Lesotho Highlands Development Authority v Impregilo SpA

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLORD PHILLIPS OF WORTH MATRAVERS,LORD HOFFMANN,LORD SCOTT OF FOSCOTE,LORD RODGER OF EARLSFERRY,LORD STEYN
Judgment Date30 Jun 2005
Neutral Citation[2005] UKHL 43

[2005] UKHL 43

HOUSE OF LORDS

Appellate Committee

Lord Steyn

Lord Hoffmann

Lord Phillips of Worth Matravers

Lord Scott of Foscote

Lord Rodger of Earlsferry

Lesotho Highlands Development Authority
(Respondents)
and
Impregilo SpA

and others

(Appellants)

Appellants:

Ian Glick QC

Neil Kitchener

(instructed by Slaughter & May)

Respondents:

Nicholas Dennys QC

James Howells

(instructed by White & Case)

LORD STEYN

My Lords,

1

This appeal raises issues regarding the jurisdiction of arbitrators under the Arbitration Act 1996 which are of great importance for the effective functioning of the statute.

2

It arises from an award made by three experienced ICC arbitrators, sitting in London as the seat of the arbitration, in disputes under a construction contract governed by the law of Lesotho. The arbitrators exercised or purported to exercise two powers under the Arbitration Act 1996 viz to make an award in any currency in terms of section 48(4) and to grant pre-award interest in terms of section 49(3). The relevant provisions read as follows:

48. (1) The parties are free to agree on the powers exercisable by the arbitral tribunal as regards remedies.

(2) Unless otherwise agreed by the parties, the tribunal has the following powers.

(3) …

(4) The tribunal may order the payment of a sum of money, in any currency.

(5) …

49. (1) The parties are free to agree on the powers of the tribunal as regards the award of interest.

(2) Unless otherwise agreed by the parties the following provisions apply.

(3) The tribunal may award simple or compound interest from such dates, at such rates and with such rests as it considers meets the justice of the case –

  • (a) on the whole or part of any amount awarded by the tribunal, in respect of any period up to the date of the award;

  • (b) on the whole or part of any amount claimed in the arbitration and outstanding at the commencement of the arbitral proceedings but paid before the award was made, in respect of any period up to the date of payment."

The central issue before the House is whether the arbitrators exceeded their powers under section 68(2)(b) of the Act.

3

Section 69 provides for a right of appeal on "a question of law", which is defined under section 82(1) as "a question of the law of England". The parties are free to exclude this right of appeal by agreement. They did so by ICC Rule 28.6 in the case before the House. Section 68, so far as material, reads as follows:

"(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award …

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant –

(b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);"

The question arises how section 68(2)(b) and section 69, so far as the latter excludes a right of appeal on a question of law, are to operate. Specifically, can an alleged error of arbitrators in interpreting the underlying or principal contract be an excess of power under section 68(2)(b), so as to give the court the power to intervene, rather than an error of law, which can only be challenged under section 69 if the right of appeal has not been excluded?

I. The contract

4

In 1991 the Lesotho Highlands Development Authority engaged a consortium of seven companies from the United Kingdom, South Africa, Italy, Germany and France to construct the Katse Dam in Lesotho. Collectively the contracting companies were referred to as the Highlands Water Venture. The contract was made on 15 February 1991 and was concluded on the standard FIDIC Conditions of Contract (4th edition) with terms and additions. The contract was governed by the law of Lesotho.

5

The contract provided that claims and disputes would in the first instance be determined by the engineer appointed by the employer. If the parties were not satisfied with the engineer's decision, they were entitled to resort to arbitration. The arbitration clause provided for arbitration under the rules of the ICC. Those rules provide that all parties agree, so far as they are allowed to do so, to forego any right of appeal to the courts. This is an effective exclusion agreement of the right of appeal on a point of law under section 69.

II. Performance

6

On 1 February 1991 the works commenced. On 26 February 1998 the taking over certificate for the whole of the contract works was issued.

III. Claims

7

In the course of the contract, the contractors made a number of claims for reimbursement of increased costs and for upwards adjustments to prices and rates. These claims included:

The claims were rejected by the employer and were referred to the engineer for decision under the agreed dispute resolution procedure. The engineer rejected the claims. The contractors then referred these claims (and other claims) to ICC arbitration as provided in the contract. On 29 October 1999 the arbitration was commenced.

IV. The terms of reference

  • (a) a claim for additional costs incurred due to an increase in Lesotho vehicle licence fees (claim 12);

  • (b) a claim for reimbursement of consequential costs resulting from the employer's instruction to increase labour wage rates (claim 37);

  • (c) a claim in respect of variations to the contract works (claim 53/66); and

  • (d) a claim for reimbursement of additional costs incurred as a result of the engineer's instruction to use increased amounts of shotcrete (claim 62).

8

On 29 September the parties and the arbitrators signed ICC terms of reference. Under paragraph 4 of the terms of reference two issues referred to the tribunal were (1) the currency or currencies of any award and (2) whether any interest should be paid on sums found due. Paragraph 6 of the terms of reference contained the following provision:

"… The arbitrator shall have full power to open up, review and revise any decision, opinion, instruction, determination, certificate or valuation of the engineer related to the dispute, provided always that the arbitrator shall be bound to issue in writing to each party, including the engineer, fully documented reasons for and derivation of the said final settlement."

The terms of reference further read as follows:

"7.1 As the seat of the arbitration is to be London, the dispute is to be finally settled in accordance with the provisions of the Arbitration Act 1996 (UK) (which will apply in lieu of the Arbitration Act No. 12 of 1980 of Lesotho) and the rules of arbitration of the International Chamber of Commerce in force as from 1 January 1998.

7.2 The law applicable to the substance of the disputes pursuant to clause 5 of the conditions of particular application and the arbitration agreement referred to in paragraph 6.4 is to be that in force in the Kingdom of Lesotho.

8.1 The tribunal shall have the power to make a partial, or interim, award on any issue or matter before making a final award. Any such award or awards shall to the extent to which the tribunal considers to be appropriate, specify a single net amount (if any) to be paid by one party to the other, having regard both to the claimants' claim[s] and the respondent's counter-claim.

…"

V. The award

9

On 25 January 2002 the tribunal issued a partial award. The effect of the award is summarised as follows in the agreed statement of facts and issues:

"In their partial award, the arbitrators (Gordon Jaynes, John Blackburn QC and John Uff QC) found that the following sums, 'expressed in Maloti', were due to the appellants in respect of the claims:

Claim 12 - 46,659

Claim 37 - 14,321,105

Claim 53/66 - 3,000,713

Claim 62 - 1,532,522

The arbitrators held that the dates on which payment in respect of the claims were due were as follows:

Claim 12 - 1 January 1997

Claim 37 - 1 July 1996

Claim 53/66 - 1 July 1996

Claim 62 - 1 July 1997

The arbitrators decided that the partial award should be expressed in European currencies in the following proportions:

Currency

%

Italian Lira

26.34

UK Pounds

24.83

French Francs

32.12

Deutsche Marks

16.71

______

100

The arbitrators (rightly or wrongly) derived these proportions from the supplement to tender schedules A and O, which form part of the contract. The arbitrators said that, 'sums presently stated in Maloti should be converted in the same ratio, inter se, as the four European currencies are stated.' The rates of exchange used by the arbitrators were those set out in clause 72.1 (as amended) and the supplement to tender schedules A and O. European currencies were then converted into Euros where appropriate.

The arbitrators further decided that pre-award simple interest would be awarded on the claims from the dates on which they were due at annual average rates agreed by the parties."

VI The reasons of the tribunal

10

In respect of the currency issue the tribunal relied on section 48(4) of the Act. The tribunal pointed out that the terms of reference expressly provided that the dispute shall be settled in accordance with the provisions of the 1996 Act. They stated [para 13.17]:

"… section 48 applies 'unless otherwise agreed by the parties'. The respondent contended that the matter of currencies was dealt with under the contract. While this may provide for the currencies in which payment under the contract is to be made, the contract is silent as to the currency in which any arbitral award is to be given. The tribunal is of the opinion that the parties have not 'otherwise agreed' on the powers available to the tribunal, and the tribunal accordingly concludes that it has the power to order...

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