Sans Souci Ltd.v VRL Services Ltd

• Jurisdiction: Jamaica
• Court: Court of Appeal (Jamaica)
• Judge: HARRISON, P. , McCALLA, J.A. , DUKHARAN, J.A.
• Judgment Date: 12 December 2008
• Neutral Citation: JM 2008 CA 103
• Judgment citation (vLex): [2008] 12 JJC 1202
• Date: 12 December 2008

IN THE COURT OF APPEAL

BEFORE:

THE HON. MR. JUSTICE HARRISON, P THE HON. MRS. JUSTICE McCALLA, J.A THE HON. MR. JUSTICE DUKHARAN, J.A. (Ag.)

BETWEEN

SANS SOUCI LIMITED

APPELLANT

AND

VRL SERVICES LIMITED

RESPONDENT

Lord Gifford, Q.C. & Stephen Shelton instructed by Myers, Fletcher & Gordon for the appellant

Richard Mahfood, Q.C. & Dr. Lloyd Barnett instructed by Hart Muirhead Fatta for the respondent

CIVIL PROCEDURE - Award - Arbitrator's award - Application to set aside - Termination of management agreement - Force majeure clause

HARRISON, P.

1 This is an appeal from the decision of Mrs. Hazel Harris, J., (as she then was) on 10 ^th February 2006, refusing to set aside the award of Arbitrators on 16 ^th July 2004. The award answered the questions in its terms of reference in favour of the respondent. The order appealed against is,

• "a. That the application made by the Appellant in the Fixed Date Claim Form dated the 3 ^rd day of September 2004, that the Arbitral Award made by Roald Nigel Adrian Henriques and John Cecil Wilman, Arbitrators delivered on the 16 ^th day of July 2004 in an Arbitration between the Respondent and the Appellant whereby it was awarded that the appellant do pay to the Respondent:

  • i. Damages in the sum of $370,705,264.40 (US$6,034,793 at US$1:00 to JA$61.4280);

  • ii. Interest on the sum of $370,705,264.40 calculated from the date of the Award at a rate equivalent to the average of the commercial banks' prime lending rates prevailing on that date;

  • iii. The Respondent's costs in the Arbitration; and

  • iv. The Arbitrator's and the Umpire's costs in the amount of $5,962,275.00 and US$2,465.00

  be set aside pursuant to Section 12 (2) of the Arbitration Act or pursuant to the inherent jurisdiction of the Court on the ground that the said Arbitrators firstly erred in Law and secondly fell into error in the calculation of the Award of damages which constituted an error on the face of the award is dismissed."

2 The facts relevant to this matter follows.

3 The appellant Sans Souci Ltd ("SSL") and the respondent VRL Services Ltd ("Manager"), each being a company incorporated in Jamaica, both entered into a management agreement ("the Agreement") dated 12 ^th October 1993. Manager would manage SSL's hotel as stated in clause 2:

"... effective on or before the First Day of November, 1993, and shall thereafter continue for an initial term to March 31, 2004, and shall continue for a further term of ten (10) years commencing from the end of the initial term on the same terms and conditions as set out herein...".

Provision was made in the Agreement for its termination in certain expressed circumstances. Supplemental agreements were signed by the parties on 1 ^st May 1997, 16 ^th October 1997 and 31 ^st March 1999, amending the initial Agreement.

4 The Agreement provided for the resolution of disputes between the parties to be referred to arbitration. Clause 13 reads:

• "13. This agreement is governed by the Laws of Jamaica and shall be construed and take effect in accordance with the Laws of Jamaica;

  If any difference shall arise between the parties hereto as to the interpretation of this Agreement or to the rights duties or liabilities of any party hereto or generally as to any act matter or thing arising out of or under this Agreement the same shall be submitted to two arbitrators one to be appointed by each party who shall by instrument in writing appoint an umpire immediately after they are themselves appointed. Such submission shall be a submission to arbitration under the provisions of the Arbitration Act or any statutory reenactment modification or extension thereof for the time being in force."

SSL, by letter dated 10 ^th of June 2002 to Manager sought to terminate the Agreement pursuant to clause 16, on the ground that Manager had "... failed to achieve the performance criteria set out ..." in that said clause. Manager had resisted that attempt by letter dated 13 ^th June 2002 in response. It reads:

"Re: Grand Lido Sans Souci

We acknowledge receipt of the Notice of Intention to Terminate the Management Agreement of the above hotel pursuant to Clause 16 of the Management Agreement.

Whilst we acknowledge that we did not achieve the performance criteria set out in that Clause, which same Clause provides that you may not exercise your right of termination whenever we, as Managers of the hotel have been prevented from achieving the Performance Criteria by force majeure.

Clause 2(a) of the Management Agreement defines what constitutes force majeure. We submit that both the events of early July 2001 as well as the terrorist attacks on the United States of America of 11 ^th September 2001 constituted force majeure events as defined in the Management Agreement, and thus you are precluded from terminating the Management Agreement.

You are well aware that the above events resulted in the cancellation of bookings for a number of months after the events. Additionally, Jamaica became even more of a "hard sell" destination and rates had to be reduced in order to attract visitors.

Accordingly, having been prevented from achieving the Performance Criteria by force majeure, we do not consider your notice to be valid or effective."

SSL, by letter dated 29 ^th July 2002 to Manager, withdrew its Notice of Intention to Terminate. It reads:

"RE: GRAND LIDO SANS SOUCI HOTEL

We are in receipt of your letter dated July 23, 2002.

We have considered your proposal in some detail and have concluded that there are some fundamental issues on which we are unlikely to reach agreement. Our position on whether force majeure operated in the financial year to March 31, 2002 has already been stated and you have stated as well your position on what constitutes force majeure.

Over the past weeks, we have continued our discussions on an informal basis reviewing the alternative arrangements presented by you for operating the Hotel going forward. We recognize that it is not in the best interest of arriving at any new arrangement with respect to the Hotel with disputed Notice of Intention to Terminate the Management Agreement. We have, therefore, taken the decision to withdraw this Notice with immediate effect and you are to treat this letter as the formal withdrawal thereof..."

5 SSL, by letter dated 4 ^th March 2003, again gave notice to Manager terminating the Agreement, purporting to act under the provisions of clause 14(iv) of the Agreement, on the ground that force majeure had materially affected the operation of the hotel. Clause 14 (iv) inter alia, reads:

• "14. Without prejudice to any other remedies that either party hereto may have against the other, either party shall have the right at any time by giving notice in writing to the other party to forthwith terminate this Agreement in any of the following events:

  ...

  • (iv) if Force Majeure shall materially affect the operation of the hotel;"

6 Manager rejected SSL's right to terminate the Agreement pursuant to clause 14 (iv) and by letter dated 6 ^th March 2003 to SSL indicated its intention "... to renew the Agreement for a further term of ten (10) years pursuant to clause 2 of the Agreement. That clause required Manager to -

"... give at least one (1) year's written notice of its intention to renew this Agreement..."

The tenure and existence of the Agreement was dependent on the condition in clause 2, inter alia, that the Manager shall:

"a) have performed all its several obligations under this Agreement save where prevented by any default on the part of SSL in the performance of an obligation to be performed by SSL hereunder or by reason of force majeure."

"Force Majeure" is defined in clause 2:

"For purposes of this Management Agreement force majeure shall mean, inter alia, act of God, war, insurrection, riots, strikes, lockouts, civil commotion, shortages of labour or materials specified or reasonably necessary in connection with the construction, refurbishment and operation of the hotel, fire, unavoidable casualties, failure of any applicable Governmental authority to issue any required Governmental permits and any other occurrence, event or condition beyond the control of SSL or Manager, ..."

7 Disputes having arisen, arbitrators were appointed. Manager appointed Mr. Roald N.A. Henriques, Q.C., and SSL appointed Mr. Cecil Wilman. Both Arbitrators appointed Hon. Mr. Justice Boyd Carey (retired) as umpire:

8 At a meeting of the parties and their counsel on 26 ^th August, 2003 with the Arbitrators, the latter ruled that the terms of reference were:

• "(i) whether Sans Souci Limited lawfully terminated the said Management Agreement under clause 14(iv) thereof by a notice dated the 4 ^th day of March 2003; and

• (ii) if not, what damages would VRL Services Limited be entitled to recover as a consequence of the wrongful termination of the agreement."

The parties filed their points of claim and defence, respectively.

9 The respondent contended that clause 14(iv) only gave the appellant the right to terminate the contract on the grounds of force majeure if the force majeure "materially affects the operation of the hotel." Neither the operation nor the administration of the hotel had been "materially" affected by force majeure and consequently the appellant acted in breach of the contract in terminating the Agreement.

10 The appellant in its points of defence contended that the operation of the hotel was materially affected by force majeure by reason of the fact that the number of visitors had declined due to fear of overseas air travel. As a consequence Manager was compelled to reduce the rates substantially to fill the rooms and to limit the losses. However, the gross operating profit of the hotel declined and its performance criteria was not achieved for the periods 2001–2 and...