Lesotho Highlands Development Authority v Impregilo Spa & Ors

Where a contract identifies the currencies in which payment must be made, section 48(4) of the Arbitration Act 1996 does not give arbitrators a free-standing discretion to choose another currency. They must give effect to the contract and the applicable substantive law.

Where the applicable law gives a substantive right to interest from the date a debt is due, the arbitrators must apply that right. The discretionary procedural power in section 49(3) cannot replace it. The rate may, absent express agreement, be determined under the lex fori, although agreed contractual rates remain relevant.

The defendants appealed from an order of Morison J in the Commercial Court, which had remitted parts of an arbitral award for reconsideration under section 68 of the Arbitration Act 1996. The arbitration concerned claims arising from construction works in Lesotho. The contract was governed by Lesotho law, the arbitration was seated in London, and the parties had agreed that the award would be final, so an appeal on a point of law under section 69 was unavailable.

The arbitrators awarded sums in European currencies and awarded interest on a discretionary commercial basis. The central questions were whether they had exceeded their powers by departing from the contractual currency provisions and by using the statutory discretionary power to award interest instead of applying Lesotho law.

1. Currency. The appeal was dismissed on the currency issue. The contract specified the currency proportions and exchange arrangements for payments. The arbitrators, in determining sums due under the contract, were bound to interpret and apply those provisions. Section 48(4) of the Arbitration Act 1996 merely restated the procedural position that an English arbitration need not convert a substantive foreign-currency debt into sterling. It did not create a free-standing power to select any currency the tribunal considered appropriate.
2. The additional provision requiring an award in the respective currencies did not assist the appellants. It gave the arbitrators an additional power in circumstances involving the source of goods or services, but there was no suggestion that it applied to this award. The arbitrators therefore exceeded their powers by treating section 48(4) as permitting departure from the parties’ agreement.
3. Interest. The appeal was dismissed on the interest issue. Lesotho law, derived from Roman-Dutch law, conferred a substantive right to interest ex mora from the time a debt became contractually due, subject to the duplum rule. The parties’ agreement concerning interest on interim certificates did not displace that substantive rule for final certificates.
4. The saving provision in section 49(6) preserved the tribunal’s power to award interest where the applicable substantive law conferred the right. It was unnecessary expressly to exclude section 49(3). The arbitrators exceeded their powers by resorting to the discretionary power in section 49(3) instead of applying the substantive law of the contract.
5. Absent express agreement, the rate of interest was a matter for the arbitrators under the lex fori. They should nevertheless be slow to depart from the rates the parties had agreed for unpaid interim certificates. Lord Justice Latham and Mr Justice Holman agreed with Lord Justice Brooke. The appeal was dismissed, with costs save that counsel’s fees were to be considered by the costs judge.

• Court of Appeal (Civil Division). The appeal from the Commercial Court was dismissed on both the currency and interest issues.
• Commercial Court. Morison J remitted the currency and interest issues to the arbitrators under section 68 of the Arbitration Act 1996, holding that the tribunal had exceeded its powers.