Lesotho Highlands Development Authority v Impregilo SpA
[2005] UKHL 43; [2006] 1 AC 221
Independent editorial summary — not the official judgment. Read the full judgment via the source link.
Ratio Decidendi
Under section 68(2)(b) of the Arbitration Act 1996 the court must ask whether the tribunal purported to exercise a power it did not have, or merely exercised erroneously a power it did have; a mere error of law, including a mistaken interpretation of the underlying contract, is not an excess of power and cannot found a serious-irregularity challenge. Section 68 sets a high threshold consistent with the 1996 Act's policy of reducing court intervention, and the applicant must in any event establish that the irregularity has caused or will cause substantial injustice.
Facts
In 1991 the Lesotho Highlands Development Authority engaged an international consortium of seven companies including Impregilo SpA to construct the Katse Dam in Lesotho on FIDIC conditions governed by Lesotho law, with ICC arbitration seated in London and the right of appeal on a question of law excluded by the ICC Rules. The contractors' claims for increased costs were rejected by the engineer and referred to arbitration, and in a partial award of 25 January 2002 the tribunal expressed sums calculated in Lesotho maloti in four European currencies, converted at contract exchange rates which pre-dated the maloti's collapse, and awarded pre-award interest under section 49(3) of the Arbitration Act 1996. The employer challenged the award under section 68(2)(b); Morison J remitted the currency and interest decisions to the tribunal and the Court of Appeal upheld him, holding that the arbitrators had exceeded their powers on both points.
Judgment Summary
The House of Lords allowed the contractors' appeal and dismissed the employer's application. Lord Steyn held that the tribunal's power under section 48(4) to order payment in any currency was available and unconstrained, and that even assuming the tribunal erred in law, at its highest there was no more than an erroneous exercise of an available power - not an excess of power under section 68(2)(b), which, consistently with the ethos of the 1996 Act and the DAC report's description of section 68 as a long stop for extreme cases, does not permit challenge on the ground that the tribunal reached a wrong conclusion of law or fact. The interest challenge also failed: clause 60(10) of the contract covered only certified payments, the law of Lesotho was not an agreement in writing to the contrary under section 49, and no substantial injustice had been established. Lords Hoffmann, Scott and Rodger agreed, preferring to assume an error of law without deciding; Lord Phillips dissented in part on the currency point, considering that the arbitrators had purported to exercise a discretion they did not enjoy.
Key Quotes
"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."
— Lord Steyn(verbatim, verified against the judgment)
"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)."
— Lord Steyn(verbatim, verified against the judgment)
Subsequent Treatment
The leading authority on the narrow scope of section 68(2)(b) and the high threshold for serious-irregularity challenges; its approach was applied by the Privy Council in RAV Bahamas Ltd v Therapy Beach Club Inc [2021] UKPC 8 to materially similar serious-irregularity provisions modelled on section 68.
What To Do Next
Get Professional Help