Judgments - Lesotho Highlands Development Authority (Respondents) v. Impregilo SpA and others (Appellants)

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    22.  Section 48 provides that unless otherwise agreed by the parties, the tribunal may order the payment of a sum of money, in any currency. Any agreement to the contrary is only effective if in writing: section 5(1). The Court of Appeal did not take into account the radical nature of the alteration of our arbitration law brought about by the 1996 Act. Moreover, the Court of Appeal approached the construction of section 48(4) through the lens of case law pre-dating the 1996 Act. The Court of Appeal cited In re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007; Jugoslavenska Oceanska Plovidba v Castle Investment Co Inc [1974] QB 292; Miliangos v George Frank (Textiles) Ltd [1976] AC 443; and Services Europe Atlantique Sud (SEAS) v Stockholms Rederiaktiebolag Svea [1979] AC 685. But for this approach the Court of Appeal would have had no reason to disagree with the natural and commercially sensible construction of the wide words of section 48(4) which the tribunal adopted. I would hold that the power of the tribunal under section 48(4) was unconstrained and was available to the tribunal. If this view is correct, section 48(4) has a businesslike meaning which will assist the arbitral process. I would rule that it is the correct view. On this simple basis I would reverse the Court of Appeal on the currency point.

    23.  Contrary to the view I have expressed, I will now assume that the tribunal committed an error of law. That error of law could have taken more than one form. The judge (para 25) and the Court of Appeal (para 35) approached the matter on the basis that the tribunal erred in the interpretation of the underlying contract. Another possibility is that the tribunal misinterpreted its powers, under section 48(4) to express the award in any currency. Let me approach the matter on the basis that there was a mistake by the tribunal in one of these forms. Whichever is the case, the highest the case can be put is that the tribunal committed an error of law.

    24.  But the issue was whether the tribunal "exceeded its powers" within the meaning of section 68(2)(b). This required the courts below to address the question whether the tribunal purported to exercise a power which it did not have or whether it erroneously exercised a power that it did have. If it is merely a case of erroneous exercise of power vesting in the tribunal no excess of power under section 68(2)(b) is involved. Once the matter is approached correctly, it is clear that at the highest in the present case, on the currency point, there was no more than an erroneous exercise of the power available under section 48(4). The jurisdictional challenge must therefore fail.

    25.  Given the general importance of the point it is necessary to explain it in a little more detail. The reasoning of the lower courts, categorising an error of law as an excess of jurisdiction, has overtones of the doctrine in Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147 which is so well known to the public law field. It is, however, important to emphasise again that the powers of the court in public law and arbitration law are quite different. This has been clear for many years, and is now even more manifest as a result of the enactment of the 1996 Act. Sir Michael J Mustill (now Lord Mustill) and Steward Boyd QC (Law and Practice of Commercial Arbitration in England, 2nd ed (1989) p 555) explained:

    "If . . . [the arbitrator] applies the correct remedy, but does so in an incorrect way - for example by miscalculating the damages which the submission empowers him to award - then there is no excess of jurisdiction. An error, however gross, in the exercise of his powers does not take an arbitrator outside his jurisdiction and this is so whether his decision is on a matter of substance or procedure."

See also my judgments in K/S A/S Bill Biakh v Hyundai Corporation [1988] 1 Lloyd's Rep 187, 190; Bank Mellat v GAA Development and Construction Co [1988] 2 Lloyd's Rep 44, 52.

    26.  In order to understand the radical nature of the alteration of our arbitration law brought about by section 68 of the 1996 Act it is necessary to refer to the pre-existing law. Section 68 replaced sections 22 and 23 of the Arbitration Act 1950. Section 22(1) of the 1950 Act provided:

    "In all cases of reference to arbitration the High Court or a judge thereof may from time to time remit the matters referred, or any of them, to the reconsideration of the arbitrator or umpire."

The sweeping generality of this provision is clear. In the case law the remedy of remission was held to be available on the grounds of "procedural mishap" or "misunderstanding." Section 23 provided:

    "(1)  Where an arbitrator or umpire has misconducted himself or the proceedings, the High Court may remove him.

    (2)  Where an arbitrator or umpire has misconducted himself or the proceedings, or an arbitration or award has been improperly procured, the High Court may set the award aside."

In the eighties and nineties there was persistent criticism about the excessive reach of these powers of intervention. The Departmental Advisory Committee on Arbitration Law ("The DAC") under the chairmanship of Lord Justice Saville (now Lord Saville of Newdigate) explained in its Report on the Arbitration Bill, at p 11, paras 21-22:

    ". . . there is no doubt that our law has been subject to international criticism that the courts intervene more than they should in the arbitral process, thereby tending to frustrate the choice the parties have made to use arbitration rather than litigation as the means for resolving their disputes.

    Nowadays the courts are much less inclined to intervene in the arbitral process than used to be the case. The limitation on the right of appeal to the courts from awards brought into effect by the Arbitration Act 1979, and changing attitudes generally, have meant that the courts nowadays generally only intervene in order to support rather than displace the arbitral process. We are very much in favour of this modern approach . . ."

A major purpose of the new Act was to reduce drastically the extent of intervention of courts in the arbitral process.

    27.  The legislative technique adopted to achieve this purpose was spelled out explicitly in the Report on the Arbitration Bill and in particular in discussion of clause 68, which became section 68 of the 1996 Act. The DAC observed about clause 68 that it "is really designed as a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected": p 58, para 280. On the other hand, the DAC recommended adoption of "the internationally accepted view that the court should be able to correct serious failure to comply with the 'due process' of arbitral proceedings: cf article 34 of the Model Law:" p 59, para 282. The ethos of the DAC report was that parties are entitled to a fair hearing leading to an impartial adjudication. But the idea that section 68 contemplated an adjudication which arrives at the "right" conclusion would have been wholly out of place in these recommendations. The DAC report was the matrix of the Parliamentary debates.

    28.  It is now necessary to examine section 68 in its textual setting. For this purpose it is necessary to set out section 68 more fully than I have done earlier in this judgment. Section 68 reads as follows:

    "(1)  A party to arbitral proceedings may . . . 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 -

    (a)  failure by the tribunal to comply with section 33 (general duty of tribunal);

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

    (c)  failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;

    (d)  failure by the tribunal to deal with all the issues that were put to it;

    (e)  any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers;

    (f)  uncertainty or ambiguity as to the effect of the award;

    (g)  the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;

    (h)  failure to comply with the requirements as to the form of the award; or

    (i)  any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.

      (3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may -

      (a) remit the award to the tribunal, in whole or in part, for reconsideration,

      (b) set the award aside in whole or in part, or

      (c) declare the award to be of no effect, in whole or in part.

      The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration."

This is a mandatory provision. The policy in favour of party autonomy does not permit derogation from the provisions of section 68. A number of preliminary observations about section 68 are pertinent. First, unlike the position under the old law, intervention under section 68 is only permissible after an award has been made. Secondly, the requirement is a serious irregularity. It is a new concept in English arbitration law. Plainly a high threshold must be satisfied. Thirdly, it must be established that the irregularity caused or will cause substantial injustice to the applicant. This is designed to eliminate technical and unmeritorious challenges. It is also a new requirement in English arbitration law. Fourthly, the irregularity must fall within the closed list of categories set out in paragraphs (a) to (i).

    29.  It will be observed that the list of irregularities under section 68 may be divided into those which affect the arbitral procedure, and those which affect the award. But nowhere in section 68 is there any hint that a failure by the tribunal to arrive at the "correct decision" could afford a ground for challenge under section 68. On the other hand, section 68 has a meaningful role to play. An example of an excess of power under section 68(2)(b) may be where, in conflict with an agreement in writing of the parties under section 37, the tribunal appointed an expert to report to it. At the hearing of the appeal my noble and learned friend, Lord Phillips of Worth Matravers MR, also gave the example where an arbitration agreement expressly permitted only the award of simple interest and the arbitrators in disregard of the agreement awarded compound interest. There is a close affinity between section 68(2)(b) and section 68(2)(e). The latter provision deals with the position when an arbitral institution vested by the parties with powers in relation to the proceedings or an award exceeds its powers. The institution would exceed its power of appointment by appointing a tribunal of three persons where the arbitration agreement specified a sole arbitrator.

    30.  The New York Convention on the recognition and enforcement of Foreign arbitral awards 1958 and article 34 of the UNCITRAL Model Law on International Commercial Arbitration were in part a provenance of section 68: see General Note to section 68 of the Arbitration Act 1996 as published in Current Law Statutes 1996, p 23-46. Specifically, it is likely that the inspiration of the words "the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction)" in section 68 are the terms of article V(1)(c) of the New York Convention and the jurisprudence on it. The context is that article V(1)(a) stipulates that the invalidity of the arbitration agreement is a ground for non enforcement of an award: it involves the competence of the arbitrator. Article V(1)(c) relates to matters beyond the scope of the submission to arbitration. It deals with cases of excess of power or authority of the arbitrator. It is well established that article V(1)(c) must be construed narrowly and should never lead to a re-examination of the merits of the award: Parsons & Whittemore Overseas Co Inc v Sociéte Générale de l'Industrie du Papier (RAKTA) 508 F 2d 969 (2nd Cir 1974); Albert Jan van den Berg, The New York Arbitration Convention of 1958 (1981), pp 311-318; Domenico Di Pietro and Martin Platte, Enforcement of International Arbitration Awards: The New York Convention of 1958 (2001), pp 158-162. By citing the Parsons decision counsel for the contractors alerted the House to this analogy. It points to a narrow interpretation of section 68(2)(b). The policy underlying section 68(2)(b) as set out in the DAC report similarly points to a restrictive interpretation.

    31.  By its very terms section 68(2)(b) assumes that the tribunal acted within its substantive jurisdiction. It is aimed at the tribunal exceeding its powers under the arbitration agreement, terms of reference or the 1996 Act. Section 68(2)(b) does not permit a challenge on the ground that the tribunal arrived at a wrong conclusion as a matter of law or fact. It is not apt to cover a mere error of law. This view is reinforced if one takes into account that a mistake in interpreting the contract is the paradigm of a "question of law" which may in the circumstances specified in section 69 be appealed unless the parties have excluded that right by agreement. In cases where the right of appeal has by agreement, sanctioned by the Act, been excluded, it would be curious to allow a challenge under section 68(2)(b) to be based on a mistaken interpretation of the underlying contract. Moreover, it would be strange where there is no exclusion agreement, to allow parallel challenges under section 68(2)(b) and section 69.

    32.  In order to decide whether section 68(2)(b) is engaged it will be necessary to focus intensely on the particular power under an arbitration agreement, the terms of reference, or the 1996 Act which is involved, judged in all the circumstances of the case. In making this general observation it must always be borne in mind that the erroneous exercise of an available power cannot by itself amount to an excess of power. A mere error of law will not amount to an excess of power under section 68(2)(b).

    33.  For these reasons the Court of Appeal erred in concluding that the tribunal exceeded its powers on the currency point. If the tribunal erred in any way, it was an error within its power.

    34.  I am glad to have arrived at this conclusion. It is consistent with the legislative purpose of the 1996 Act, which is intended to promote one-stop adjudication. If the contrary view of the Court of Appeal had prevailed, it would have opened up many opportunities for challenging awards on the basis that the tribunal exceeded its powers in ruling on the currency of the award. Such decisions are an everyday occurrence in the arbitral world. If the view of the Court of Appeal had been upheld, a very serious defect in the machinery of the 1996 Act would have been revealed. The fact that this case has been before courts at three levels and that enforcement of the award has been delayed for more than three years reinforces the importance of the point.

XIII. The pre-award interest point

    35.  Counsel for the employer submitted that the arbitrators exceeded their power by awarding interest pursuant to section 49(3). But counsel advanced his challenge in respect of pre-award interest in an almost apologetic way. He said this aspect was parasitic on the currency point. It is easy to follow why he approached the matter in this fashion. For this ground to get anywhere the employer had to show that the decision in question caused or will cause a substantial injustice to the employer. To make good this proposition in causative terms a comparison needs to be made with either the regime of interest under the underlying contract or under the applicable law of Lesotho. It is clear, however, as the tribunal observed, that the proceedings are concerned with sums that have not been certified under clause 60(10) of the contract. A comparison with the position under clause 60(10) is therefore irrelevant. The only other possibility is to have regard to the law of Lesotho so far as it governs the substance of the dispute between the parties. There is, however, no finding about the law of Lesotho in the judgments of either Morison J or the Court of Appeal. Counsel observed that it must have been assumed that there was a substantial injustice. This is not good enough. The burden is squarely on the applicant, who invokes the exceptional remedy under section 68, to secure (if he can) findings of fact which establish the pre-condition of substantial injustice. The employer did not satisfy this requirement. In these circumstances I would rule that the precondition of substantial injustice has not been established and that on this ground alone the challenge to pre-award interest should fail.

    36.  The ground of appeal relating to pre-award interest is, however, faced with other formidable difficulties. The tribunal held that the power under section 49(3) to award interest is prima facie available. This conclusion was inescapable. The only question is whether the provisions of clause 60(10) of the contract could amount to an agreement to the contrary. The tribunal pointed out that clause 60(10) only relates to certified payments. The arbitration proceedings were concerned with sums which had not been certified. There was no agreement to the contrary under section 49 of the Act. The grounds relied on before the tribunal to say that the tribunal had no power to act under section 49 collapsed.

    37.  Morison J appeared to take the view that the law of Lesotho, as the law applicable to the construction contract, may be relevant. This presumably is on the basis that it constitutes an agreement to the contrary under section 49. Ignoring for the moment the fact that one does not know what the law of Lesotho is, this view comes up against the difficulty that only an agreement in writing as defined in the Act can qualify as an agreement to the contrary under section 49: section 5(1). This is no mere technicality. In the words of the DAC (p 14, para 35) "By introducing some formality with respect to all agreements, the possibility of subsequent disputes (e.g. at the enforcement stage) is greatly diminished." The law of Lesotho is not an agreement to the contrary in writing.

    38.  The Court of Appeal apparently accepted the submission of the contractors that the parties did not expressly agree pursuant to section 49(3) to exclude the arbitrators' power to award interest: paragraph 48 of the judgment. Having come to this conclusion the Court of Appeal ought to have held that the arbitrators had the power to award interest under section 49(3). It did not do so. For reasons which are difficult to follow (and which were not argued before the Court of Appeal), the Court of Appeal held that (1) Lesotho law itself gives a substantive right to interest; (2) The tribunal was entitled to grant substantive interest pursuant to section 49(6) of the Act; (3) accordingly, there is no room for any discretionary procedural power under section 49(3). The conclusion does not flow from the premise. Section 49(6) does not state that any other power to award interest shall exclude the operation of section 49(3). Section 49(6) provides that the powers conferred by sections 49(1)-(5) do not necessarily oust any other power to award interest. It is no more than a saving provision. It does not confer priority on any such "other power".

    39.  Rightly counsel for the employer found himself unable to support the reasoning of the Court of Appeal. He did, however, attempt to support the conclusion of the Court of Appeal on other grounds. Counsel submitted that the law to be applied to the entitlement of the contractors was the law of Lesotho. This submission founders on two separate grounds. The law of Lesotho cannot be an agreement to the contrary under section 49(2). The power to award simple or compound interests as the tribunal "considers meets the justice of the case" was therefore available to the tribunal. In any event, for reasons already discussed under the currency point, if it is assumed for the sake of argument that the tribunal awarded interest which ought not to have been awarded as a matter of Lesotho law, it may have made an error of law. But the tribunal certainly did not act in excess of power within the meaning of section 68(2)(b).

    40.  I would therefore reject the submissions of counsel for the employer in respect of pre-award interest.

XV. Disposal

    41.  I would allow the appeal, set aside the order for remission of the award, and dismiss the employer's application. The employer must pay the costs of the contractors in the lower courts and in the House of Lords.

    APPENDIX to the opinion of Lord Steyn

    A. Provisions in Principal Contract (including Part II Conditions of Particular Application) Relating to the Currency of Contractual Payments

    CLAUSE                PROVISION


    The currency of account shall be Maloti and for the purposes of payment, conversion between Maloti and the currencies stated in the Contract shall be made in accordance with the rates of exchange determined in accordance with Clause 72.


    All payments to the Contractor by the Employer shall be made:

    (a)  In the case of a claim for additional payment under the Contract where the Contractor is due reimbursement of cost, in the currencies stated in the Contract but in the proportions as far as possible in which the costs were incurred as agreed with the Engineer;

    (b)  In the case of payment for any Provisional Sum item, in the currencies stated in the Contract but in the proportions applicable to the item as agreed with the Engineer at the time when the Engineer gives instructions for the work covered by the item to be carried out;

    (c)  For increase or decrease in price, in accordance with Sub-Clause 70.1;

    (d)  In any other case, in the currencies and proportions stated in the Contract, except that Interim Certificates may be valued in differing currency proportions provided always that the final amounts payable by the Employer to the Contractor in the various currencies shall be in the proportions given in Tender Schedule A, subject to approved variations, escalation factors and other matters agreed between the parties; …


    Payments to the Contractor shall not be subject to variations in the rates of exchange between Maloti and the foreign currencies that have been stated in the Contract. The rates of exchange to be used for the Contract shall be the selling rates applicable at close of business of the Central Bank of Lesotho 42 days before the closing date for submission of tenders, which rates shall have been notified to the Contractor by the Employer prior to the submission of tenders and included in the Contract.


    Payments shall be made to the Contractor by the Employer in the currency proportions stated in the Contract subject to the provisions of Sub-Clause 60.12.

Supplement to Tender Schedules A and OCURRENCY REQUIREMENTS
1. CURRENCY PROPORTIONS OF PAYMENT 100.00% 58.35% 5.95% 13.38% 10.97% 10.34%
2. CLAUSE 72.1 EXCHANGE RATES 1.0000 0.8571 2.2206 484.8843 0.2355

    B.  Provisions in Principal Contract (including Part II Conditions of Particular Application) Relating to the pre-Award Interest



    The amount due to the Contractor under any interim certificate issued by the Engineer pursuant to this Clause, or to any other term of the Contract, shall, subject to Clause 47, be paid by the Employer to the Contractor within 28 days after such interim certificate has been delivered to the Employer, or, in the case of the Final Certificate referred to in Sub-Clause 60.8, within 56 days, after such Final Certificate has been delivered to the Employer. Provided that any amount in respect of any claim as certified by the Engineer pursuant to Sub-Clause 53.5 shall be paid by the Employer to the Contractor within 182 days after the interim certificate has been delivered to the Employer. In the event of the failure of the Employer to make payment within the times stated, the Employer shall pay to the Contractor interest at the rate stated in the Appendix to Tender upon all sums unpaid from the date by which the same should have been paid, excepting in the case of any unpaid sums in respect of any claim where such interest shall be paid from 56 days after the delivery of the Interim certificate to the Employer. The provisions of this Sub-Clause are without prejudice to the Contractor's entitlement under Clause 69.

    Tender Schedule A - Financial Requirements - Part I: Currency Requirements

     Note (2)     The rate of interest applicable to unpaid sums in local currency in terms of Sub-Clause 60.10 of the Conditions of Contract shall be 1% (one percent) in excess of the prime overdraft rate charged by the First National Bank of Southern Africa Limited of Johannesburg on the due date.

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