ATTORNEY GENERAL v. SHIMIZU CORPORATION

IN THE COURT OF APPEAL

1996, Nos. 185 & 186
(Civil)

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J U D G M E N T

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Mayo, J.A.:

1. This is an appeal from the judgment of Seagroatt J where he dismissed the Attorney-General's appeal from the determination made by the Arbitrator in this Arbitration that he had jurisdiction to order that compound interest be payable by the Attorney-General on sums outstanding which were payable to Shimizu. Seagroatt J sets out in his judgment the reasons given by the Arbitrator in his Interim Award for coming to the conclusion that he had jurisdiction to make such an order.

2. Of necessity the starting point in considering this issue must be the relevant statutory provisions.

3. Sections 22 and 22A of the Arbitration Ordinance Cap 341 read as follows:

"22. Interest on awards

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.

22A. Interest for period prior to payment

(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 subsection (1) is without prejudice to any other power of an arbitrator or umpire to award interest."

4. It will be noted that the sections are silent as to whether reference is being made to simple interest only or simple interest and compound interest.

5. In his judgment Seagroatt J considered in some depth the legislative history and background and legal commentaries upon it. He also considered the common law position. This he was clearly entitled to do by virtue of s10C of the Interpretation and General Clauses Ordinance Cap 1.

"10C. Expressions of English law

(1) Where an expression of the common law is used in the English language text of an Ordinance and an analogous expression is used in the Chinese language text thereof, the Ordinance shall be construed in accordance with the common law meaning of that expression.

(2) In this section 'common law' means the common law and rules of equity in force in Hong Kong."

6. However he also considered at some length the submissions made by Mr Goldblatt QC for Shimizu on legislation in other jurisdictions and commentaries by various distinguished Judges and Academics on the desirability of Tribunals being empowered to order that compound interest be payable. While this material might well be generally enlightening it is imperative in this appeal to confine oneself to strict principles of construction in an attempt to reach the true meaning of the sections.

7. It is permissible to have regard to the legislative history.

8. The Arbitration Ordinance including s22 was enacted on 5 July 1963. Section 22 was taken from s20 of the Arbitration Act 1950 in the United Kingdom. There can be no doubt that the reference to "interest" in the section was a reference to simple interest. Indeed this is accepted by Shimizu.

9. Section 22A of the Ordinance was added by an amendment which was made in 1984. As the same expression is adopted in the additional section to the expression used in s22 on the face of it one would expect the expression to have the same meaning.

10. Section 22A is modelled on s19A of the Arbitration Act 1950. There are however differences. In that section where reference is made to "interest" the word "simple" is added immediately before it.

11. In 1984 immediately prior to the amendment to the Arbitration Ordinance s48 of the Supreme Court Ordinance Cap 4 provided that only simple interest could be ordered on claims for debt and damages. Indeed that is still the present position.

12. It will therefore be appreciated that when s22A was added to the Arbitration Ordinance the law in both the U.K. and Hong Kong restricted the payment of interest to simple interest in Arbitrations and that for the law to be changed specific provision had to be enacted.

13. It was the contention of Mr Goldblatt that by omitting the word "simple" from s19A of the U.K. Act the legislature was clearly intending to empower an Arbitrator to order that compound interest could be payable.

14. He developed an argument along the lines that interest could refer to either simple interest or compound interest. What was necessary was to have regard to the context where the expression was used.

15. In support of this argument he referred to the fact that the word "interest" appeared three times in s22A. While it may be arguable that the first two references could be confined to simple interest this could not be contended for as regards the third reference which is in subsection 2.

16. It was obvious that this reference to interest could be referring to either simple or compound interest.

17. In addition to this the researches which he had undertaken into legislation in other jurisdictions indicated that virtually whenever "interest" was referred to and it was intended that the interest should be restricted to simple interest specific words were added to make this abundantly clear.

18. The main difficulty which arises in accepting this approach is that it only moves the resolution of the problem one step backwards.

19. It is still necessary to decide in the context whether the power to award interest is a power to award compound interest or only simple interest and for this it is necessary to have regard to what the law may be.

20. This would seem to me to be a rather artificial and circuitous exercise.

21. However returning to Mr Goldblatt's main argument it would appear to be unlikely that the legislature would have only omitted the word "simple" from the references to "interest" in s22A in order to achieve their objective of conferring upon an Arbitrator a power to order that compound interest be payable in the circumstances envisaged.

22. In this connection Mr Goldblatt accepted that when s22A had been introduced this had involved a change in the existing law on the subject. However he went on to argue that this had been brought about as a result of the change in the context in which the expression "interest" would have to be considered.

23. Mr Fernyhough QC for the Attorney-General argued to the contrary that it was most unlikely that the legislature would introduce an important amendment to the law in this way.

24. This was contrary to all of the canons of legislative drafting.

25. Conferring a power upon Arbitrators to award compound interest on amounts outstanding was an important change in the law with wide reaching implications. It was inconceivable that a change in the law of this nature would be made in a casual way without an in depth analysis of the consequences.

26. If Mr Goldblatt's submission was well founded it would mean that a significant change had been made to the law in a casual manner. It is improbable that this was the case.

27. Section 269 of the 2nd Edition of Bennion, Statutory Interpretation (1992) deals with this topic and a commentary is provided. It has this to say at p561:

"Section 269. Law should not be subject to casual change

(1) It is a principle of legal policy that law should be altered deliberately rather than casually, and that Parliament should not change either common law or statute law by a sidewind, but only by measured and considered provisions. In the case of common law, or Acts embodying common law, the principle is somewhat stronger than in other cases. It is also stronger the more fundamental the change is.

(2) The court, when considering, in relation to the facts of the instant case, which of the opposing constructions of the enactment would give effect of the legislative intention, should presume that the legislator intended to observe this principle. The court should therefore strive to avoid adopting a construction which involves accepting that Parliament contravened the principle.

COMMENT

Legal policy The principle that law should not be subject to casual change is an aspect of legal policy. For the nature of legal policy see Code s263. As to the opposing constructions see Code s149.

The presumption that Parliament does not intend to make a radical change in existing law by a sidewind arises from the nature of the legislative process. It is, or should be, a serious business. Changes in the basic law, since they seriously affect everybody, are to be carefully worked out. The more fundamental the change, the more thoroughgoing and considered should be the provisions by which it is implemented. Such is the proper way to conduct the legislative processes of a civilised state.

One aspect of this is that the settlement of private rights should not be held to determine public rights. As we have mentioned, private rights give way to public. The principle is also expressed in the maxim jura publica ex privato promiscue decidi non debent (public rights ought not to be indiscriminately decided out of a private transaction).

Where these requirements are not met, the suspicion is raised that perhaps, although the words of the enactment seem to point that way, Parliament did not really intend a radical change in existing law. Since it has not produced a text of appropriate design, any uncertainty in the wording should be resolved in favour of the less extreme meaning. As Lord Devlin said: 'It is a well-established principle of construction that a statute is not to be taken as effecting a fundamental alteration in the general law unless it uses words that point unmistakably to that conclusion.'"

28. It is most unlikely that the legislature would have introduced a change of this nature by just omitting the word "simple" before the word "interest" in the section.

29. It is also unlikely that the omission of the word "simple" was inadvertent. In this connection it is necessary to have regard to s22 of the Ordinance. As indicated earlier the word "simple" is not included in that section. It would be highly unsatisfactory to have two sections of an Ordinance dealing with similar subject matter and have separate and potentially conflicting expressions adopted in the sections. In all probability the draftsman of the Ordinance would have endeavoured to prevent this happening.

30. What this all leads to is that almost inevitably a conscious decision was made not to include the word "simple" in s22A.

31. In accordance with the correct approach to be adopted in construing the words of the section it is now necessary to attempt to glean the true intentions of the legislature.

32. On the authority of Matheson PFC Ltd. v. Jansen [1994] 2 HKC 250 it is permissible where there is possible ambiguity to consider "parliamentary material" in an attempt to resolve the ambiguity.

33. We were referred to the memorandum which was circulated to Members of the Executive Council on 14 February 1984 when the draft Amending Bill was considered, the Explanatory Memorandum for Legislative Councillors dated 24 February 1984 and the Attorney-General's motion in the Legislative Council when he moved the Bill. In none of these papers is any reference made to introducing legislation which would confer upon an Arbitrator a power to order compound interest.

34. It is difficult to escape coming to the conclusion that it was not the intention of the legislature to confer this power upon Arbitrators and that no change was made to the existing law. This being the case there was no statutory provision enabling the Arbitrator to make the award he did.

35. This view of the matter is further supported by the enactment of both the United Kingdom Arbitration Act 1996 and the recently enacted legislation, the Arbitration Amendment Ordinance 1996 in Hong Kong, both of which expressly provide a power for the award of compound interest.

36. During the hearing before us we considered on a de bene esse basis the report of the Law Reform Committee of the Hong Kong Branch of the Chartered Institute of Arbitrators. It appeared from this Report that the Committee was of the opinion that there was not at the time when the recent amendments to the Arbitration Ordinance were being considered a power to order that compound interest could be payable on awards.

37. However Mr Goldblatt submitted and Mr Fernyhough accepted that this Report was not in the public domain and that the drafting of the amending Bill had by no means entirely been based upon the material contained in the Report. I consider that in these circumstances only minimal weight can be attached to this evidence.

38. It is also necessary to consider whether there is any power under the common law to make such an award. It would appear that this is not the case.

39. It is immediately necessary to draw a distinction between a general award of compound interest and an award for special damages. The Attorney-General accepts that if Shimizu were able to bring themselves within the 2nd limb of Hadley v. Baxendale 9 Exch. 341 and prove special damages they may be able to recover compound interest. That however is a separate matter.

40. So far as the common law situation is concerned it would appear to be quite clear that in 1984 there was no power to order that compound interest be paid on an award simpliciter.

41. Lord Brandon who delivered the leading speech in President of India v. La Pintada [1985]1 AC 104 analysed the law as it was then and came to the conclusion that notwithstanding all the arguments which had been advanced it was not open to the common law to confer this right when the right had not been provided for by statute.

42. Lord Goff and Lord Woolf both delivered powerful and persuasive dissenting speeches.

43. It would appear that Seagroatt J was influenced by these speeches when he came to consider this matter.

44. It may well be the case that there is a large and influential body of opinion in favour of conferring this power on Arbitrators. However the important point which has to be borne in mind is what the law is not what one might wish it to be.

45. The House of Lords again considered this matter in Westdeutsche Landesbank Girozentnale v. Islington London Borough Council [1996] 2 WLR 802 and again arrived at the same conclusion.

46. The Court of Appeal here considered a similar problem albeit in relation to different legislation in Shun Fung Ironworks Ltd. v. Director of Buildings & Lands [1994]1 HKC 35.

47. Section 17 of the Crown Lands Resumption Ordinance Cap 124 provides that awards of compensation which are made shall bear interest from the date of the resumption without any words of qualification to indicate whether reference is being made to simple interest or compound interest.

48. Power V-P had this to say at p95 of the report:

"Compound or simple interest

Shun Fung argued that interest should be calculated on a compound basis because while it was kept out of its money, it had to borrow like other commercial enterprises at compound interest. The tribunal, however, 'felt it would be too radical a departure from settled practice' to accede to this request and ordered the award should carry simple interest.

Before any question of discretion on the part of the tribunal could arise or even any question of 'settled practice', the statutory provisions must first be construed.

In our judgment, there can be no doubt that where the Ordinance refers to interest, it refers to simple interest.

While words are not 'crystals, transparent and unchanged' (per Holmes J quoted by Megarry J in Mann v. D'Arcy [1968]2 All ER 172 at p176F), and accepting that a word like 'interest' appearing in a statute may 'vary greatly in colour and content according to the circumstances and the time in which it is used', we must have regard to the fact that for a very long time, the ordinary legal usage of the term 'interest' connotes simple interest (see, for instance, McGregor on Damages (15th Ed) para 605).

Mr Neoh, counsel for Shun Fung, argues that the statutory objective of the Ordinance, ie to give full compensation to the claimant, would be better achieved by awarding compound interest: a claimant like Shun Fung, he submits, being kept out of its money to which it is entitled, cannot be fully compensated unless compound interest were awarded; when Shun Fung is put into the position of having to borrow, as a result of the resumption, it is required to pay compound interest. So why should the government not be ordered to pay compound interest?

We find difficulty in accepting this approach. It suggests that the tribunal has a discretion whether to award compound interest or simple interest, depending upon the financial circumstances of the claimant; if the claimant is flush with cash, despite the resumption, it might be appropriate to award only simple interest on the compensation money; otherwise, compound interest would be appropriate. We find it difficult to spell out of the words of the statute any intention to confer a discretion along these lines.

In our judgment, the tribunal was correct to conclude that 'interest' in s17 means simple interest and the appeal on this ground must be dismissed."

49. Mr Fernyhough at the conclusion of an able submission contended that the key issue in this litigation was whether it was possible adopting the proper criteria for the construction of the Arbitration Ordinance to resolve the issue as to whether reference was being made to simple interest or whether the reference was to interest at large.

50. I have no doubt that this is the right question to ask and that the answer to the question is that it is possible to resolve this and that reference is being made to payments of simple interest.

51. The consequence of this is that the Arbitrator did not have jurisdiction to order that compound interest be payable. The appeal should in my view be allowed and as agreed by the parties costs should follow the event both here and below. There should be no order for costs on the motion of the Attorney-General to adduce the additional evidence.

Liu, J.A.:

52. I agree. Interpretation of s.22A of the Arbitration Ordinance, Cap. 341 should best be attempted from the very section itself. The respondent has not shown any legislative intent to change the prevailing law with reference to interest. Inclusion of compound interest could not have been envisaged, nor intended. S.22A provides exclusively for simple interest.

Godfrey, J.A. :

53. I have had the advantage of reading in draft the judgment prepared by Mayo, J.A. but I find myself unable to agree with his conclusion. I am of the opinion that the arbitrator, and the judge, were right in concluding that, on its true construction, s.22A of the Arbitration Ordinance, Cap. 341 confers on arbitrators an unqualified power to award "interest"; and therefore a power to award compound, rather than simple, interest if that course is, in the arbitrator's view, appropriate.

54. Like Mayo, J.A., I am sure that it would be wrong to treat the omission of the word "simple" in section 22A of the local legislation (clearly adapted from s. 19 of the imperial legislation) as inadvertent. But to treat that omission as attributable to a deliberate decision to bring the language of s.22A in line with that used in section 22 (enacted much earlier) seems to me a course unjustified by any admissible evidence and therefore equally wrong. Clearly, the framers of the imperial legislation intended, when preparing section 19, to recognise the need for some express indication in that section (unnecessary in the case of section 20, corresponding with the local section 22, in which, in practice, "interest" had at that time as now perforce to mean simple interest only) to demonstrate whether the "interest" which could be awarded might be simple or compound, or simple only; a point they resolved, as it seems to me, by using the word "simple" to qualify "interest" and thus to exclude compound interest. The framers of the local legislation, on the other hand, having deliberately excised the word "simple" in preparing section 22A, must in my judgment be taken as having intended the opposite.

55. For these reasons, I would for my part have dismissed this appeal; but since Liu, J.A. agrees with Mayo, J.A. it will be allowed. The successful applicant will have his costs of the appeal.