Limited [1990] 1 AC 398, the House of Lords revisited the topic of when interest on costs should run

from. Lord Ackner delivered the unanimous judgment of the Lords which overruled two previous leading cases K v. K (Divorce costs:

interest) [1977] Fam. 39 and Erven Warnink BV v. J. Townsend and Son Limited [1982] 3 AER 312.

25. Lord Ackner’s judgment contains an historical survey very similar to that contained in the Irish cases mentioned above, with

emphasis on the English position.

26. One of the English cases cited by Lord Ackner, Borthwick v. Elderslie Steamship Company Limited [1905] 2 K.B. 516, is suggestive

both in the understanding of the historical cases and some of the terminology used in them, and in terms of the proper principle to be

applied. In that case, Romer L.J. mentioned that, at the end of the trial, the plaintiff was held entitled to recover damages in an

amount to be ascertained. He continued:-

“The amount has since been ascertained, and must be treated as if it had been mentioned in the judgment of the Court;

and the result is that the plaintiff had a judgment for an ascertained sum, dated on the day on which it is pronounced”.

27. In the first place, this deeming of the ascertainment of quantum, which in fact may have taken place months or years later, to

have occurred on the date of judgment is the origin of the Latin name of the Common Law Rule, the incipitur rule. This Latin word has

a connotation of reference back to the beginning or origin of the entitlement. The alternative Chancery Rule was known as the

allocatur rule, which has connotations of the date on which a precise quantification or allocation of money to the previously

unquantified sum occurs.

28. More fundamentally, the passage cited from Romer L.J. draws attention to the fact that it is merely incidental that time elapses

between the award of a sum for damages or costs and the quantification of that sum. The entitlement of the successful party has

been ascertained as of the date of judgment. Indeed, the postponement of the declaration of the party’s entitlement has occurred, in

the case of a plaintiff, due to the resistance of his just claim by the other party or, in the case of a defendant, by the making of

unjust claim against him. It is therefore difficult to see why interest – awarded to reflect the period during which the sum in dispute

was fructifying in the pocket of the wrong party, to use the phrase of Alderson B. – should not in principle be awarded from the date

of the declaration of the successful party’s entitlement.

29. In Hunt v. Douglas Lord Ackner said:-

“ In my judgment the balance of justice favours the incipitur rule for the following reasons.

(1) It is the unsuccessful party to the litigation who, ex hypothesi, has caused the costs unnecessarily to be

incurred. Hence the order made against him. Since interest is not awarded on costs incurred and paid by the

successful party before judgment, why should he suffer the added loss of interest on costs incurred and paid after

a judgment but before the Taxing Master gives his certificate.

(2) Since, as the Court of Appeal rightly said in [Warnink], payments of costs are likely nowadays to be made to

lawyers prior to taxation, then the application of the allocatur rule would generally speaking do greater injustice

than the operation of the incipitur rule. Moreover, the incipitur rule provides a further necessary stimulus for

payments to be made on account of costs and disbursements when necessary, to be expedited, all of which are

desirable developments. Barristers, solicitors and expert witnesses should not be expected to finance their client’s

litigation until it is completed and the Taxing Master Certificate obtained. If interest is not payable on costs

between judgment and completion of taxation, then there is an incentive to delay payment, delay disbursements

and taxation”.

30. Lord Ackner went on to make a further point relating to a problem identified in the speeches in the House of Lords in K. v. K.,

which is not relevant for present purposes.

31. Some two years before Lord Ackner’s speech in Hunt, this Court had addressed a similar problem in Cooke v. Walsh and the

Attorney General [1989] ILRM 322. Dealing with the particular case where the party entitled to the costs has not paid his lawyers or

expert witnesses at the time of judgment he had this to say:-

“If a litigant has discharged legal costs he is, on being awarded his costs, entitled to interest on the amount from the

date of judgment; this may be qualified in vacuo by pointing to the fact if it be the fact, that he did not pay those sums

until a date after the judgment. If he did not pay it, then it was owing to those to whom he should have paid it, his

lawyers. If they have not been paid, they would appear to have an equitable right to interest on the undischarged

amount or amounts; I see nothing wrong in principle in securing that such interest is paid from the earliest date the law

permits, to the successful litigant, either by way of direct indemnity for the loss of interest on monies paid out to him, or

by way of indirect indemnity to those who have had to await such payment”.

32. This concept of interest on costs as “direct indemnity for the loss of interest” monies paid out by the party entitled to costs, or

by way of indirect indemnity to those who have to await payment, is to me suggestive of the proper principle of construction of s.34

of 1954.

Arbitration costs.

33. This judgment has devoted much space to an analysis of the position obtaining in relation to judicially ordered costs because the

law on that topic seems most apt, by analogy, to cast light on the present one. Of course, if there were a complete absence of

power to award interest on arbitration costs, or on such costs prior to quantification, no reasoning by analogy would cure that. But I

have already held that, in its ordinary and natural meaning, the word “sum” where it occurs in s.34 is not confined to a specified sum

but is capable of referring to a sum (as yet) unspecified.

34. In Clarke v. Commissioner of An Garda Síochána, Fennelly J. said at the conclusion of his judgment:-

“I am of the view that costs constitute a liability of the unsuccessful party from the moment of the decree or judgment,

that they are not payable until quantified but that, from that point, the debt relates back to the date of the judgment,

with interest running from that earlier date. These views are, I believe, consistent with the wording of ss26 and 27 of the

Debtors Ireland Act, 1840. Section 26 gives the right to interest from the date of entering up of judgments”.

35. These words were described as the resolution of “the issue of principle”.

36. If, in principle, court costs are a liability of the unsuccessful party from the moment of the judgment, and that debt relates back

to the date of the judgment, so that interest runs from that date, there is manifestly no reason for disapplying that principle to the

costs of an arbitration. The fact that the arbitration award requires to be enforced by order of the Court cannot prevent interest

thereon running from the date of the award to be enforced. To hold otherwise would be unwarranted by anything in the Arbitration

Acts, would artificially limit the meaning of the word “sum” and would amount to a positive discouragement to claimants from referring

a dispute to arbitration. Both an arbitration award and a court award are to be collected by operation of the machinery of execution

of judgments and interest is to run at the same rate. This too is a factor suggesting a close analogy between arbitration costs and

court costs. But it is subordinate to the dominating consideration in this area; the sheer injustice which would be worked if a party

successful at arbitration were forced himself to bear the expense of a period after his entitlement to costs had been established but

before their quantification.

Conclusion.

37. I believe that s.34 of the Arbitration Act, 1954 extends to costs as well as to any other sum ordered to be paid in an arbitration

award. This, I believe is the true meaning of the Section and is commendable alike to justice and to commonsense. I would therefore

allow the appeal to the extent of ordering that interest on the sum ordered to be paid run from the date of the Arbitrator’s final

award, rather than from the date of the High Court order.