Sans Souci Ltd v VRL Services Ltd

JurisdictionUK Non-devolved
JudgeLord Sumption
Judgment Date07 March 2012
Neutral Citation[2012] UKPC 6
Date07 March 2012
Docket NumberAppeal No 0088 of 2010
CourtPrivy Council
Sans Souci Limited
(Appellant)
and
VRL Services Limited
(Respondent)

[2012] UKPC 6

Before

Lord Hope

Lord Clarke

Lord Sumption

Lord Reed

Lady Paton

Appeal No 0088 of 2010

Privy Council

Appellant

Vincent Nelson QC

Gavin Goffe

(Instructed by Myers, Fletcher & Gordon)

Respondent

Richard Mahfood QC

Javan Herberg QC

Dr Lloyd Barnett

Weiden Daley

(Instructed by Charles Russell LLP)

Heard on 1 February 2012

Lord Sumption
1

The Board has before it an appeal and a cross-appeal arising out of arbitration proceedings in Jamaica. The appeal is concerned with the scope of an order made by the Court of Appeal of Jamaica remitting the award to the arbitrators. The cross-appeal raises two discrete questions on costs.

The facts
2

The Appellant company was the proprietor of the Sans Souci Hotel at White River, St. Mary. The Respondent entered into a contract dated 12 October 1993 to manage the hotel. It is convenient to refer to the parties as "the Proprietor" and "the Manager" respectively. The agreement was for a period of just over ten years to 31 March 2004, plus a further ten years at the Manager's option. At the relevant time, the option had been exercised, and the agreement was therefore due to expire in 2014. For present purposes, the provisions which matter are clauses 4(A) and 13–16. By clause 4(A) the Manager was entitled to an annual management fee based on the gross revenue and gross operating profit of the hotel business. Clause 14 conferred on either party a right of termination in certain events, including force majeure. By clause 15, the agreement would also terminate if the Proprietor sold the hotel during its term, but before doing this he was required to offer it to the Manager. Clause 13 provided for disputes to be referred to arbitration before two arbitrators and an umpire in accordance with the laws of Jamaica.

3

In March 2003, the Proprietor purported to terminate the agreement under clause 14 on the ground of force majeure. This provoked a dispute which was referred to arbitration. It was common ground throughout the arbitration proceedings that the agreement was at an end. The issues were defined in general terms in Terms of Reference prepared by the arbitrators at the outset of their proceedings. Paraphrasing this document, they were (i) whether the termination of the agreement had come about by the lawful exercise of the Proprietor's right of termination or by their unlawful repudiation; and (ii) if the latter, what damages were recoverable by the Manager in consequence.

4

Before the arbitrators, the Manager claimed damages under three heads. The main claim was for the gross management fees which would have accrued from the termination of the agreement until 2014, discounted for early receipt. This was disputed mainly on the ground that the correct measure of damages was the Manager's loss of profit, and that in arriving at the loss of profit it was necessary to deduct from the gross fees the so-called "unrecoverable expenses". These were expenses which, according to the Proprietor, the Manager would have incurred in performing its functions and could not have recovered under the terms of the agreement. The main issue about them was whether they were really unrecoverable. Second, there was a claim for the value of the Manager's right of first refusal on the sale of the hotel, if it should be held that the hotel would have been sold before the natural expiry of the agreement. This head of claim appears to have been introduced in case the Proprietor should contend that the hotel would have been sold and the payment of management fees thereby brought to an end before 2014. In the event, however, the Proprietor did not say this. Its case was that there was no evidence of any intention to sell and no reason to suppose that if there was a sale the Manager would emerge as the buyer. At some stage, the Manager appears to have conceded this, and the point fell away. Finally, the Manager claimed certain expenditure said to have been wasted as a result of the termination. This head was, in the event, unchallenged.

5

The arbitrators issued their award on 16 July 2004. They held that the Proprietor had repudiated the agreement, and awarded damages of US$6,034,793. A small proportion of this sum represented the wasted expenditure. The rest was the present value of management fees accruing between the termination of the contract and 2014, on assumptions about the gross revenue and operating profit during that period which were derived from expert evidence given at the hearing. The tribunal made no deduction from the projected management fees for "unrecoverable expenses". Apart from referring briefly to this issue as arising from a "set-off" claimed by the Proprietor, they said nothing about it at all.

6

After receiving the award, the Proprietor applied to the Court under Section 11 of the Arbitration Act to set it aside or remit it to the arbitrators. One of the grounds of the application was the arbitrators had not dealt with the "unrecoverable expenses". A number of other grounds were also put forward, but they failed and are not part of this appeal. It is unnecessary to say anything about them.

7

The Judge, Harris J, dismissed the Proprietor's application in its entirety. The Proprietor appealed, and the Court of Appeal gave judgment on 12 December 2008. On most points, they agreed with the Judge. However, they allowed the appeal on the ground based on the "unrecoverable expenses". They held that by characterising the Manager's case about these expenses as being based on set-off, the arbitrators had misunderstood it. As a result, they had failed to make the appropriate findings about the expenses, or to take them into account in the assessment of damages, or to explain why they had not done so. They remitted the award to the arbitrators in the following terms:

"The appeal against the award of damages is allowed and the matter is remitted to the Arbitrators to determine the issue of damages only."

This order was perfected on 2 January 2009.

8

When the matter came back before the tribunal, the Proprietor sought to raise two points on damages in addition to the question of "unrecoverable expenses", and to lead fresh evidence in support of them. The first was that the Proprietor had in fact sold the hotel on 10 September 2005. This was presumably the prelude to an argument that management fees could not in any event have been earned beyond that date. The second additional point was that economic problems adversely affecting the Jamaican tourist industry after the termination of the agreement would have reduced the management fees below the level which the tribunal, in their award, had derived from the expert evidence. The tribunal refused to entertain either point. In a preliminary ruling on 20 February 2009, they ruled that the award had been remitted to them for the limited purpose of dealing with the "unrecoverable expenses" to be deducted from the future management fees. They were not therefore entitled to reassess the value of the management fees themselves.

9

The Proprietor responded with fresh court proceedings to challenge the arbitrators' preliminary ruling. Their case was that the Court of Appeal had remitted the question of damages generally, and that all points relevant to damages were therefore in principle open before the arbitrators. This was rejected in the Supreme Court and again in the Court of Appeal. The issue now comes before the Board some seven years after the date of the original award.

The appeal: the scope of the remission
10

Section 11 of the Arbitration Act empowers the Court to "remit the matters referred, or any of them, to the reconsideration of the arbitrators or umpire." This statutory power has its origin in section 8 of the English Common Law Procedure Act 1854. It exists in order to enable the tribunal, which would otherwise have been functus officio from the publication of its award, to address issues which were part of the submission to arbitration but were not resolved, or not properly resolved, in the award. Leaving aside the perhaps anomalous category of cases in which an award has been remitted on the ground that fresh evidence has become available since it was made, the essential condition for the exercise of the power is that something has gone wrong with the proceedings before the arbitrators. Some error, oversight, misunderstanding or misconduct must have occurred which resulted in the tribunal failing to complete its task and justifies reopening what would otherwise be a conclusive resolution of the dispute.

11

It is apparent from the reasons given by the Court of Appeal in December 2008 that, in ordering a remission, they were concerned only with the way in which the arbitrators had dealt with, or failed to deal with, the "unrecoverable expenses". Harrison P., delivering the leading judgment, identified the error or oversight which justified the remission at paragraph 69:

"Whether or not expenses incurred by the Respondent were in fact 'unrecoverable', as claimed by the appellant in its Points of Defence, or reimbursable as contended by the Respondents, should have been determined by the arbitrators. The arbitrators were required to demonstrate in their award that they accepted that the expenses...

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