Challenging arbitral awards: powers of a Tribunal confirmed

An alleged error of a Tribunal in interpreting an underlying contract is not an excess of power under Section 68(2)(b) of the Arbitration Act 1996 provided that the Tribunal was acting within a power. This important principle has confirmed the court's ongoing position of minimal intervention in arbitration proceedings under the Arbitration Act 1996. In a House of Lords decision handed down last Thursday, the Lords also addressed a concern as to the potential overlap between Section 68 (challenging an award for serious irregularity) and Section 69 (appealing an award on a point of law).

An alleged error of a Tribunal in interpreting an underlying contract is not an excess of power under Section 68(2)(b) of the Arbitration Act 1996 provided that the Tribunal was acting within a power. This important principle has confirmed the court’s ongoing position of minimal intervention in arbitration proceedings under the Arbitration Act 1996. In a House of Lords decision handed down last Thursday, the Lords also addressed a concern as to the potential overlap between Section 68 (challenging an award for serious irregularity) and Section 69 (appealing an award on a point of law).

The House of Lords delivered a judgment on 30 June 2005 in Lesotho Highlands Development Authority-v- Impregilo SpA and Others that clarified the scope and powers of arbitrators under the Arbitration Act 1996 ("the Act").

The Respondents (LHDA) hired the Appellants and six other companies from the UK, South Africa, Italy, Germany and France (collectively the "Highlands Water Authority") to build the Katse Dam in the Southern African Kingdom of Lesotho (the "Contract"). Following the dam’s construction, the Appellants claimed additional labour costs and were partially successful in an arbitration under the ICC Rules.

The Tribunal ordered that the award should be paid in sterling and euros rather than the local Lesothan currency, the maloti, and ordered pre-award interest be paid on the sums found due in the award.

The Respondents’ challenge was made on two grounds: (i) lack of substantive jurisdiction under Section 67 of the Act; and (ii) that there had been a serious irregularity in that the Tribunal had exceeded its power under Section 68(2)(b) of the Act in awarding sums to be paid in sterling and euros and by awarding interest on the sums due from before the date of the award. Although it was held that the Tribunal did have substantive jurisdiction, the judge at first instance (Morrison J) found that the Tribunal had exceeded its powers by: (a) expressing the award in currencies other than those stipulated in the Contract (the "Currency Issue"); and (b) awarding interest in circumstances not permitted under Lesotho law (the "Interest Issue"). Accordingly, the judge remitted the Currency Issue and Interest Issue to the Tribunal with directions as to how they ought to carry out their task afresh. On appeal, the Court of Appeal upheld the decision in respect of both the Currency Issue and the Interest Issue.

The central issue before the House was whether the Tribunal had exceeded its powers under Section 68(2)(b) of the 1996 Act. Pursuant to this provision, a party may apply to the court challenging an award on the ground of serious irregularity if the Tribunal has exceeded its powers (otherwise than by exceeding its substantive jurisdiction under Section 67 of the 1996 Act). In this case, the arbitration clause provided for arbitration under the rules of the ICC. ICC Rule 28.6 provides that all parties, as far as they are allowed to do so, 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 of the Act. Thus the Respondents’ only available remedy was through a challenge for serious irregularity under Section 68 of the Act.

Under Section 48(4) of the Act unless otherwise agreed by the parties, the Tribunal may order the payment of a sum of money "in any currency". Under Section 49(3), again unless otherwise agreed by the parties, the Tribunal "may award simple or compound interest from such dates at such dates and with such rests as it considers meets the justice of the case".

Lord Steyn approached the Currency Issue with two questions:

1. Did the Tribunal have power to express the award in any currency pursuant to Section 48(4) of the Act or was any power limited by the terms of the Contract? and
2. If the Tribunal had made an error of law did it amount to an excess of jurisdiction under Section 68(2)(b) of the Act?

Lord Steyn concluded that the Tribunal’s power under Section 48(4) was not constrained by the terms of the Contract. However, if he was wrong on that point, he found that that the highest case that could be put was that the Tribunal committed an error of law. As such this did not constitute erroneous excess of power under Section 68(2)(b).

Similar questions arose on the Interest Issue. Lord Steyn concluded that, having determined that the Tribunal had acted within its powers on the Currency Issue, there was no provision in the Contract limiting the Tribunal’s powers to allow pre-award interest pursuant to Section 49(3) and the Respondents’ case on the Interest Issue also failed.

Accordingly, their Lordships allowed the appeal, the order for remission of the award was set aside and the Respondents were ordered to pay the costs of the Appellants in both the lower courts and the House of Lords.

Although their Lordships concurred with Lord Steyn’s Judgment on the Interest Issue, they were not unanimous on the Currency Issue. Lord Phillips concluded that the Tribunal had exceeded its powers since they had expressly stated that Section 48(4) gave them a discretionary power they did not in fact enjoy and had then purported to exercise that power. The remaining Lords favoured Lord Steyn’s second interpretation on the Currency Issue that the Tribunal had made an error of law but that it did not constitute an excess of jurisdiction under Section 68(2)(b) of the Act.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 06/07/2005.