Mare Nova Inc v Zhangjiagang Jiushun Ship Engineering Co Ltd (The “Inase”)

DMC/Arbn/25/01

England

Mare Nova Inc v Zhangjiagang Jiushun Ship Engineering Co Ltd (The “Inase”)

English Commercial Court: HHJ Keyser KC: [2025] EWHC 223 (Comm): 10 February 2025

Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2025/223.html

Chirag Karia KC (instructed by Waterson Hicks) for Mare Nova (Owners)

There was no appearance before the court on behalf of ZJSE (Repairers)

ARBITRATION: SHIP-REPAIR CONTRACT: RESPONDENT DID NOT PARTICIPATE IN ARBITRATION: CLAIMANT CLAIMED DAMAGES OF USD652,937: FINAL AWARD MADE BY SOLE ARBITRATOR IN OWNERS’ FAVOUR FOR ONLY USD298,651: ARBITRATOR DETERMINED ISSUE OF DISCHARGE OF LIABILITY FOR BREACH – THEREBY REDUCING AMOUNT AWARDED TO CLAIMANT - WITHOUT HEARING FROM THE PARTIES ON THE ISSUE OR PUTTING IT TO THEM FOR COMMENT: APPLICATION TO CHALLENGE THE AWARD UNDER SECTION 68 OF THE ARBITRATION ACT 1996 FOR A SERIOUS IRREGULARITY: ALTERNATIVE APPLICATION TO APPEAL THE AWARD UNDER SECTION 69 OF THE 1996 ACT FOR AN ERROR OF LAW

DMC Rating: Confirmed

Summary

In allowing Owners’ application to challenge a final award under section 68 of the Arbitration Act 1996, 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 the parties an opportunity to comment on it, amounted to a serious irregularity, in breach of the general duty under section 33 of the 1996 Act. It had also caused substantial injustice, in that it led to an order to pay the claimant substantially less than the sum claimed. The Judge remitted the award back to the arbitrator for reconsideration.

Further, the High Court dismissed the alternative application for an error of law under section 69 of the 1996 Act, but gave the arbitrator guidance on the correct interpretation of the relevant clauses of the ship-repair contract in question.

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 Deputy Editor of DMC’s CaseNotes

Background

Mare Nova (“Owners”) agreed to a ship-repair contract with ZJSE (“Repairers”) for a scheduled drydocking of their vessel “Inase”, which included work to her intermediate shaft bearing.  The contract, which provided for English law and London arbitration to apply,  included general conditions of tender for the works to be done.

After the works were completed, Owners’ representative signed off the works on 30 March 2021 and Repairers’ charges were paid.  However, about three hours after the vessel left Repairers’ shipyard, on 31 March 2021, the crew noticed a burning smell coming from the vicinity of the intermediate shaft bearing.

On inspection, Repairers were found to have damaged the vessel’s intermediate shaft bearing, in consequence of which Owners incurred costs and other losses.  Owners commenced arbitration to claim compensation.  Repairers did not participate in the appointment of a sole arbitrator, so Owners applied to the High Court for a sole arbitrator to be appointed on the parties’ behalf.

In the arbitration, Owners claimed USD652,937 as (i) damages for breach of clauses 2.1, 2.2 and 2.3 of the general conditions, (ii) damages for the tort of negligence, or (iii) money due under a six-month guarantee in clause 2.10 of the general conditions.  Two other clauses (3.1 and 6.3) were mentioned in the final award (see the relevant clauses of the general conditions at fn.1).

Owners provided written submissions and supporting evidence but Repairers did not participate in the arbitration.  On making the award, the arbitrator found Repairers to be in breach of clauses 2.1, 2.2 and 2.3, because the damage to the vessel had been caused by the incorrect alignment of the intermediate shaft bearing. But, despite this, the arbitrator allowed only the six-month guarantee claim, in the lesser sum of USD298,651, and dismissed the damages claim on the grounds that the Owners’ representative signing off the works had amounted to a discharge of Repairers’ liability under clauses 2.1 and 6.3 of the general conditions.

However, Owners’ submissions did not deal with the issue of discharge of liability and the arbitrator did not put the issue to the parties for their comment.  As such, Owners applied to the High Court to challenge the award for a serious irregularity or, in the alternative, to appeal for an error of law.

Judgment

Section 68 Challenge

Having outlined the facts (above) and noted the applicable statutory provisions in sections 68 and 33 of the 1996 Act, the Judge concluded that the arbitrator’s dismissal of Owners’ damages claim - on the grounds that Repairers’ liability for breach of contract had been discharged by Owners’ representative signing off the works when the vessel first left the shipyard - constituted a serious irregularity affecting the arbitration proceedings and the award.

The evidence before the High Court showed that the discharge of liability was never raised, by Owners or Repairers, as an issue in the arbitration proceedings.  Further, the arbitrator did not raise the issue, touch on the question of discharge of liability in correspondence or seek submissions on the point.

On that basis, the Judge held that Owners were right that the resulting decision on the damages claim - by a ruling upon a matter that had not been raised in the proceedings - constituted a serious irregularity of the kind mentioned in section 68(2)(a) of the 1996 Act.  In other words, there was a failure by the arbitrator to comply with the general duty in section 33 of the 1996 Act, to provide Owners with an opportunity to put their case on the point and an opportunity to address the case of Repairers – albeit raised by the arbitrator – on the point.

The Judge also held that the irregularity was “serious” for the purposes of section 68(1) because it had caused substantial injustice to Owners, in that they had lost the opportunity, which had a realistic prospect of success, to pursuade the arbitrator that Repariers’ liability had not been discharged and that the larger damages claim should be allowed.  Further, the Judge considered the arbitrator to be clearly wrong in law to conclude that Repairers’ liability was discharged by operation of clauses 2.1 and 6.3 of the general conditions.

Accordingly, the Judge held there was a serious irregularity and, in his view, the proper course was to remit the award to the arbitrator for reconsideration.

Section 69 Appeal

While the application to appeal for an error of law under section 69 of the 1996 Act was to be dismissed because the challenge under section 68 had succeeded, the Judge still proceeded to deal with the substance of the question of law – namely  the question of the discharge of liability under the ship-repair contract - for two reasons.

First, the Judge’s conclusions formed one of the bases on which he concluded that there had been a serious irregularity causing substantial injustice.  Second, as the award was to be remitted to the arbitrator for reconsideration, its reconsideration must proceed on a correct understanding of the law.

The Judge highlighted, before interpreting clauses 2.1 and 6.3 of the general conditions, the principle that, in construing a contract, there is a requirement for there to be clear words to rebut the presumption that a party to the contract intended to abandon the rights and remedies that would otherwise arise by operation of law in respect of a breach of contract by another party (fn.2).

In relation to clause 2.1, the Judge noted that the first two sentences of the clause imposed express contractual obligations on Repairers.  Neither in those sentences nor in the remainder of the clause, considered the Judge, were there any words expressing, or implying, a limitation either on those obligations or on the rights and remedies of Owners arising from those obligations.

In relation to clause 6.3, when read in context, the Judge considered that it clearly had nothing to do with the discharge of an accrued liability for breach of contract or negligence.  Rather, it defined the period of Repairers’ liability as bailee of the vessel while she remained in their care.

Accordingly, the Judge held that the arbitrator’s interpretation of the contract and his conclusion that Repairers’ liability for breach of that contract had been discharged were obviously wrong in law.  However, for the reasons already stated, the section 69 appeal would be dismissed.

Comment

This judgment highlights that arbitrators must act with due care in ensuring compliance with their general duty in conducting arbitrations, even where one party does not participate and the final award is made on documents only.

This latest judgment can be contrasted with a 2022 judgment involving a successful challenge to a final award made under the LMAA small claims procedure (fn.3).  While the type of shipping dispute was different, the nature of the sole arbitrator’s serious irregularity has some broad similarities.

Therefore, where an arbitrator identifies any issues not addressed by the parties in their pleadings but which may be relevant to and could have an impact on what is decided in the award, such issues should be put to the parties so that they are given a reasonable opportunity to comment first.  Failing that, an award may be challenged if it also causes a substantial injustice.

Footnote 1:

General Conditions:-

"2.1 All tasks herein specified shall be carried out and completed in all detail. All workmanship and materials are to be of the best quality throughout and confirm to those now on the Vessel unless otherwise specified. All work is to be done to the satisfaction of the Owner's Representative and to the rules and requirements of the Classification Society concerned. Any dispute which may arise during the progress of the work as to quality of material or workmanship shall be left to the decision of the Owner's Representative.

2.2 All of the Vessel's structure and machinery shall be in correct alignment on completion of repairs and necessary measures must be taken to check and recheck the correctness of alignment before, during and upon completion of repairs.

2.3 Whenever the Specification calls for opening up machinery or equipment for survey by the Classification Society surveyor, the nominated units are to be completely dismantled; all parts cleaned and calibrated (copies of calibration to be handed to Owner's Representative) and reassembled using new jointing packing; bearings, where applicable, adjusted to the correct clearances; and the above included in the Tender price. In each case, the Contractor shall call in the Class Surveyor only after consultation with Owner's Representative.

…

2.10 The Contractor shall guarantee workmanship, materials and any newly fitted equipment for a period of six months following completion of the repairs. Any defects, faults due to materials or workmanship discovered during this period and reported to the Contractor in writing before the expiry of the guarantee period of six months shall be made good by the Contractor at his expense. On completion of such corrective work, a new guarantee period of six months shall commence for such renewals or replacements. However, the Contractor's liability does not apply to defects arising out of materials provided by Owner.

…

3.1 On completion of repairs and in the presence of the Contractor's Representative the vessel is to undergo dock trials and sea trials to demonstrate that all items which have been repaired or renewed are in good working order to the full satisfaction of the Owner's Representative. Any defect due to unsatisfactory workmanship or bad material, which is found during these trials shall be rectified by the Contractor with all speed and at his own cost and expense. On completion of satisfactory trials, the vessel is considered redelivered to the Owner.

…

6.3 The Contractor's liability shall begin at the time when the vessel is delivered to Contractor's yard, pier or other location designated by him, ready for repairs, and shall cease only when all of the work herein specified has been completed to the satisfaction of the Owners or their accredited representative, and all of the Contractors equipment and all rubbish have been removed from the vessel.”

Footnote 2:  Triple Point Technology v PTT [2021] UKSC 29, [2021] AC 1148

Footnote 3:  The “Majestic” [2022] EWHC 766 (Comm) – see DMC’s case note (which includes a link to the reported judgment) at https://www.onlinedmc.co.uk/index.php/Ducat_Maritime_v_Lavender_Shipmanagement_-_The_Majestic