Jamaica's appeal court upheld an arbitration ruling that Carreras Ltd in 2003 wrongfully fired Super Clubs subsidiary, VRL Services, as operator of its then Sans Souci hotel in Ocho Rios.

However, the appeal judges last week sent the matter back to the arbitrators to reconsider the basis, and the size, of a US$6 million award in damages after Sans Souci's lawyers argued that the panel had misconstrued a part of their defence and included what should have been non-reimbursable expenses by VRL as part of its lost management fees.

"In the instant case, the arbitrators treated the appellant's paragraph 18 of its points of defence as a set-off, claiming a repayment of management fees overpaid in the past and therefore not subject for consideration in the reference before them," Appeal Justices Harrison, Mahadev Dukharan and McCalla (now Chief Justice) said in their written ruling.

"Instead, they should have considered it as a list of expenses incurred by the respondent, which the appellant was contending was not reimbursable, and therefore should not be included in the average annual management fees ascertainable from the period January 2002 to March 2003, and to be used to assess the damages for loss of future earnings for the period 2004 to 2014, being considered by them."

Carreras, whose core business is now the marketing and distribution of cigarettes, owned Sans Souci, an Ocho Rios seafront property up to 2005, when it sold it to Lee Issa's Couple's hotel chain for $1.2 billion as part of a divestment of none-core assets.

For a decade, from 1993, Sans Souci was managed for Carreras by VRL Services. But in March 2003 Carreras, which is listed on the Kingston exchange, terminated the contract, invoking clause 14 of the agreement, allowing either party to pull out "... fortwith ... if force majeure shall materially affect the operation of the hotel".

VRL Services, however, rejected the termination notice, saying that nothing had happened material to affect the operation of the hotel and insisted on the enforcement of another clause of the agreement that would continue its manage-ment contract for another 10 years, up to 2014.

fear of air travel

At arbitration and subsequently in the courts, Carreras said that there was indeed a case of force majeure, with visitor arrivals and room occupancy having declined because of a fear of air travel. Having had to discount rates to fill rooms, terminating the contract was necessary to ensure a financially viable operation.

Carreras' claim was framed on the context of the 9/11 terrorists attacks on the World Trade Centre and the Pentagon in the United States, which happened six months before it sought to fire VRL Services.

However, the arbitrators rejected the Carreras/Sans Souci argument and in July 2004 awarded VRL's $6,034,793 (approximately J$482 million at current exchange rate) plus interest "from the date of the award at the average of the commercial bank's prime lending rate prevailing at that date".

Sans Souci challenged the arbitration's finding in the Supreme, where Justice Hazel Harris held that the agreement was wrongly terminated and that the award for damages was reasonable.

interpretation

Sans Souci then took its case to the Court of Appeal where the justices sided with the arbitrators and the Justice Harris in their interpretation of their force majuere clause in the management agreement.

But while that element of the agreement stands, the appeal justices was not sanguine about the treatment of the matter of VRL's entitlement by either the arbitrators or the lower court.

"The point of the unrecoverable expenses having been raised by the appellant (and) assuming that such expenses were so found not to be reimbursable, they should have been excluded from the sum used to determine the annual management fees earned," the Appeal Court said.

"Thereafter, using that reduced annual management fee, the assessment of the damages for the years 2004 to 2014 would be effected with the appropriate discounting," the judges argued.

barbara.gayle@gleanerjm.com