Attorney General v. Shimizu Corporation

Case No.HCMP 1519/1996

Court

High Court CFI

Date—

Judge—

Case Document

100%Judiciary

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

	1995, No.M.P. 1169
	1996, No.M.P. 1519

HEADNOTE

Arbitration Ordinance, s.22A - interest means simple interest or compound interest - discretion of arbitrator to make award of either, according to circumstances.

"Interest", in legislation, means simple interest or compound interest unless further definition or exclusion within statute or ordinance. Agreement may override statutory provision.

Construction of "interest" as embracing compound interest, consistent with principle of "restitutio in integrum."

Modern commercial reality requires as a matter of justice the ability of courts to award compound interest in the absence of specific restriction, or agreement.

Compound interest, as the quantification of the loss of use of money to which a party is entitled, is not too remote.

Equity, as a rule of law, may be invoked to permit an award of compound interest, even though statutory limitations may prevent it.

Arbitration Courts of leading countries developing rules to meet commercial reality in relation to interest on monies found due.

	1995, No. M.P. 1169
	1996, No.M.P. 1519

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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	IN THE MATTER of the Arbitration Ordinace, Cap 341
	and
	IN THE MATTER of an Arbitration

BETWEEN
	THE ATTORNEY GENERAL	Applicant
		(Respondent in Arbitration)
	and
	SHIMIZU CORPORATION (Formerly known as Shimizu Construction Co. Ltd.)	Respondent
		(Claimant in Arbitration)

-----------------

Coram: The Hon. Mr Justice Seagroatt in Court

Dates of Hearing: 4th and 5th July 1996

Date of Handing Down of Judgment: 29th July 1996

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JUDGMENT

-----------------

1. This is an appeal, with the consent of the Respondents, against an arbitrator's decision to award compound interest on sums found in two Awards to be due to Shimizu Corporation arising out of a construction dispute between the corporation and the Hong Kong Government. The point for determination is whether the Arbitrator, Mr. Brian Knight Q.C., had the power to award compound interest, as opposed to simple interest, on the sums he found due to Shimizu. I am assured that whatever my decision it will be subject to appeal. Accordingly I set out in some detail my review of the material.

2. It is necessary to set out that part of his award which deals with this point. It starts at page 34 of the Award (paragraph 48) and concludes at page 39. I start the extract at paragraph 49.

"49.

The starting point of this issue is Section 22A of the Hong Kong Arbitration Ordinance (CAP. 371), which provides:-

"22A.

(1)

Unless a contrary intention is expressed therein, every arbitration agreement shall, where such a provision is applicable to the reference, be deemed to contain a provision that the arbitrator or umpire may, if he thinks fit, award interest at such rate as he thinks fit -

	(a)	on any sum which is the subject of the reference but which is paid before the award, for such period ending not later than the date of payment as he thinks fit; and
	(b)	on any sum which he awards, for such period ending not later than the date of payment of that sum as he thinks fit.

(2)

The power to award interest conferred on an arbitrator or umpire by sub-section (1) is without prejudice to any other power of an arbitrator or umpire to award interest."

(Added to the Arbitration Ordinance by Section 3 of Ordinance No. 17 of 1984.)

50.	Where there is no contrary intention, the provision vests in an arbitrator or umpire a discretionary power to award interest upon any such sum which is the subject of the reference but which is paid before the award, or on any sum awarded. The section refers to "interest" on three occasions.
51.	The Respondent draws attention to the use of the word "interest" in Section 22, which provides that awards shall carry interest at the same rate as a judgment debt, unless the award otherwise directs. The Respondent argues that "interest" in Section 22 clearly means simple interest, and that one would expect the same word in Section 22A pointing to have the same meaning. In support of this proposition the Respondent argues (a) that there is a general rule of construction to that effect (although it must yield if the context otherwise requires), and (b) is supported by a presumption against a construction which would produce a result different from established legal principle. The Respondent submits that there is nothing in Section 22A pointing to "interest" having a wider meaning, and if that had been intended, it could have been expressed. The Respondent points out that the legislative intent behind Section 22A was to bring the Arbitration Ordinance into line with the United Kingdom Arbitration Act 1950.⁴⁰ Prior to the amendment the Arbitration Ordinance only provided for interest to accrue after the date of the award. Accordingly, as Section 19A of the Arbitration Act 1950 specifies that "simple interest" may be awarded, the legislative intention must have been to mirror this in the Ordinance, and that exceptionally regard should be had to that intention as it would "almost certainly settle the matter".
52.	The Claimant relies particularly on the point that if the intention of the legislature was to change the law by a power to award interest for any discretionary period, and to reproduce the English legislation with the sole but significant omission of the word "simple", the Respondent's arguments, including reliance on the Explanatory Memorandum, lose their force.
53.	The 1984 amendment could have put the matter beyond argument by qualifying "interest" by the word "simple" as in the Arbitration Act 1950, if indeed it was intended that the new power should be limited to the award of simple interest. On the other hand, if that was not the intention, but rather that arbitrators and umpires should have a wider discretion to award compound interest, this could have been put beyond argument e.g. by putting the words "simple or compound" before "interest". A slightly less clear option would have been to use the single word "interest", as was done. These arguments demonstrate the danger of speculating about a legislature's intention in introducing legislation, or, as in this case, amending it. In any event it is not clear from the Explanatory Memorandum, whether the words "This Bill will bring the Arbitration Ordinance into line with the Arbitration Act 1950", were intended only to bring the power to award interest for any discretionary period into line with the Arbitration Act 1950, or additionally to limit the power to award interest to "simple" interest. Therefore, unless "interest" is qualified by the word "simple" as in the Arbitration Act, 1950, it is to be construed as comprehending compound as well as simple interest. In my view, if it was the latter, the 1984 amendment signally fails to achieve it, essentially because of the omission of the word "simple", because the word "interest" may include compound as well as simple interest. I am not unduly troubled by the fact that Section 22 of the Arbitration Ordinance also uses the word "interest" and that in the context it may mean simple interest. That section is dealing with the accrual of interest after an award has been made, and provides that an award shall carry interest as if it were a judgment of the Court. I do not think that the argument assists therefore in construing the word "interest" in Section 22A, which confers an important discretionary jurisdiction upon arbitrators and umpires. I hold, therefore, that Section 22A empowers me to award compound interest in the event that, in the exercise of my discretion, I consider it appropriate to award compound interest.⁴¹"

3. The line of thinking is clear. The Arbitrator has taken his authority from section 22A of the Hong Kong Arbitration Ordinance, (Cap 271), which was added in 1984.

4. It is impossible, or at the very least necessarily complex, if I do not trace the development of interest awards historically, bearing in mind that the Courts for centuries turned their faces against awards of interest on a moral basis - it was usurious. Usury originally had the same meaning as "interest" has today i.e. periodical payments in consideration of a loan. Contracts could be avoided for usury above ten in the hundred. As a consequence attempts were made to avoid payments being construed as usury or interest by disguising then as a rent or annuity. A series of acts making all usurious contracts void became known as the Usury Laws - 1545 to 1850 - they were repealed in 1854 by the Usury Laws Repeal Act.

5. The legislation relating to the attachment of interest to judgment debts is traced from the Judgment Act, 1838 section 17 - "every judgment debt shall carry interest at the rate of four pounds per centum per annum from the time of entering up the judgment." It is clearly simple interest which is provided for.

6. The Law Reform (Misc. Provisions) Act, 1934 by section 3 empowered any Court of Record to award "interest" at such rate as it thinks fit on the whole or part of the debt or damages for the whole or part of any period between the date when the cause of action arose and the date of the judgment. But nothing in the section authorised the "giving of interest upon interest" (Compound interest.), or applied in "relation to any debt upon which interest is payable as of right" (i.e. by agreement or otherwise.) Interest could however be calculated at different rates in respect of different parts of the period for which it is given.

7. S. 35A of the Supreme Court Act, 1981 replaced s. 3 of the 1934 Act, and specifically stated that the interest which may be awarded is simple interest, for all or part of the period between the date when the cause of action arose and

in the case of any sum paid before judgment, the date of payment

and

b) in the case of the sum for which judgment is given, the date of the judgment.

8. Interest was not to be awarded for a period during which, for whatever reason, interest on the debt already runs.

9. The argument for Shimizu is that the term "interest" is capable of meaning both simple and compound interest and accordingly that was why it was necessary to include in the 1934 Act, the provision excluding the giving of "interest upon interest". The 1981 Supreme Court Act, consistent with this approach, made the matter certain by specifying "simple interest". The argument is supported by the enactments of other jurisdictions.

10. Section 30C of the Supreme Court Act 1936 of South Australia provided in terminology similar to that in the English 1934 Act, for an "award of interest" and the section "does not authorise the award of interest upon interest."

11. Over a quarter of a century earlier the 1908 New Zealand Judicature Act also referred to the discretionary power to award interest but no authorisation to give interest upon interest. The Civil Law Act of Singapore current from 1994 provides similarly for interest with a provision against "the giving of interest upon interest".

12. The Hong Kong District Court Ordinance followed the pre-1981 Supreme Court Act (of England) drafting and referred to the giving of "interest" but no authorisation of "interest upon interest". It was a 1970 provision following the 1969 Administration of Justice Act s.22 in England.

13. The Hong Kong Supreme Court Ordinance Cap. 4 provides at section 48(1), for the Court's discretion to award 'simple interest' on a debt or damages and follows the 1981, English Supreme Court Act (s. 35A - see earlier). It is notable however that at sub-sections 2 & 3 the English provisions are also for simple interest (including damages for personal injury and death) whereas in the Hong Kong Ordinance at sub-section 3, dealing with proceedings for recovery of a debt where the Defendant pays the whole debt to the Plaintiff (otherwise than in pursuance of a judgment in the proceedings) it provides for the payment of interest (simpliciter) as opposed to "simple interest". This distinguishes it from the English statute - it is the only significant difference in the drafting of the two statutes on the question of interest.

14. It suggests that the term "interest", without qualification allows the interpretation of "compound interest". It was an 1987 amendment.

15. The picture emerging is of the use of "simple interest" in similar legislation in a number of jurisdictions, replacing the earlier use of "interest" with a positive prohibition on the award of "interest upon interest", certainly by 1981 in England and repeated in Hong Kong by the 1987 amendment which specifically followed the 1981 English statute.

16. It is now necessary to look at the Hong Kong Arbitration Ordinance and section 22A which the Arbitrator construed as giving him the power to award compound interest. It was added in 1984. Section 22A is already set out at page 2 of this judgment, as an extract from the Arbitrator's award. The term used is "interest". Sub-section (2) says that the power to award interest under sub-section (1) conferred on an arbitrator is "without prejudice to any other power of an arbitrator to award interest." There is a difference in the construction put upon that section, in relation to the word "interest", by the parties. I do not consider that the term interest in sub-section (1) is restricted to simple interest, for reasons which will appear later but which are already to be inferred from my review of the enactments of different jurisdictions. Sub-section (2) therefore in my view is simply a statement to the effect that the statute does not cut down on any other power of an arbitrator to award interest. It would not make sense to construe it as if the word "simple" were to qualify the term "interest" on both occasions on which it is specified.

17. I now turn to the sequence of Arbitration Acts which are the forerunners of the Hong Kong Ordinance. Section 19A of the 1950 Act provided for an award of "simple interest" unless a contrary intention was expressed in the arbitration agreement. This provision was inserted by the 1982 Administration of Justice Act (section 15(6)).

18. Section 22A of the Hong Kong Arbitration Act, amended to take into account the 1981 Supreme Court Act, and the 1982 Administration of Justice Act, as we have seen, refers only to interest and contains no direction against the awarding of interest upon interest; that as noted, had been the saving clause in the earlier legislation when the term interest had been used, no doubt to prevent an award of compound interest.

19. Was this accidental or was it deliberate as the result of a shift in approach, enabling courts and arbitrators to award, if they saw fit, compound interest? A review of the case law may now assist.

20. In 1981 the Court of Appeal (England) held in Wadsworth v. Lydall [1981] 2 AER p.401, that where there was a special loss, including the incurring of interest charges, which was foreseeable at the time of the contract, the loss was recoverable. It applied the dicta of Lord Denning in Trans Trust v. Danubian Trading Co. Ltd. [1952] 2 QB p.297 in holding that if a Plaintiff can prove special damage as a result of a Defendants failure to perform his obligation under a contract, and the damage is not too remote on the principle of Hadley v. Baxendale, there was no logical reason why such special damages should be irrecoverable merely because the obligation on which the Defendant defaulted was an obligation to pay money and not some other obligation.

"It was said that the breach here was a failure to pay money and that the law has never allowed any damages on that account. I do not think that the law has ever taken up such a rigid standpoint. It did undoubtedly refuse to award interest until the introduction of the Law Reform (Miscellaneous Provisions) Act, 1934, s. 3(1): see London, Chatham & Dover Ry. Co. v. South Eastern Ry. Co.: but the ground was that interest was "generally presumed not to be within the contemplation of the parties": see BULLEN & LEAKE (Precedents of Pleadings (3rd Edn, 1868) p. 51, note (a)). That is, I think, the only real ground on which damages can be refused for nonpayment of money. It is because the consequences are as a rule too remote. But when the circumstances are such that there is a special loss foreseeable at the time of the contract as the consequence of nonpayment, then I think such loss may well be recoverable. It is not necessary, however, to come to a firm conclusion on this point, because I regard the provision of a credit as different from the payment of money and not subject to the special rules, if any there are, relating thereto."

21. Romer, L.J. agreed with Lord Denning.

22. Ormrod L.J. went on to cite both Lord Denning and Scarman L.J., (as he then was) in H. Parsons (Livestock) Ltd v. Littley Ingham & Co. Ltd. [1987] Q.B. p. 781:

	"In the case of a breach of contract the court has to consider whether the consequences were of such a kind that a reasonable man, at the time of making the contract, would contemplate them as being of a very substantial degree of probability." [Lord Denning.]
	"The courts' task, therefore is to decide what loss to the Plaintiffs it is reasonable to suppose would have been in the contemplation of the parties as a serious possibility had they had in mind when they made their contract." [Scarman, L.J.]

23. The decision in Wadsworth v.Lydall was approved by the House of Lords in President of India v. La Pintada Compania [1985] 1 A.C.p. 104, but the real force of the decision was to affirm the decision of the House of Lords in London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [1893] A.C. p. 429, though with regret and reluctance.

24. The arguments on behalf of the owners (who had an award in their favour of compound interest on sums of money in respect of freight and demurrage up to the date of payment, and a further award of compound interest on these sums to the date of award), was that the House should depart from the decision of the House in London, Chatham & Dover Railway Co. and 1) clarify and simplify a complex and unsatisfactory law 2) bring the common law rules into line with those of admiralty jurisdiction and equity and 3) reaffirm the basic principles of "restitutio in integrum." A number of features were advanced being a) the marked change in currency stability, particularly in the last 25 years b) the fact that arbitrators, and more recently the courts, are free to award damages in foreign currency and this had led to no great inconvenience. The interests of justice which required that that should be so, also require that they should be able to award interest by way of compensation for the wrongful withholding of that money; c) the substantial increase since 1893 in the number of disputes involving foreign parties decided in London, and the serious injustice caused by the withholding of monies properly due for which an appropriate award of interest is the only compensation. The solution was, in the absence of special circumstances, damages which are to be measured by rates of interest prevailing over the period in question as most effectively representing the loss which the Plaintiff can be presumed to have suffered by being kept out of its money. It is against the background of these arguments that one should view the expressions of regret and reluctance of the majority of the House. By contrast Lords Bridge and Brandon felt, or certainly expressed, no such sentiments.

25. Lord Brandon, with whose judgment the other Lords of Appeal agreed, set out the two questions, the wider ones being:

	i)	what remedies should be held, at this stage of English Legal history, to be available to a creditor for delay in payment of a debt due to him; and
	ii)	whether an arbitrator has power to award to a creditor against his debtor more extensive remedies than those to which such creditor would be entitled, if, instead of bringing arbitration proceedings against his debtor, he brought an action against him in a court of law.

26. Lord Brandon, at page 119, stated that the true position in law in England is that where parties refer a dispute to arbitration in England, they impliedly agree that the arbitration is to be conducted in accordance with the law of England, unless the agreement of reference provides otherwise. He cited the similar approach of the High Court of Australia in relation to s. 94 of the Supreme Court Act 1970 (N.S.W.) and Mason J's statement in Codelfa Construction Pty. Ltd. v. State Rail Authority of N.S.W. [1982] 56 A.L.J.R. p. 459.

"The arbitrator's power to award interest in the present case ... is referable to s. 94. As such it is circumscribed by section 94(2)(a) and it does not extend to the making of an award for compound interest."

27. Later on Lord Brandon considered the three cases in which there was no common law remedy for damage or loss caused by the late payment of a debt; 1 - where a debt is paid late before proceedings for its recovery have been instituted; 2 - where it is paid later after proceedings have been instituted but before they have been concluded; and 3 - where it remains unpaid until as a result of proceedings being brought and concluded, a money judgment is given in which the original debt is merged. Wadsworth v. Lvdall was reviewed and also the effect of the Administration of Justice Act, 1982 which covered cases 2 and 3 of Lord Brandon's review and gave effect to the recommendations of the Law Commission. However case 1 was left out and the recommendation of the Law Commission was ignored.

28. He concluded that an ideal system of justice would ensure that an unpaid creditor could recover interest on unpaid debts in case 1,2 and 3. Since the intervention of the legislature in 1934 and 1982 however, a complete departure from the scope of the London, Chatham and Dover Railway case would not be justified. Any interest to be awarded had to be simple interest.

29. Against the background of the decision in the Pintada, where clearly the sentiments of the majority of the House of Lords strongly favoured all 3 cases being treated equally with the opportunity of an award of compound interest, an Australian decision Hungerfords v. Walker [1989] 171 CLR p. 125 is to be seen.

30. Mason C.J. and Wilson J. reviewed Lord Tenterden's Act of 1833, the decision in London, Chatham & Dover Railway Co. as well as the Pintada and quoted Lord Herschell's reluctance, echoed later by Lords Fraser, Scarman and Roskill (and as we shall see by Lords Goff and Woolf in WestDentsche Launde Bank):

"When money is owing from one party to another and that other is driven to have recourse to legal proceedings in order to recover the amount due to him, the party who is wrongfully withholding the money from the other ought not in justice to benefit by having that money in his possession and enjoying the use of it, when the money ought to be in the possession of the other party who is entitled to its use."

31. The question was posed - If a Plaintiff sustains loss or damage in relation to money which he has paid out or forgone, why is he not entitled to recover damages for the loss of use of money when the loss or damage sustained was reasonably foreseeable as liable to result from the relevant breach of contract or tort? That is the fundamental rule in relation to the recovery of damages according to the first limb in Hadley v. Baxendale, and subject to proximity, in negligence. The object of the second limb "... was to include loss arising from special circumstances of which the Defendant had actual knowledge when that loss does not fall within the first limb because it does not arise from 'the ordinary course of things' of which the Defendant had imputed knowledge."

32. The anomaly of the existing situation was dealt with fully. A Plaintiff is entitled to "restitutio in integrum," i.e. full compensation for the loss which he sustains in consequence of the Defendant's wrong, subject to the rules as to remoteness of damage and to the Plaintiff's duty to mitigate his loss. The Plaintiff may well sustain an economic loss if there is delay in payment of the damages due to him; in the same way as a loss is suffered if the debt is not paid on the due date. The loss could be loss of interest on an investment, or loss of a reduction in interest by reduction of a debt, or the cost of borrowing a sum of money to compensate for the non-payment or late payment of a debt. Foreseeability is not a problem because the loss is readily calculable by reference to the interest rates for the loss of use of money.

33. At page 145 the Judges stated:

	"The cost of borrowing money to replace money paid away, or withheld, in consequence of the Defendant's breach of contract or negligence, is directly related to the wrong and is not too remote in the sense in which the common law regarded the loss attributable to late payment of damages as too remote. We reach this conclusion more readily, knowing that legal and economic thinking about the remoteness of financial and economic loss have developed markedly in recent times ... opportunity cost should not be considered as being too remote when money is paid away or withheld.
	Once it is accepted that the cost of borrowing money to replace money paid away or withheld is not too remote, it is pointless to insist on a distinction between the award of damages for loss of the use of money in the case of a liquidated claim and the award of such interest in an unliquidated claim." (p.146)

34. Section 30(c) of the Supreme Court Act 1936 (S.A.) providing for an award of interest with sub-section 4(a) restricting the interest to simple interest is of course in line with the contemporaneous English statutes. Sub-section 4(e) in fact provided that the main section did not limit the operation of any other enactment or rule of law providing for the award of interest. The Court was encouraged after the full review to state that, in the light of sub-section 4(e), "it would be strange if the court were to hold that ... s. 30(c) precluded the award of damages for the loss of use of money, in accordance with the logical development of fundamental common law principle so as to accord with commercial reality, to a Plaintiff deprived of the use of money paid away, or withheld as the result of the Defendant's negligence or breach of contract."

35. The Court approved the award of damages for the added cost of funding the business with borrowed money as the result of the loss of use of money overpaid and decided that "the award of interest was of necessity compound interest (my underlining) simple interest would not reflect accurately the extent of the ... loss." Simple interest, it went on, almost always under compensates the injured party's true loss.

36. The judgment of this court in viewing the traditional approach of the courts to the question of interest, and the importance of taking into account modern commercial reality is an interesting and salutary prelude to the later considerations of tribunals and arbitrators, and a healthy reflection of academic commentary:

"If the Plaintiff was expecting payment for a consignment of goods, but did not receive his money, the extent of his loss could be measured approximately by the amount of income that he could otherwise have generated simply by putting the proceeds into a deposit account at a bank. Such a move would attract compound interest, since the bank would automatically add to the account any interest generated." [Bowles and Whelan]

37. The disdain of the common law for interest, especially compound interest, is a "relic from the days when interest was regarded as necessarily usurious" - [Ogus - Law of Damages 1973]

38. This decision of the High Court of Australia was considered by the House of Lords in the case of West Deutsche Bank v. Islington L.B.C. [1996] 2 W.L.R. p. 802 which set its face against any award of compound interest on the basis that as Parliament had twice since 1934 considered what interest should be awarded on claims at common law and had expressly not authorised the award of compound interest, it would be undesirable for equity to award compound interest in aid of a common law claim. Lords Goff and Woolf dissented from the majority judgment.

39. Lord Goff, at p. 809 summarised the common sense position by stating that in a developed system of law a court should have power to award compound interest both at law and in equity, and one would expect to find this especially in commercial cases. Sadly, he noted, this is not the position in English law. In the absence of agreement or custom the English courts had no jurisdiction to award compound interest at law or under s. 35A of the Supreme Court Act, 1981.

40. Against the background of an attractive metaphor - "the warm sun of judicial creativity should exercise its benign influence rather than remain hidden behind the dark clouds of legal history" he set out his reasoning for equity acting in aid of the common law. The equitable jurisdiction may, where appropriate, be exercised in the case of a personal claim in restitution. This would be new ground but desirable and meeting the needs of justice. Claims in restitution are founded upon a principle of justice, the prevention of the unjust enrichment of the Defendant. The jurisdiction should now be available as justice requires in cases of restitution. Lord Goff, in support of his argument added that it would not be inconsistent with Parliament's expressed intention to extend the existing equitable jurisdiction to award compound interest to enable courts to ensure that full restitution is achieved in personal actions of restitution at common law. In seeking to put the 1934 legislation in its perspective he stated that "to hold that, because Parliament then did not authorise an award of compound interest in proceedings the nature of which was not then recognised, the courts should now be precluded from exercising the ordinary judicial power to develop the law by extending an existing jurisdiction to meet a newly recognised need appears to me to constitute an undesirable fetter upon the judicial development of the law." He affirmed the jurisdiction in equity, as well as at common law, to order restitution on the ground of unjust enrichment. The fact that this particular case was concerned with an order for restitution where the contract was ultra vires made no difference.

41. Lord Woolf in his review of the decisions in Wadsworth v. Lydall La Pintada, and London, Chatham and Dover Railway Co. set out that what was required for compound interest to be payable is that "the contract either expressly or impliedly provides for the payment of compound interest or there is a breach of the contract and the breach is such that compound interest will be regarded as flowing from the breach in accordance with the second limb of the principle ... in Hadley v. Baxendale. This was one of the three reasons why Wadsworth v. Lydall was in his view of such significance.

42. He then brought into the equation in his dissenting judgment the views and reasoning of the late Dr. F.A. Mann in his article "On Interest, Compound Interest and Damages." 1985 101 L.Q.R. p. 30, who posed the question as to why compound interest should not also be recoverable under the first limb of Hadley v. Baxendale. Any suggestion that interest considered as damages is too remote, is not persuasive or realistic. Who could suggest that a defaulting debtor could not reasonably foresee interest as the creditor's loss flowing from a failure to pay?

43. It is perhaps at this stage helpful to draw breath and take stock. The nature of the commercial world and of business generally has changed significantly since the Usury Laws when the courts set their face against claims for interest. In the past 60 years at least there has been a significant change in the cost of borrowing money. Simple interest no longer provides the fair or adequate remedy for those who are deprived of their money owed under a contract. The principle of "restitutio in integrum" is failing such persons. Those who withhold payment, which by law they are obliged to pay, have the benefit of the use of such sums retained, whilst those from whom such payment is withheld are at the mercy of those to whom they turn for funding, to fill the gap. Unless they meet certain criteria they can obtained only simple interest and there is a shortfall.

44. Courts have nonetheless confirmed the restrictive effect of legislation unless they have found some flexible provision in the drafting which entitles them to say that their equitable jurisdiction enables them to meet the fair requirements of a much changed commercial world. The House of Lords has felt itself unable to do so though there remains there a powerful body of pragmatic opinion which would have it do otherwise. The Australian High Court has been able to see in sub-section (4)(e) of section 30(c) of the Supreme Court Act 1935 (South Australia) the ability to make "the logical development of fundamental common law principle accord with commercial reality"

"This section does not limit the operation of any other enactment or rule of law providing for the award of interest."

45. It may well be that the dissenting law Lords, even though such saving sub-section does not appear in the English enactments, were approaching their view that, by implication in any event, the equitable jurisdiction existed apart from the statutory limitations.

46. What then of the position in relation to the Hong Kong Law? I need to revert to section 22A of the Arbitration Ordinance Cap. 341. There is deemed to be a provision in every arbitration agreement, unless a contrary intention is expressed, that the arbitrator may "award interest at such rate as he thinks fit" on any sum paid before the award, and on any sum which he awards (with appropriate provisions for the period). In contrast with the English legislation already in force by the time of that provision (1984) the word 'interest', without further definition or qualification was used. Sub-section 2 says that this power to award interest "is without prejudice to any other power ... to award interest." To my mind this use of the term 'interest' without qualification is entirely apposite. It must mean interest which may be simple or compound. To define it as meaning simple interest on any or all of the three occasions on which it is stated does not, I suggest, make sense.

47. There is good reason for so concluding both historically and in the light of modern thinking.

48. The earlier legislation had used the word interest on its own, and there qualified it by a saving clause to the effect that it would not authorise interest upon interest. Later legislation, as if to remove a possible misunderstanding, used the term 'simple interest'. By 1984 when the Hong Kong Arbitration Ordinance was amended there had been discussion in important cases of the anomalous position in the English courts where compound interest would be awarded in only limited circumstances. A drafting of an Ordinance in Hong Kong in 1984 would not have left the term "interest" unqualified and unaffected by any saving clause if it was intended that the word was to be understood to refer only to "simple interest". Such a construction flies in the face of the development of the legislative provisions and the judicial debate.

49. Nor could it be regarded as a mistake by omission. Over a decade has passed without further amendment, during which time the series of significant cases, concerned with the issue, cannot have failed to catch the eye or the concern of lawyers and draftsmen. It is far more logical to view the position as one in which, in the field of arbitration at least, Hong Kong has given effect to commercial reality by allowing the arbitrator a discretion to exercise in this field.

50. The second line of support is to be found in the contents of the Attorney General's address to the Legislative Council when moving the second reading of the Arbitration (Amendment) Bill 1984:

	"In recent years there have been efforts made in Hong Kong to encourage the process of arbitration ...
	The purpose of this Bill is to improve still further our legislative framework by making two small amendments to the Ordinance. The first gives arbitrators wider powers to award interest on sums awarded at the conclusion of an arbitration and also to award interest on sums that have been paid after the commencement of the arbitration but before the final award."

51. The Attorney General went on to give some indication of the policy behind the "updating of the law governing arbitration." It was intended to establish an International Arbitration Centre in Hong Kong to attract to Hong Kong arbitrations relating to business ventures throughout the region, ... "that will add to Hong Kong's importance as a financial and commercial centre."

52. I am satisfied that in the light of such amendment being made it was deliberately decided to leave open to the arbitrator the discretion in respect of interest to be awarded. It would not make sense, given the desire to make arbitration attractive and to give Hong Kong an "edge" in the "market", to follow the old formula restricting interest to simple interest, and all the commercial practicalities would make it essential to allow compound interest to be awarded in appropriate cases.

53. Finally the Rules for Domestic Arbitrations of the Hong Kong International Arbitration Centre, 1985 edition together with the 1993 edition make it clear that the Arbitrator may order compound interest to be paid. It is not realistic to assume that those drafting the 1985 edition would have to drafted this provision if it were considered that the Arbitration Ordinance as amended in 1984, provided only for simple interest. Similarly the 1985 Edition of the Arbitration Rules of the London Court of International Arbitration and the Arbitration Rules of the Singapore International Arbitration Centre provide that simple or compound interest may be awarded. Section 33 of the Hong Kong Lands & Works Branch Model Arbitration Rules (1985 edition) provides that the Arbitrator "may award interest at a commercial rate." Finally, in a reference back to the Arbitration Ordinance itself, there is in Part II A a section dealing with the application of the UNCITRAL Model Law, a reference to the arbitral tribunal having the discretion to award "interest at such rate as it thinks fit." (section 34D) This was added in 1989. These references are clear confirmation of the desire to reflect the modern commercial approach to the question of interest - it is for the Arbitrator to decide in his discretion, in the context of the dispute referred to him, to what extent and in what circumstances he considers an award of compound interest is appropriate.

54. The Arbitrator in these awards clearly exercised his discretion in an appropriate and reasoned manner, and he was entitled so to do.

55. This appeal is dismissed with costs to the Respondent

56. I am grateful to both Counsel for the carefully prepared submissions and for the bundles of material from which I have derived considerable assistance and which saved me much time.

	(Conrad Seagroatt)
	Judge of the High Court

Representation:

Mr. Simon Goldblatt Q.C. and Mr. Peter Clayton instructed by Malleson, Stephen Jaques for the Respondent.

Mr. Ronny Tong Q.C. instructed by the Attorney-General's Chambers for the Appellant.

⁴⁰ Section 19A of the 1950 Arbitration Act provides:-

"Unless a contrary is expressed therein, every arbitration agreement shall, where such a provision is applicable to the reference, be deemed to contain a provision that the arbitrator or umpire may, if he thinks fit, award simple interest at such rate as he thinks fit -

	(a)	on any sum which is the subject of the reference but which is paid before the award, for such period ending not later than the date of payment as he thinks fit; and
	(b)	on any sum which he awards for such period ending not later than the date of the award as he thinks fit."

⁴¹ I add as a foodnote that the parties' enquiries as to whether there is a body of practice among Hong Kong arbitraotrs dealing with domestic disputes (not governed by the Hong Kong Domestic Arbitration Rules) to award, or not, compound interest, produced no clear-cut answer either way. It follows, therefore, that there is no convnetional approach which I need to have regard in this respect.