Lesotho Highlands Development Authority v. Impregilo SpA & Ors

The House of Lords considered whether ICC arbitrators sitting in London exceeded their powers under section 68(2)(b) of the Arbitration Act 1996 by (a) expressing an award in currencies different from those stipulated in the underlying FIDIC contract (section 48(4)) and (b) awarding pre-award interest under section 49(3). The court emphasised the statutory ethos of limited court intervention in arbitration and the independence of the arbitration agreement from the underlying contract. It held that an error of law in interpreting the contract or in the exercise of an available statutory power does not, without more, amount to an "exceeding of powers" under section 68(2)(b) and that the applicant must show a serious irregularity causing substantial injustice. Applying those principles, the House allowed the appeal and set aside the remittal to the tribunal.

The claim arose from a construction contract (FIDIC, law of Lesotho) for the Katse Dam awarded to a multi‑national consortium. The contractors (Highlands Water Venture) submitted multiple claims which went through engineer determination and then to ICC arbitration seated in London. The tribunal issued a partial award (25 January 2002) expressed in several European currencies converted from Lesothan Maloti at rates prescribed in the contract and awarded pre‑award simple interest under the Arbitration Act 1996. The employer challenged the award in the English courts, contending that (i) the arbitrators had no power to express the award in currencies other than those specified in the contract and (ii) the arbitrators had no power to award pre‑award interest contrary to Lesotho substantive law.

The procedural path was: challenge to the High Court (Morison J) which found the arbitrators had exceeded their powers and remitted the matters; the Court of Appeal ([2003] EWCA Civ 1159) upheld that decision; the contractors appealed to the House of Lords.

The House formulated the issues as (1) whether section 48(4) of the Arbitration Act 1996 was displaced or constrained by the underlying contract so as to prevent the tribunal expressing the award in other currencies and, if the tribunal erred in law on that point, whether that error amounted to an excess of power under section 68(2)(b); and (2) whether the tribunal had power under section 49(3) to award pre‑award interest or whether that power was excluded by the contract or by Lesotho law, and if the tribunal erred whether that error amounted to excess of power under section 68(2)(b).

The House analysed the 1996 Act's ethos of restricted judicial intervention, the independence of the arbitration agreement and the high threshold for section 68 relief ("serious irregularity" causing "substantial injustice"). It concluded that section 48(4) and section 49(3) provide procedural powers which, unless excluded by a writing as required by the Act, are available to an arbitral tribunal seated in England. Even assuming the tribunal made an error of law on either point, an erroneous exercise of a power available to the tribunal did not, without more, amount to an excess of power under section 68(2)(b). On the interest point the employer had not established the pre‑condition of substantial injustice or an agreement in writing excluding the section 49(3) power. The House therefore allowed the appeal, set aside the orders remitting the award, and dismissed the employer's application.

Appeal allowed. The House held that the Arbitration Act 1996 embodies a policy of limited court intervention: sections 48(4) and 49(3) confer procedural powers on an arbitral tribunal seated in England unless excluded by agreement in writing; an error of law by an arbitrator in interpreting the underlying contract or in exercising an available statutory power is not, by itself, an "exceeding of powers" under section 68(2)(b). The employer failed to show the requisite serious irregularity causing substantial injustice. The remittal ordered below was set aside and the employer's application dismissed.

Arbitral partial award (ICC arbitration seated in London) dated 25 January 2002; challenge in the High Court (Morison J) — remitted parts of the award (reported as Lesotho Highlands Development Authority v Impregilo SpA [2003] 1 All ER (Comm) 22); Court of Appeal ([2003] EWCA Civ 1159) upheld remittal; appeal to the House of Lords ([2005] UKHL 43) allowed.