VRL Services Ltd v Sans Souci Ltd

• Jurisdiction: Jamaica
• Judge: PANTON, P.: , MORRISON, J.A: , DUKHARAN. J.A. , PANTON P; , PANTON, J.A. , K. HARRISON J.A: , McCALLA, J.A. (Ag.):
• Judgment Date: 25 November 2009
• Neutral Citation: JM 2005 CA 67
• Judgment citation (vLex): [2005] 11 JJC 1807
• Court: Court of Appeal (Jamaica)
• Date: 25 November 2009

IN THE COURT OF APPEAL

BEFORE:

THE HON. MR JUSTICE PANTON, P THE HON. MR JUSTICE MORRISON, J.A THE HON. MR JUSTICE DUKHARAN, J.A

BETWEEN

SANS SOUCI LIMITED

APPELLANT

AND

VRL SERVICES LIMITED

RESPONDENT

Vincent Nelson, QC, Stephen Shelton and Gavin Goffe, instructed by Myers, Fletcher and Gordon, for the appellant

Richard Mahfood, QC, Dr Lloyd Barnett and Weiden Daley, instructed by Hart, Muirhead, Fatta, for the respondent

ARBITRATION - Management agreement - Breach - Order to vary arbitration award - Remitted arbitration proceedings

PANTON, P.:

I have read in draft the reasons for judgment written by my learned brother Morrison JA. I agree with them, and have nothing to add.

MORRISON, J.A:

Introduction

1 This is an appeal from a judgment of Gloria Smith J, given on 19 June 2009. The appeal was heard on 13 and 14 July 2009 and on 25 September 2009 the court announced that the appeal would be dismissed, with costs to the respondent to be agreed or taxed. These are my reasons for concurring with that decision.

2 By virtue of a management agreement dated 12 October 1993, the appellant ("SSL") was at all material times the owner and the respondent ("VRL") the manager of a hotel known as Sans Souci Grand Lido ("the hotel"). A dispute having arisen between the parties, by an award dated 16 July 2004, arbitrators appointed pursuant to the terms of an arbitration clause in the agreement made and published an award in favour of VRL for damages in the sum of US$6,034,793.00, plus interest and costs.

3 The arbitrators were Mr R.N.A. Henriques, QC and Mr John Wilman, both well known attorneys-at-law, who in turn appointed the Honourable Mr Justice Boyd Carey (retired) to act as umpire. The dispute between the parties arose out of the termination of the agreement by SSL by notice to VRL dated 4 March 2003 and the issues referred to the arbitrators were whether SSL had lawfully terminated the agreement and, if not, what amount was VRL entitled to recover from SSL as damages for wrongful termination of the agreement.

The court proceedings

4 Dissatisfied with the award of the arbitrators, SSL applied to the Supreme Court to set it aside on the usual grounds (misconduct and error of law on the face of the record) and, in a judgment given on 10 February 2006, Harris J (as she then was) dismissed the application, on the basis that the arbitrators had considered fully and taken into account all relevant factors in coming to their award.

5 SSL appealed to this court against Harris J's decision (Supreme Court Civil Appeal No. 20/2006) and, in a judgment delivered on 12 December 2008, the appeal was allowed in part and the award was remitted to the arbitrators for reconsideration in the light of the court's ruling. The proceedings giving rise to this appeal are concerned with the true meaning and interpretation of the order remitting the award. Gloria Smith J upheld the arbitrators' interpretation of the extent to which their jurisdiction had been revived by the order, hence this appeal. It is in fact the fourth occasion on which this court has had to consider an aspect of the prolonged dispute between SSL and VRL arising out of the arbitral proceedings (the previous ones were in Supreme Court Civil Appeal No. 108/2004, judgment delivered 18 November 2005 and Supreme Court Civil Appeal No. 20/2006, judgments delivered 12 December 2008 and 2 July 2009). In all probability, it may not be the last.

6 SSL's liability to VRL for wrongful termination of the agreement, which was one of the two questions in issue before Harris J and in the appeal from her decision, is no longer a live issue, SSL having apparently accepted the ruling of the arbitrators, Harris J and this court in this regard. However, the issue of damages remains very much alive in the proceedings and on this appeal, as will shortly appear.

7 The current aspect of the dispute arises in this way. In the proceedings before Harris J and in this court, SSL contended, in addition to challenging the arbitrators' finding as to liability, that the award of damages should be set aside on two main grounds:

• (i) That the arbitrators had misinterpreted the issue raised by SSL in paragraph 18 of its Points of Defence, that in future years VRL would incur unrecoverable expenses which should be deducted from any calculation of future loss, as being merely a claim to set off overpayments in past years against the damages to be awarded; and

• (ii) the arbitrators had failed to take into account the possibility that under the agreement SSL was entitled to sell the hotel to a third party, and to terminate the agreement for that reason, provided that it gave VRL the opportunity to make an offer to purchase it and that the sale was made within six months of the offer to a purchaser who bought under more favourable terms.

8 The reasons for the decision of this court dismissing the appeal from Harris J's order are to be found in the judgment of Harrison P, with which both McCalla JA and Dukharan JA (Ag) (as they both then were) agreed. It is, characteristically, a thorough and careful judgment running into 83 paragraphs over 48 printed pages. At paragraph 15, having set out the factual background, Harrison P identified the issues to be determined on the appeal as follows:

• "(1) On a proper construction of clause 14 (iv) of the Agreement, did [SSL] have the power to terminate the contract in the circumstances; and

• (2) If not, what are the damages due to [VRL] in respect of its losses, due to the breach of contract committed by [SSL]."

9 In the 23 paragraphs following (ending at paragraph 39), Harrison P then dealt, in considerable detail, with the first issue (liability), concluding, in agreement with both the arbitrators and Harris J, that SSL did not have the right to terminate the agreement in the circumstances of the case and that Harris J had accordingly correctly refused to set aside the award on this issue.

10 The remainder of the judgment, from paragraph 40 to the end, deals with the second issue (damages). In paragraphs 42 – 44, Harrison P set out SSL's primary contention in this way:

• "42. The appellant had argued before the Arbitrators that the respondent was not entitled to recover the loss of the Management fee claimed. However, if there was any loss, it was the loss of profit that the respondent would have earned for each of the future years, that is, the Management fee, less expenses which the respondent would have incurred, which were not reimbursable by the appellant, under the Agreement. The appellant, in paragraph 18 of its points of defence, said:

  '18. In relation to the Damages claimed in Appendix 1 the Respondent denies that Claimant is entitled to any of the sums claimed or any sums at all and will deal with each item in Appendix 1 separately notwithstanding:

  A.

  (I) The Respondent denies that the claimant is entitled to recover the loss of the Management fees claimed, as this does not represent the loss if any which the Claimant suffered. The Claimant was required to expend substantial sums in managing the hotel, all of which sums were not properly recoverable from the Respondent under and pursuant to the Management Agreement. In the circumstances if the Claimant will suffer any loss which is denied, then the same would only be for the profit it would have made, which would be Management Fees less the unrecoverable expenses it would have incurred in managing the hotel particulars of which for the period January 2002 to March 2003 are set out hereunder and prorated for the twelve (12) month period.'

  The appellant thereafter enumerated the "unrecoverable expenses," to be borne by the respondent, in its view. Emphasizing the point, the appellant, in paragraph 18A(iii) stated:

  '(iii) The Respondent [appellant] will contend that even if the Management fees alleged were in fact the management fees which would be lost for the respective years, which is denied, there should be deducted from each years alleged management fees the comparable total of the unrecoverable expenses in each year.'

  43. Each party relied on the evidence of its expert witness in calculating the loss incurred by the respondent for the years 2004 to 2014 as a consequence of the termination of the agreement. The respondent relied on the calculations of David Kay, vice-president, corporate finance of the Super Clubs group of companies, a Fellow of the Institute of Chartered Accountants, and agreed to by Kathleen Moss. The appellant relied on the evidence of one Mrs. Marlene Sutherland.

  44. The appellant also argued before this Court and before Harris, J that the Arbitrators misconstrued the appellant's point of defence in paragraph 18, by regarding it, as a claim to set off management fees overpaid in previous years from any damages found to be due and owing during the years 2004 to 2014."

11 And then, in paragraphs 45 – 48, Harrison P recorded the response of the arbitrators to this contention (that, "if there were management fees due, then if is entitled to set-off sums which should have been deducted over the years, but were claimed as management fees"), as well as Harris J's conclusion on it (that there was no error of law on the face of the record). There then followed a discussion of the principles applicable to the calculation of damages for breach of contract ("The general rule is that the party not in breach would be entitled to net damages" - para. 49), and the appropriate method of allowing for contingencies ("The Arbitrators properly recognized that in assessing such losses in the future, allowances must be made for contingencies and that that is effected by way of a discount" - para. 56).

12 Harrison P then re-stated SSL's contention with regard to the impact of the "unrecoverable expenses" on the claim for management fees and concluded that the...