The National Housing Trust v YP Seaton & Associates Company Limited

An arbitrator has no general discretion, absent contrary agreement, to award compound interest. In Jamaica the relevant power is modelled on the court’s statutory power to award simple interest under section 3 of Law Reform (Miscellaneous Provisions) Act 1955. A separate claim for actual interest loss as damages may include compound interest, but it must be pleaded and proved and satisfy ordinary contractual-damages rules. The court, not the tribunal, determines the scope of arbitral jurisdiction. An award made outside that scope, or on an unpleaded and unsupported basis, may be set aside or remitted. The supplementary award was therefore set aside and the matter remitted for reconsideration on a simple-interest basis.

The parties’ failed housing development was governed by a loan agreement. A 1999 compromise transferred the incomplete project to the Trust, left profit and interest issues for arbitration, and required outstanding sums to be settled after the arbitration. In 2005 the arbitrator awarded YPSA J$24,325,000 for developer’s profit and rejected the Trust’s interest claim. After remittal, he awarded J$214,512,232.76 in compound interest.

Hibbert J set aside the supplementary award and remitted the matter for reconsideration of simple interest. The Court of Appeal of Jamaica restored it in [2013] JMCA Civ 44. The central issues before the Board were whether the arbitrator had jurisdiction to award compound interest, whether the award disclosed error of law or misconduct, and whether remission was justified.

Lord Mance delivered the leading judgment for the majority, with Lord Neuberger, Lord Sumption and Lord Hodge agreeing. Lord Toulson dissented.

1. Jurisdiction. The scope of an arbitrator’s jurisdiction is determined by the court. An arbitral tribunal cannot confer jurisdiction on itself, save in the very rare case where it is expressly given final power to determine its own jurisdiction. The compromise agreement and terms of reference did not permit substantive claims for compound interest on profit under the loan agreement, in damages, or in equity.
2. Compound interest. Chandris v Isbrandtsen-Moller Co Inc [1950] 2 All ER 618 and the majority decision in Tehno-Impex v Gebr van Weelde Scheepvaartkantoor BV [1981] 2 All ER 669 remained good authority that arbitrators had no general discretion to award compound interest. Their power was analogous to the court’s power under section 3 of Law Reform (Miscellaneous Provisions) Act 1955, which was confined to simple interest. The equitable exception identified in President of India v La Pintada Co Nav SA [1985] AC 104 was irrelevant. A damages claim involving actual interest loss could potentially include compound interest under Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Comrs [2007] UKHL 34; [2008] AC 561, but it required pleading and proof of actual loss. YPSA’s claim was discretionary and theoretical, not such a damages claim.
3. Misconduct and remission. On the alternative analysis, deciding the matter on a basis not covered by the submissions or evidence constituted technical misconduct and independently justified remission. Errors going to jurisdiction, misconduct, or a procedural mishap justifying remission need not appear on the face of the award. The unusual and unexplained rates also required reconsideration. The starting date was not abnormal or unsustainable, and no separate remission was ordered concerning credit for the payment made in December 2005.
4. Disposition. The Board advised that the appeal be allowed, the supplementary award be set aside under section 12(2) of Arbitration Act 1900, and the matter be remitted under section 11(2), with the arbitrator’s jurisdiction limited to simple interest and the rate and exercise of that jurisdiction reconsidered. Written costs submissions were directed.

Lord Toulson’s dissent

Lord Toulson considered that the arbitrator had common-law jurisdiction to award compound interest as damages for non-payment of accrued profit. He regarded YPSA’s bank-rate calculation as sufficient evidence of loss. He would have held that the loan agreement was not incorporated into the award, that no error of law appeared on its face, and that the arbitrator had considered the parties’ arguments without misconduct or procedural mishap. He would have dismissed the appeal.

1. Privy Council. The appeal was allowed by a majority. The supplementary award was set aside and the matter remitted under Arbitration Act 1900. [2015] UKPC 43
2. Court of Appeal of Jamaica. YPSA’s appeal was allowed and the arbitrator’s supplementary award was restored. [2013] JMCA Civ 44
3. Supreme Court of Jamaica. Hibbert J set aside the supplementary award and remitted the matter to the arbitrator for reconsideration of simple interest.