Lesotho Highlands Development Authority (Respondents) v. Impregilo SpA and others (Appellants)
42. I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Steyn. Subject to one reservation, I agree with it and would allow the appeal. My reservation concerns paragraph 22. For the reasons given by my noble and learned friend, Lord Phillips of Worth Matravers, I think it is very likely that the arbitrators did make an error of law in calculating the sums awarded in the way in which they did. I prefer to express no opinion on the point. But for the reasons given by Lord Steyn, I think that this was at worst an error of law and not an excess of power.
LORD PHILLIPS OF WORTH MATRAVERS
43. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Steyn. I agree without reservation with his conclusions in relation to the arbitrators' award of interest. Section 49 of the Arbitration Act 1996 is in very wide terms. They give to arbitrators the power to compensate the successful party for the delay in receiving and enjoying the use of the money awarded. The terms are, however, wide enough to enable arbitrators to compensate for the decline in value of the currency in which the award is made if, between the date at which the award falls to be assessed and the date of the award, that currency has diminished in value in comparison to other currencies. It follows that in a case such as this, where the parties have not by agreement excluded the application of section 49, the scope of the power afforded by section 48(4) may not be of great significance. Nonetheless I am unable to agree with either the arbitrators or Lord Steyn as to the ambit of that power.
44. When sterling was a strong currency it was accepted that, as a matter of procedure, courts were obliged to give judgment and arbitrators to make awards in sterling. If a debt was a foreign currency debt, or damages were sustained in a foreign currency, conversion into sterling took place at the date that the cause of action arose. The effect of this was to shelter plaintiffs or claimants from the risk of a decline in relative value of other currencies.
45. When sterling lost its stability and declined in value against other relevant currencies the approach described above was seen to result in injustice to plaintiffs or claimants, who received their judgments or awards in a devalued currency. Arbitrators reacted by introducing and following a practice of making awards in foreign currencies instead of converting into sterling. That practice was upheld by the Court of Appeal as falling within the powers of arbitrators in Jugoslavenska Oceanska Plovidba v Castle Investment Co Inc  QB 292. In Miliangos v George Frank (Textiles) Ltd  AC 443 this House followed suit in holding that the English court could give judgment in a foreign currency.
46. Jugoslavenska and Miliangos removed the procedural bars to awards or judgments in a foreign currency. It did not follow that arbitrators or the courts had a free discretion as to the currency in which awards should be made or judgment given. As Roskill LJ remarked in Jugoslavenska, at p 305
47. The English courts proceeded to develop a substantial body of jurisprudence dealing with the principles that governed the power of the court or an arbitrator - no distinction was drawn between the two - to award in a foreign currency and the dates at which foreign currency obligations should be converted, when conversion was appropriate. The development of this jurisprudence is well set out in chapter 16 of the 17th edition (2003) of McGregor on Damages. It includes two subsequent decisions of this House: Services Europe Atlantique Sud (SEAS v Stockholms Rederiaktiebolag Svea; The Despina R  AC 685 and Attorney General of the Republic of Ghana v Texaco Overseas Tankships Ltd  1 Lloyd's Rep 473. Broadly speaking, where a contract does not expressly cover the situation, the approach is to give judgment or make the award in the currency in which the loss was felt. This may or may not prove advantageous to the claimant.
48. Lord Steyn considers that section 48(4) replaces this body of substantive law, leaving it open to arbitrators to approach the currency of their awards, and any questions of currency conversion, in accordance with their discretion as to what is appropriate in all the circumstances. This is what the arbitrators in the present case have done. They stated in paragraph 13.17 of their award that section 48 gave them the power:
I read this statement as indicating that the arbitrators believed that they had a discretion to deal with currencies in whatever way they felt appropriate, and this conclusion is reinforced by the manner in which the arbitrators dealt with the currencies, as I shall indicate in due course.
49. There are two possible ways of interpreting section 48(4). On one interpretation it does no more than make it plain that arbitrators have the procedural power to make an award in any currency. If that is the correct interpretation, section 48(4) reproduces in statutory form the position that already prevailed under English law. The alternative interpretation, that of the arbitrators and Lord Steyn, makes a radical change to English substantive law. No decided case was cited to us in support of either interpretation. Merkin on The Arbitration Act 1996 observes at p 112 that it is unclear from the Act whether section 48(4) gives the arbitrators an absolute discretion. Mustill & Boyd, Commercial Arbitration: 2001 Companion Volume to the Second Edition, states at p 330 that section 48(4) "restate[s] the old law". Russell on Arbitration, 22nd ed (2003) takes the same view, stating at p 263:
50. I am not able to accept that section 48(4) has had the radical effect of empowering arbitrators to disregard the substantive law in relation to foreign currency obligations. I find the difference in wording between section 48(4) and section 49 significant. Had the draftsmen intended to give arbitrators the power to deal with foreign currency obligations according to a broad discretion, I would have expected them to make this plain by the use of language such as the phrase "as it considers meets the justice of the case" that is found in section 49.
51. As I shall shortly show, the arbitrators have adopted an approach to currencies that departs from English law which, we are required to assume in the absence of evidence to the contrary, is the same as the law of Lesotho. Was this simply an error of law, excluded from court review by section 69 of the 1996 Act together with the ICC rules, or was this an example of a "tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction)", so as to be capable of amounting to a "serious irregularity" under section 68? I have come to the conclusion that the latter is the true position. The concept of an excess of power that is not an excess of jurisdiction is not an easy one, but I find that it applies to the arbitrators' conduct in this case. They expressly stated that section 48(4) gave them a discretionary power which they did not in fact enjoy and then proceeded to purport to exercise that power. It follows that the arbitrators were guilty of a serious irregularity under section 68(2) provided that their conduct resulted in "substantial injustice" to the respondents. That question requires one to consider the effect of the arbitrators' approach to currencies.
52. Had the respondents received payment in accordance with the provisions of the contract they would have received payments in Maloti. The arbitrators converted the Maloti into European currencies. Had they done so at the rates prevailing when the Maloti payments should have been made they would have protected the respondents from the loss that they would otherwise have experienced as a result of the collapse of the Maloti between the time when the sums should have been paid and the date of the award. Even if this would have been beyond their power under section 48(4) I doubt whether it would have caused the respondents substantial injustice. Had the arbitrators not achieved this result by invoking section 48(4) it seems to me likely that they would have sought to achieve the same result by appropriate adjustment to their award of interest under section 49.
53. The arbitrators went further than this, however. The rates that they adopted for converting Maloti into the European currencies were the rates prevailing 42 days before the closing date for submission of tenders. The evidence before us does not show how the Maloti had moved against the European currencies between that date and the date when the Maloti payments should have been made. If the Maloti had lost significant value during this period, the appellants received a windfall for which I can see no justification.
54. Had I been in the majority in concluding that the arbitrators had exceeded their powers under section 68 it would have been necessary to give further consideration to the question of whether this had caused substantial injustice to the respondents. As, however, I am in a minority, this question does not arise and both limbs of the appeal will be allowed.
LORD SCOTT OF FOSCOTE
55. I have had the advantage of reading in advance the opinion prepared by my noble and learned friend, Lord Steyn and agree that, for the reasons he has given, this appeal should be allowed with costs. I too, however, prefer the approach adopted by my noble and learned friend in paragraph 23 of his opinion rather than that in paragraph 22. The arbitrators calculated in Maloti the sums due to the appellants but expressed their award in various European currencies. There is no dispute but that they were entitled under section 48(4) of the 1996 Act to do so. But they directed that the Maloti should be converted into the European currencies at the exchange rates set out in clause 72.1 (as amended) of the contract. The contract was dated 15 February 1991 and the award was made in 2002. Over that period there had been a substantial shift in exchange rates. Maloti had lost value in relation to the European currencies. The Maloti that represented the appellants' entitlement under the award were, therefore, converted into greater sums in the European currencies than would have been the case if the conversion had been at the exchange rates applicable when the award was made. It might well be that the selection by the arbitrators of historic exchange rates rather than the current ones constituted an error of law. But, for the reasons given by my noble and learned friend, I am unable to regard the selection of the wrong exchange rates as constituting an excess of jurisdiction under section 68(2)(b) of the Act.
LORD RODGER OF EARLSFERRY
56. I have had the advantage of considering the speech of my noble and learned friend, Lord Steyn, in draft. For the reasons given by my noble and learned friend, Lord Phillips of Worth Matravers in paragraphs 44 to 50 of his speech, I would prefer to adopt the approach in paragraph 23 of Lord Steyn's speech, rather than that in paragraph 22. Subject to that qualification, I agree with his speech and would accordingly allow the appeal and make the order which he proposes.
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