Difference between revisions of "Ducat Maritime v Lavender Shipmanagement - The Majestic"

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'''Ducat Maritime Ltd v Lavender Shipmanagment Inc (The “Majestic”)'''
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'''English Commercial Court: Butcher J: [2022] EWHC 766 (Comm): 14 March 2022'''
 
'''English Commercial Court: Butcher J: [2022] EWHC 766 (Comm): 14 March 2022'''

Latest revision as of 22:57, 11 May 2022

DMC/Arbn/22/02

England

Ducat Maritime Ltd v Lavender Shipmanagement Inc (The “Majestic”)

English Commercial Court: Butcher J: [2022] EWHC 766 (Comm): 14 March 2022

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2022/766.html

Joseph Gourgey (instructed by Preston Turnbull LLP) for Ducat (Charterers)

James Bailey (instructed by Jackson Parton Solicitors) for Lavender (Owners)

ARBITRATION: LMAA SMALL CLAIMS PROCEDURE 2017: FINAL AWARD MADE IN OWNERS’ FAVOUR FOR USD37,831.83: ARBITRATOR SHOULD HAVE AWARDED USD28,277.91: ARBITRATOR ADDED VALUE OF CHARTERERS’ COUNTERCLAIM TO OWNERS’ CLAIM BY MISTAKE: ARBITRATOR TWICE REFUSED APPLICATIONS TO CORRECT AWARD UNDER SECTION 57 OF ARBITRATION ACT 1996: APPLICATION UNDER SECTION 68 OF ARBITRATION ACT 1996 TO SET ASIDE PART OF AWARD FOR SERIOUS IRREGULARITY

Summary

In allowing Charterers’ application, to set aside in part an arbitration award (for USD9,553.92) under s.68 of the Arbitration Act 1996 (“the 1996 Act”), the High Court held that the arbitrator’s decision to make an award on a basis for which the parties had not contended without giving them an opportunity to comment on it amounted to a serious irregularity, in breach of the general duty under s.33 of the 1996 Act, and that that irregularity had – despite its modest amount – caused substantial injustice, as required by s.68(2) of the 1996 Act, as it had led to an order to pay about 33% more than was due by way of principal.

Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Qualified Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes

Background

Lavender (“Owners”) time chartered “Majestic” to Ducat (“Charterers”). A number of modestly valued balance of account items were in dispute on the redelivery of the vessel. Owners claimed for unpaid hire and damages for inadequate hull cleaning. Charterers counterclaimed for a minor off-hire and vessel underperformance, amongst others. All of the disputes were referred to arbitration for resolution under the LMAA Small Claims Procedure (“SCP”) 2017.

If Charterers had succeeded on all of their defences, including their underperformance counterclaim (of USD15,070), they would have been entitled to USD6,258.35. If Owners had succeeded on every issue, including their damages claim (of USD9,553.92), they would have been entitled to USD37,831.83. The arbitrator concluded that Owners’ claim for hire succeeded but that their damages claim failed. He also held that Charterers’ counterclaim failed, such that Charterers were not entitled to make any deductions from hire on that basis.

The arbitrator’s findings should, therefore, have been that Owners were entitled to USD28,277.91, namely, USD 37,831.83 less USD9,553.92. However, instead, the arbitrator added the value of Charterers’ unsuccessful underperformance counterclaim (USD15,070) to Owners’ total claim, resulting in a finding that Owners’ total claim was supposedly worth USD53,692.66, namely, USD15,860.83 more than the USD37,831.83 that Owners had, in fact, claimed.

As a result, the arbitrator concluded that he could not award more than had been claimed by Owners, and so awarded Owners USD37,831.83; namely, USD9,553.92 more than Owners were, in fact, entitled to receive.

This was a mistake by the arbitrator, which Owners had accepted as such by the time of the High Court hearing, after some initial resistance. The nature of the mistake was straightforward and it had, in addition, led to the arbitrator awarding Owners interest on the value of Charterers’ unsuccessful counterclaim.

Before applying to the High Court to challenge and to set aside part of the award due to a serious irregularity under s.68 of the 1996 Act, Charterers had twice applied to the arbitrator to seek the correction of the award under s.57 of the 1996 Act, based on a clerical mistake or error arising from an accidental slip or omission. Despite himself having earlier recognised there seemed to be a problem when making the award, the arbitrator declined both of Charterers’ applications.

Judgment

Having outlined the facts (above), noted the applicable statutory provisions in ss.68 and 33 of the 1996 Act and the correct approach to s.68 applications, the Judge noted that Charterers’ case on irregularity was two-fold:

(1) The arbitrator had failed to comply with his general duty under s.33 of the 1996 Act because he had reached a conclusion that was contrary to the common position of the parties, for which neither party had contended, without providing an opportunity for the parties to address him on the issue; and

(2) The arbitrator had made an obvious accounting mistake.

On the first contention, the Judge agreed that, in the present case, there had been an irregularity, on the grounds set out in (1) above, which amounted to a failure to comply with the s.33 general duty.

This was on the basis, said the Judge, that the parties had been in agreement that Charterers’ counterclaim did not form part of Owners’ claim. No submissions on that point had been made in the arbitration because there was no need for them, because that issue was not in dispute between the parties.

The Judge noted that the arbitrator had realised that there seemed to be a problem, despite not realising that he had made a mistake, because he recognised that the total of the amounts which he had treated as being due to Owners was greater than the amount Owners had claimed. The arbitrator had thought that this had not been explained but, without asking for an explanation from the parties, he imposed a solution to confine Owners to their claimed amount.

The Judge considered that when the arbitrator realised that the amount he thought was due to Owners was more than the amount Owners had claimed, and that this was unexplained, he should not have proceeded to resolve the problem as he did, without first giving the parties the opportunity to comment on the issue. Had the arbitrator done so, the error would have come to light. That, in the Judge’s view, was sufficient to conclude that there had been an irregularity within s.68(2)(a) of the 1996 Act, namely a “failure by the tribunal to comply with section 33 (general duty of tribunal)”.

On the second contention, Charterers contended that the “obvious accounting mistake” also amounted to an irregularity, and that this case was factually very similar to Danae Air v Air Canada (fn.1) where the Court of Appeal labelled what happened a “procedural mishap”.

The Danae Air case was decided under s.22 of the Arbitration Act 1950, one of the precursors of the 1996 Act. Charterers submitted that the position ought to be the same under the 1996 Act, and relied on Merkin and Flannery on the Arbitration Act 1996 (fn.2), which accepted that the position is slightly less clear under the 1996 Act but submitted that “if the tribunal refused to accept to correct such an obvious mistake, that would simply be ‘unfair’ in the broadest sense of the word, and so challengeable under s.68(2)(a)”.

The Judge accepted as unquestionably correct, as Owners had submitted, that – as was said in Sonatrach v Statoil (fn.3) and UMS Holding v Great Station (fn.4) and other cases – the focus of s.68 was on whether there had been a failure of due process, and not on whether the tribunal had got the answer right. However, it appeared to the Judge that a gross and obvious accounting mistake in the award, or an arithmetical mistake of the simple 2 + 2 = 5 variety, may well represent a failure to conduct the proceedings fairly, not because it represented an extreme illogicality but because it constituted a departure from the cases put by both sides, without the parties having had an opportunity of addressing it.

On that basis, the Judge considered that if a “glaringly obvious error” in the award could be said to arise in this way, s.68 of the 1996 Act could probably be regarded as applicable, without subverting its focus on process. The Judge concluded, given his analysis of how an obvious accounting or arithmetical error may fall within s.68(2) of the 1996 Act, that Charterers’ second way of contending for an irregularity actually added little to the first contention.

On the remaining question of whether Charterers could show that the irregularity caused them substantial justice, the Judge concluded that, in this case, there was substantial injustice caused by the irregularity.

The Judge had no doubt that, had Charterers been given the opportunity, before the award was made, to comment on the way in which the arbitrator was proposing to deal with their failed counterclaim, and whether Owners’ total claim should have been regarded as USD53,692.66, the arbitrator might well have reached a different view, and that the result might well have been significantly different.

While the Judge recognised that the amount involved was, by the standards of many commercial arbitrations, small, nevertheless, that had to be viewed in the context of the total amount of Owners’ claim of USD37,831.83, over which the parties had considered it appropriate to arbitrate. The Judge considered it as substantially unjust that a party should, by reason of an error such as that made by the arbitrator here, be ordered to pay about 33% (or USD9,553.92) more than was due by way of principal, and be ordered to pay interest on its own unsuccessful counterclaim.

On the above basis, the Judge allowed Charterers’ application and set aside part of the award, namely that awarding USD9,553.92 to Owners.

Comment

This judgment highlights that arbitrators must act with due care in ensuring compliance with their general duty in conducting even abbreviated fixed costs forms of small claims arbitrations, such as those to which the LMAA SCP apply.

As the Judge himself indicated, what happened in this case went “well beyond what could reasonably be expected as an ordinary incident of arbitration, even SCP arbitration”. This was despite the amount in dispute being quite modest.

Owners argued it was legitimate to weigh the financial impact of the irregularity against the costs of remedying it, the costs of the challenge here comfortably exceeding the principal amount in dispute. However, the Judge dismissed this argument, as Owners could have lessened the cost of correcting the award by accepting earlier that a mistake had been made, which would likely have changed the outcome at less cost.


Footnote 1: [2000] 1 WLR 395 (CA)

Footnote 2: (6th Edition), paragraph 68.5

Footnote 3: [2014] EWHC 875 (Comm)

Footnote 4: [2017] EWHC 2398 (Comm)