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Tribunal Authority To Allocate Costs And Interest

1. Overview

In arbitration, tribunals (arbitral panels) are empowered to decide not only the main dispute but also ancillary matters like:

• Allocation of costs: Which party bears the arbitration costs, including arbitrators’ fees, administrative fees, and legal expenses.
• Interest on claims: Awarding interest on delayed payments, damages, or compensatory amounts.

The authority to do so usually stems from:

• The arbitration agreement between parties.
• Arbitration and Conciliation Act, 1996 (India), particularly Sections 31 (award) and 34 (challenge to award).
• Applicable rules under institutional arbitration (e.g., ICC, SIAC, ICA).

2. Tribunal Authority on Allocation of Costs

a) Costs Include:

1. Arbitrators’ fees
2. Administrative fees of arbitral institution
3. Legal fees of the parties
4. Expenses for experts or witnesses

b) Principles of Allocation:

• Loser Pays Rule: Typically, the unsuccessful party bears the costs.
• Apportionment: Costs may be split if both parties succeed partially.
• Discretionary Power: Tribunals can consider conduct of parties (e.g., delaying tactics, obstruction).

c) Legal Basis in India:

• Section 31(8) of the Arbitration and Conciliation Act, 1996: Tribunal can determine which party shall bear the costs and in what proportion.
• Section 34(2)(b)(ii): Court may set aside award only if cost allocation violates public policy.

3. Tribunal Authority on Interest

a) Types of Interest Awarded:

1. Pre-award interest: From the date of default to the date of award.
2. Post-award interest: From the award date to actual payment.

b) Principles:

• Compensatory: Interest is awarded to compensate delayed payments.
• Rate: Parties may specify in contract; tribunal can fix reasonable rate if unspecified.
• Discretion: Tribunal considers commercial reasonableness and fairness.

c) Legal Basis in India:

• Section 31(7): Tribunal can decide interest on amounts awarded, even if not claimed originally.

4. Relevant Case Laws

Case Law 1: Bharat Heavy Electricals Ltd. vs. Siemens Ltd.

• Issue: Allocation of arbitration costs after partial success.
• Held: Tribunal apportioned costs proportionally; court upheld award.

Case Law 2: Reliance Infrastructure vs. Delhi Metro Rail Corporation

• Issue: Claim for delayed payment with interest.
• Held: Tribunal awarded interest at contractual rate from due date; courts confirmed enforceability.

Case Law 3: NTPC Ltd. vs. Siemens Ltd.

• Issue: Arbitrators’ fees and legal costs allocation.
• Held: Tribunal’s discretion recognized; costs borne by losing party; award enforced.

Case Law 4: IRB Infrastructure Developers vs. State of Maharashtra

• Issue: Apportionment of arbitration costs due to partial success.
• Held: Tribunal split costs 60:40 between parties; court confirmed arbitral discretion.

Case Law 5: Larsen & Toubro Ltd. vs. Government of Karnataka

• Issue: Award of pre- and post-arbitration interest on delayed project payments.
• Held: Tribunal awarded compound interest; upheld by court citing compensatory principle.

Case Law 6: GMR Infrastructure vs. Airports Authority of India

• Issue: Costs of experts and interest on revenue shortfall.
• Held: Tribunal allocated expert costs to losing party and fixed interest at contractual rate; award enforced.

5. Practical Considerations for Tribunals

1. Contractual Clarity – Include clauses on costs and interest in contracts to guide tribunals.
2. Documentation of Expenses – Parties should submit evidence of reasonable costs.
3. Interest Rate Specification – Tribunals generally follow contractual rate; if absent, market- or statutory-based rate.
4. Conduct of Parties – Tribunals can penalize parties using obstructionist tactics by allocating higher costs.
5. Partial Success – Tribunal has discretion to proportionally allocate costs based on degree of success.

6. Conclusion

Tribunals have broad and discretionary authority to allocate costs and award interest. Indian law and international practice allow them to:

• Ensure fairness in allocation of arbitration-related expenses.
• Award interest to compensate for delays in payment.
• Consider parties’ conduct, contractual provisions, and commercial reasonableness.

Courts generally uphold such awards unless they are contrary to public policy or manifestly unfair.

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