In re the Arbitration between East India Trading Co. & Halari

Peck, P. J. The questions presented on this appeal are (1) whether the successful party in an arbitration proceeding is entitled to interest on the award for the period from the date thereof to the entry of judgment and (2) whether a provision in the arbitration rules of a trade association, under which the arbitration is held, providing that whenever it shall he decided [421] that a party has failed to fulfill the terms of a contract and is in default, the defaulting party shall pay a “ penalty,” as determined by the arbitrators, of not less than 2% and not more than 10% of the market value established as of the date of the default, is enforcible. In this case a 2% “ penalty ” of $436.80 was included in the arbitrators’ award. The learned court at Special Term disallowed both the item of interest and the penalty. We are unanimous in holding that the item of interest should have been allowed (Civ. Prac. Act, §§ 1464, 480). The majority of the court thinks that the “ penalty ” should also have been allowed. The decision of the “ penalty ” issue should not be made on the basis of nomenclature. The true nature and justification of the ‘ ‘ penalty ’ ’ assessment, rather than the verbal characterization of it, should be regarded. If there is any rational and proper basis for the provision it should be recognized, for so long as public policy is not offended the contract of the | parties and the award of the arbitrators are entitled to respect.; We think that the “ penalty ” provision is justified and inof- j fensive. Judicial notice can be taken of the expense of litigation and the inadequacy of ordinary costs. While we have not adopted a policy of awarding compensatory costs in our court system, there is no reason why in the private forums of trade arbitration a reasonable system of compensatory costs or something of that nature should not be established and recognized. Furthermore, the difference between the contract price and market price may not reflect the full measure of damage and giving the arbitrators some latitude to add to that amount is fair. The limited additional authority and discretion given to the arbitrators, which presumably will be exercised conformally to the merits of a case, does not appear to have any improper purpose and at least is defensible. We think that it was within the province of the trade association to incorporate this provision in its arbitration system and that it was within the province of the parties voluntarily to adopt it. The order appealed from should be modified to allow the items in question and, as so modified, affirmed, with $20 costs and disbursements to appellant.