| Date | 19 March 1997 |
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| Judgment | AMEC Building Ltd -v- Cadmus Investment Company Ltd (ORB) 5 June 1996, (1996) 41 Bliss 5 |
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| The Issue | Payment of statutory interest following revised determination by an arbitrator. |
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| Implication |
Arbitrators have an unfettered discretion to award simple interest under Section 19A of the 1950 Arbitration Act, with interest running from the date of the under certification by the engineer or architect. |
printIn 1993 the case of Secretary of State -v- Birse Farr examined the provisions of the ICE 5th Edition contract relating to payment of interest in the event of an engineer's failure to certify. The court held that for the interest provisions to apply the engineer must have failed to respect and give effect to the provisions of the contract. Merely certifying the wrong amount would not justify payment of contractual interest under the ICE contract. The fact that an arbitrator awarded a greater sum at a later date was insufficient to demonstrate a "failure to certify". The court was clear that it would not look into the deliberation or judgment of the engineer in order to establish whether it would have arrived at a different point of view. The rationale in this case was followed later that year in a decision between The Borough of Kingston-upon-Thames -v- AMEC. These two cases were in marked contrast to the 1990 decision of Morgan Grenfell -v- Seven Seas Dredging upon which it was concluded that "if the arbitrator revises the engineer's certificate so as to increase its amount, it follows that the engineer has failed to certify the right amount". After these cases it was widely thought that the contractor's escape was to seek discretionary interest under Section 19A of the Arbitration Act 1950. That was second best because there was no scope for compounding interest, but it was better than nothing. Then in 1994 along came the case of BP Chemicals -v- Kingdom Engineering. Here Judge Havery held that interest was not awardable under Section 19A unless the principal sum had been wrongfully withheld. Unless there had been a failure to certify in accordance with the contract there had been no wrongful withholding. Somewhat perversely the court held that when an arbitrator revises a certificate he does not determine what was due under the engineer's original certificate. The only sum due under the original certificate is the sum certified and therefore there is no cause of action for interest to commence until the arbitrator's later award. At the time all of these cases were granted leave to appeal and it was assumed that in due course the law in this area would be further elaborated. It seems however that this will not now be the case and it is against this background that the case of AMEC Building Ltd -v- Cadmus Investments Company Ltd is of interest. I reported this case in Contract Journal on 15 January 1997 concerning the manner in which the recovery of overheads and profit was treated. As a separate issue Cadmus, the employer, were appealing the decision of an arbitrator concerning the award of interest to the contractor, following the repayment of liquidated and ascertained damages upon a revised determination of extension of time by the arbitrator. Counsel for Cadmus argued that as far as liquidated damages were concerned his client was entitled to rely upon the certificate of the architect under the contract to the effect that the extension of time given was all that was justified. He argued that in order for the contractor to justify repayment of any part of the liquidated damages withheld they needed to obtain an award from the arbitrator, and until such award was made there was no wrongful detention of money. Accordingly he argued that no interest should have been awarded by the arbitrator. The case of BP Chemicals was considered. The Judge in that case had considered the operation of Section 35A of the Supreme Court Act 1981 which limits the start of the period for which interest may be awarded to the date where the cause of action arose. The Judge had held that an arbitrator in applying Section 19A was under a similar general principle. Returning to AMEC, Mr Recorder Kallipetis QC, sitting as an official referee, saw these issues in quite a different light. He considered that the discretion given to an arbitrator is to award simple interest at such rate as he thinks fit on any sum which he awards. The purpose of the statute was to give the arbitrator absolute discretion to do justice between the parties. He expressed the view that it cannot be right that if the arbitrator subsequently decides to extend the period of delay beyond that certified by the architect, that the arbitrator should not also have the power to compensate the party who has been thereby deprived of his money. He concurred with the reasoning of the authors of the Building Law Reports, that the party seeking to review a certificate had a cause of action at the date of the under certification and not, as had been held in BP Chemicals, only upon the publication of the award of the arbitrator. Accordingly the court held that the contractor was entitled to statutory interest to compensate it for monies previously unpaid and subsequently found to be due by reason of the determination in the arbitration.
CJ-9711
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