The issue of interest  remains an important consideration for counsel in deciding whether to proceed to arbitration.  To what extent can an arbitral tribunal award interest and how does it differ from the courts?  The answer is that there are few differences, if at all.  The case law provides that there are three possible jurisdictional bases to award interest in arbitration, namely: a) under statute; b) by contract; and c) in equity. These three jurisdiction bases create different avenues for the award of interest that in the end align arbitration with what happens in the courts.

Section 52 of the Arbitration Act provides that sections 127 to 130 of the Courts of Justice Act apply to arbitrations, with necessary modifications.  Subsection 128(1) of the Courts of Justice Act provide that a person entitled to an order for the payment of money can claim, and have included in the order, an award of interest thereon at the prejudgment interest rate, calculated from the date that the cause of action arose to the date of the order.  In the case of arbitration, interest is calculated from the date that the cause of action arose to the date that the arbitral tribunal communicates the award to the parties.  There are exclusions and exceptions under subsection 128(2), (3) and (4) of the Courts of Justice Act that must be considered by an arbitral tribunal when calculating the prejudgment interest amount.  Paragraph 128(4)(g) provides, for example, that where interest is payable by a right other than this section, it prevails.  Thus, if a contract or another federal or provincial Act specifies an interest rate that is payable on a debt, it takes precedence over the Courts of Justice Act.   For example, a debt owing to Her Majesty the Queen in Right of Canada accumulates interest at a rate prescribed by the Interest Act.  A contract that provides for the payment of a specified interest amount on a sum due also takes precedence over the Courts of Justice Act.

As it relates to post-judgment interest, subsection 129(1) of the Courts of Justice Act provides that money owing under an order, including costs to be assessed or costs fixed by the court, bear interest at the post-judgment interest rate, calculated from the date of the order.  Again, within the context of arbitration, the amount of post judgment interest is calculated from the date that the award decision is communicated to the parties to the date of payment.   Much like paragraph 128(4)(g), subsection 129(5) of the Courts of Justice Act provides that where an interest rate is specified in an agreement or an Act, it prevails over the amounts provided for under the Courts of Justice Act.

Subsection 130(1) of the Courts of Justice Act provides that the court has the discretion to adjust the interest payable under section 128 or 129.  The court may, for instance, (a) disallow interest under either section; (b) allow interest at a rate higher or lower than that provided in either section; (c) allow interest for a period other than that provided in either section.  In exercising its discretion, the court must take into account such things as: (a) changes in market interest rates; (b) the circumstances of the case; (c) the fact that an advance payment was made; (d) the circumstances of medical disclosure by the plaintiff; (e) the amount claimed and the amount recovered in the proceeding; (f) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; and (g) any other relevant consideration.  Much like a court, the arbitral tribunal may rely on subsection 130(1) of the Courts of Justice Act and adjust the interest rate that is applicable if the circumstances warrant.    

There appear to be conflicting decisions on the issue of whether an arbitral tribunal can award compound interest pursuant to the Courts of Justice Act.   In British Columbia (Forests) v. Teal Cedar Products Ltd., 2013 3 SCR 301, the Supreme Court held that compound interest could not be awarded by an arbitral tribunal.  However, the case has little application in Ontario given that it was a decision anchored in specific wording found in the Court Order Interest Act of British Columbia.  In Ontario, the case of Bank of America  v. Mutual Trust Co., 2002 2 SCR 601 provides that the courts can award compound interest, notwithstanding paragraph 128(4)(b) of the Courts of Justice Act which provides that interest on interest may not be awarded.  The Supreme Court of Canada in this case held that section 130 of the Courts of Justice Act allows a court to disregard some of the exclusions found in subsection 128(4), if the circumstances warrant.   This applies to arbitrations as well.

A contract may also provide for the payment of interest on amounts due which would give the arbitral tribunal the jurisdictional bases to award interest.  The contractual authority to award costs dovetails with paragraph 128(4)(g) of the Courts of Justice Act which provides that what is provided for in the contract takes precedence over the Act.  However, even where the payment of interest is not specifically provided for in the contract, it may be recoverable.  The common law provides that interest is not due on money secured by a written instrument, unless it appears on the face of the instrument that interest was intended to be paid, or unless it be implied from the usage of trade, as in the case of mercantile instruments:  Page v Newman (1829) 9 B&C 378.  However, the common law has since evolved and a court may, in certain circumstances, award interest as special damages where the written instrument does not specifically provide for it: Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297; Wadsworth v Lydall [1981] 1 WLR 598; MacKay Construction Ltd. v. Potts Construction Co., 1985 CanLII 2894 (SK CA).   However, special damages can only be awarded if the second part of the branch of the rule test set down in Hadley v. Baxendale (1854), 9 Ex. 341; 156 E.R. 145 can be satisfied: Wadsworth v Lydall[1981] 1 WLR 598; President of India v La Pintada Compania Navigacion SA [1985] 1 AC 104 at p 127C.  A party must therefore prove on a balance of probabilities that the special damages claimed were reasonably foreseeable or reasonably contemplated at the time the contract was concluded:  Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd., [1949] 2 K.B. 528 (C.A.);  C. Czarnikow Ltd. v. Koufos, [1969] 1 A.C. 350. These legal principles also apply arbitrations and the absence of a contractual provision specifically providing for the payment of interest is not a bar to recovery of amounts above what is provided for in the Courts of Justice Act.

Much like a court, an arbitral tribunal may also rely on the law of equity to award interest: Toronto (City) v. Toronto Terminal Railway Co., 1999 CanLII 9291 (ON CA); Brock v. Cole et al., 1983 CanLII 1952 (ON CA). Under the general equitable jurisdiction, the Chancery courts in England awarded simple interest as ancillary relief in respect of equitable remedies, such as specific performance, rescission and taking of an account.  Courts of equity could award simple or compound interest against a trustee or fiduciary accountable for profits made from his or her position: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, at page 701.  In cases of fraud, compound interest was and is recoverable in equity where money has been obtained and retained by fraud: Black v Davies [2005] EWCA Civ 531, at para 87.   In Ontario, the rule is that the general equitable jurisdiction of the court to award compound interest extends to a successful claim and restitution for the return of monies from a party who has retained them knowing that to be wrongful, which includes fraud:  Bank of America Canada v. Mutual Trust Company, 2000 CanLII 1495 (ON CA). In all other cases where equity intervenes, it is simple interest that may be awarded.  These equitable principles apply to arbitrations, but require that the claimant advance equitable claims in their statements.  The law of equity may have some application where section 52 of the Arbitration Act has been excluded from an arbitration or it may simply be used to bolster an argument in favour of a given award.  

The end result is that there is no significant difference between an arbitral tribunal and a court when it comes to the award of interest.  This should not factor into the decision to proceed to resolve a dispute through arbitration.    Interest are recoverable in arbitration and there are a number of avenues available to counsel.