Tribunal Authority To Allocate Costs, Interest, And Fees

01 Mar 2026 --
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I. Tribunal’s Authority to Award Costs

1. General Principle

Most legal systems recognize that:

Costs are discretionary.
Costs usually follow the event (loser pays).
Tribunal must exercise discretion judicially.
Parties’ agreement may override default rules.

2. Key Case Laws on Costs

1. G.C. Roy v State of Orissa

Principle: Tribunal’s power to grant pendente lite interest and related cost discretion.

The Supreme Court recognized that arbitrators possess powers similar to courts unless expressly barred.

Relevance:
Tribunals can award costs and interest unless contractually restricted.

2. McDermott International Inc v Burn Standard Co Ltd

Principle: Limited court interference with arbitral discretion.

The Court held that arbitrators have broad discretion in awarding costs and interest, and courts should not reappreciate evidence.

Relevance:
Tribunal’s allocation of legal fees and expenses is rarely interfered with unless patently illegal.

3. Three Rivers District Council v Governor and Company of the Bank of England

Principle: Judicial discretion in awarding costs must be exercised reasonably.

Relevance:
Although a court case, it establishes principles applied by tribunals—cost allocation must be reasoned and proportionate.

II. Tribunal’s Authority to Award Interest

Interest is typically categorized into:

Pre-reference interest
Pendente lite (during proceedings)
Post-award interest

1. Pre-Award and Pendente Lite Interest

4. Secretary, Irrigation Department, Government of Orissa v G.C. Roy

Principle: Arbitrator can award pendente lite interest unless expressly barred.

The Court clarified that interest compensates for wrongful withholding of money.

Importance:
Interest is part of substantive justice.

5. Executive Engineer Dhenkanal Minor Irrigation Division v N.C. Budharaj

Principle: Arbitrator can award interest for pre-reference period.

This case expanded arbitral powers to include pre-reference interest.

Relevance:
Tribunals can grant full compensatory interest unless contract prohibits it.

2. Compound Interest

6. State of Haryana v S.L. Arora & Co

Principle: Compound interest cannot be awarded unless contract or statute permits.

The Court distinguished between simple and compound interest.

Relevance:
Tribunal authority is not unlimited; it must align with contractual terms.

III. Tribunal’s Authority to Award Legal Fees

Legal fee allocation depends on:

Statutory framework
Arbitration rules (e.g., institutional rules)
Party agreement

Tribunals consider:

Conduct of parties
Frivolous claims
Delay tactics
Proportionality

7. Salem Advocate Bar Association v Union of India

Principle: Realistic costs should be awarded to discourage frivolous litigation.

Relevance:
Tribunals increasingly grant actual legal costs rather than nominal amounts.

8. ONGC Ltd v Saw Pipes Ltd

Principle: Award can be set aside if patently illegal.

Relevance:
If tribunal grants excessive or contractually prohibited interest or fees, award may be challenged.

IV. Governing Legal Principles

1. Discretionary Power

Tribunal discretion must be:

Judicial
Reasoned
Proportionate
Non-arbitrary

2. Party Autonomy

If contract states:

“No interest shall be payable” → Tribunal cannot override.
“Each party bears own costs” → Tribunal must respect it.

Party autonomy prevails over default procedural rules.

3. Costs Follow the Event

Common principle:

Successful party recovers costs.
Tribunal may deviate for misconduct or partial success.

4. Compensatory Nature of Interest

Interest is not punitive. It compensates for:

Loss of use of money
Delayed payment
Financial deprivation

V. Grounds for Challenging Tribunal’s Cost or Interest Award

Excess of jurisdiction
Violation of contract terms
Patent illegality
Lack of reasoning
Arbitrary exercise of discretion

Courts generally do not interfere merely because they would have awarded a different amount.

VI. Practical Scenarios

1. Tribunal Awards 18% Compound Interest

Challenge possible if contract silent or prohibits compound interest.

2. Tribunal Orders Losing Party to Pay Full Legal Fees

Valid if proportionate and reasoned.

3. Tribunal Splits Costs Despite Clear Winner

Acceptable if claims were partially successful.

4. Tribunal Denies Interest Entirely

May be challenged if money was wrongfully withheld and contract does not bar interest.

VII. Conclusion

The authority of tribunals to allocate costs, interest, and fees is well recognized but not unlimited.

Judicial trends from the above cases establish that:

Tribunals have broad discretion.
Interest is compensatory.
Compound interest requires express authorization.
Courts rarely interfere unless award is patently illegal.
Party autonomy governs cost allocation.
Realistic costs are increasingly favored.