Interests in Arbitration: What, Why, When and How?

When an arbitrator renders an award, he has the power to order interests.

But which interests? Can he do so ex officio or is he bound by the parties’ claims? What is the starting point of such interests?

As a reminder, interests are a percentage of an amount due which repairs the harm resulting from the delay in performing an obligation. Interests are traditionally opposed to damages, which compensate all harms except when they result from the delay in performing the obligation.

Interests are thus an incentive for the parties to perform their obligations swiftly, whether they are of legal or contractual origin, or ordered by a judge or an arbitrator.

Therefore, the longer a debtor fails to pay his debt, the higher the amount of the interests will be and they will continue to increase the final amount to be paid until the debt is paid in full.

There are two categories of interests:

(i)                 Interests ordered as a complement to damages repairing the harm incurred by failure to perform an obligation to pay an amount of money. These interests sanction the delay in performance of the obligation and their payment may only be ordered at a statutory rate.

Parties have to request these interests be awarded and they run from the day of a notice to pay “or of another equivalent act” (article 1153, French Civil Code).

This provision is not problematic and is applicable in arbitration.

(ii)               Interests arising from the judge’s order to pay an indemnity, even in the absence of a claim or a specific provision in the judgment. Therefore, even in the absence of a specific claim to this effect by the parties, the judge can order interests to be paid on the indemnity awarded.

Under the article 1153-1 of the French Civil Code, such interests run from the day the judgment is rendered, “unless the judge otherwise orders”.

Do arbitrators have similar power to order, in the absence of a formal request by one of the parties, interests on the order to pay the indemnity and set their starting point at his discretion?

The French Supreme Court regularly admits, in application of article 1153-1 of the French Civil Code arbitrators’ power to fix the starting point of interests on the order (as opposed to the other interests, which start running from the date of the notice to pay) (French Supreme Court, 1st Civil Chamber, 30 June 2004, n°01-10.269; French Supreme Court, 1st Civil Chamber, 9 January 2007, n°04-10.719), even if the parties make no requests to that effect (French Supreme Court, 1st Civil Chamber, 9 January 2007, n°04-10.719).

In Fontan Tessaur, the Paris Court of Appeals thus approved, in a particularly clear wording, the arbitrators for finding that interests had started running from the date of the request for arbitration:

« Considering, as regards interests on damages, that their granting results from the simple application of the law, article 1153-1 of the French Civil Code providing that their starting point may be fixed at a date other than that of the judgment. » (Fontan Tessaur c/ Société ISS Abilis France, Paris Court of Appeals, Chamber 1C, 25 March 2004)

It should however be noted that, in a decision dated 6 March 2007, the Supreme Court limited this freedom to fix the starting point of interests on the order to pay an indemnity when they are awarded by the enforcement judge pronouncing the exequatur of a foreign judgment: in that case, interests run from the day of the exequatur decision (Supreme Court, 1st Civil Chamber, 6 March 2007, n°04-17.127).

To our knowledge, it remains to be seen whether this solution would be applicable to the exequatur decision of an arbitral award.

Since interests can represent a fair amount of money if the losing party does not perform its obligations voluntarily and swiftly, special attention is to be given to them. However, it is unfortunately not often the case.

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