Jamila Khan Partner and Head of Office
Court corrects obvious accounting mistake in arbitration award
Ducat Maritime Ltd v. Lavender Shipmanagement Incorporated (MV Majesty)  EWHC 766 (Comm)
In a charterparty dispute, the Court has set aside part of an arbitration award on the grounds that the arbitrator reached a conclusion that was contrary to the common position of the parties, and for which neither party contended, without providing an opportunity for the parties to address him on the issue. In the circumstances, this represented a failure to conduct the proceedings fairly.
The decision provides useful guidance on how to proceed where a tribunal makes an obvious mistake in its award but declines to remedy it.
The Arbitration Act 1996
Serious irregularity for these purposes includes a failure by the tribunal to comply with its general duty under s. 33 of the Act 1996 to “act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent.”
Pursuant to s.57(3)(a), the tribunal may correct an award so as to remove any clerical mistake or error arising from an accidental slip or omission or clarify or remove any ambiguity in the award.
The background facts
In brief, the Owners claimed unpaid hire under the charterparty in the amount of US$37,831.83 pursuant to their final hire statement.
The Charterers raised various defences, although they admitted certain expenses. They also, by way of a counterclaim, sought to deduct US$15,070 for the vessel’s alleged underperformance.
If the Charterers had succeeded in all of their defences, including the counterclaim for underperformance, they would have been entitled to US$6,258.35. If the Owners succeeded on every issue, they would have been entitled to the full amount claimed of US$37,831.83.
The arbitrator found that the Owners’ calculation was correct save that it should not contain US$9,553.92 for damages for inadequate hull-cleaning. The Charterers’ counterclaim for underperformance failed. This resulted in the Owners being able to claim US$28,277.91 overall and that is what the arbitrator should have awarded them.
Instead, the arbitrator mistakenly added the Charterers’ unsuccessful counterclaim of US$15,070 for underperformance to the Owners’ total claim. This resulted in the arbitrator awarding a sum of US$53,692.66, which was more than the original amount of US$37,831.83 claimed by the Owners.
The Charterers asked the arbitrator to correct the award under s.57(3) of the Act 1996, on the basis that it contained a mathematical error. Although recognising that the amount awarded to the Owners exceeded what they had claimed, nonetheless the arbitrator declined to correct the award and stated that there was no error or mistake in the calculations. When a second similar application to the arbitrator was also declined, the Charterers applied to the Court under s.68 of the Act 1996, challenging the relevant part of the award.
The Commercial Court decision
The Charterers contended that there was serious irregularity in that:
- The arbitrator had failed to comply with s.33 of the Act 1996 because he reached a conclusion that was contrary to the common position of the parties, and for which neither party contended, without providing an opportunity for the parties to address him on the issue.
- He had made an obvious accounting mistake.
The Court accepted that (1) amounted to a serious irregularity. The arbitrator had failed to adhere to the common ground between the partiesin deciding how much was owed on a basis which had not been argued by either party, without giving them the opportunity to comment on it. They had not made submissions on that point because there was no need to.Further, when the arbitrator realised that the amount he thought was due to the Owners was more than the amount they had claimed, and that this was unexplained, he should not have proceeded to resolve the problem as he did, without giving the parties the opportunity of commenting on it. Had he done so, the error would have come to light. That was a sufficient basis to conclude that there was a serious irregularity for the purposes of s.68.
The issue of whether an obvious accounting mistake constituted the type of irregularity covered by s.68 was less straightforward. The Owners argued that s.68 was concerned with due process and not with whether or not the tribunal had made the right decision or reached the wrong conclusion. The Owners relied on past decisions indicating that the mere fact that the tribunal's reasoning was illogical or irrational could not amount to a serious irregularity
The Court, however, thought that a gross and obvious accounting mistake, or an arithmetical mistake of the type made in this award, might well represent a failure to conduct the proceedings fairly, not because it was extremely illogical but because it departed from common ground between the parties on how the calculations should be made without having given them the opportunity to address the issue. Consequently, in the Court’s view, s.68 would probably apply to such a glaringly obvious error in an award, although it did not need to determine the dispute on this basis as it had already found there was a lack of due process because of the arbitrator’s failure to comply with his duty of fairness under s.33 of the Act 1996.
The Court also found that the serious irregularity resulted in substantial injustice to the Charterers. While the sum involved was small, it had to be viewed in the overall context of the total amount of the Owners’ claim. The arbitrator’s mistake had inflated the Owners’ claim by almost 50%.
The Court also dismissed the argument that in accordance with the LMAA’s abridged Small Claims Procedure, the parties had agreed to accept the possibility of some injustices. Had the Charterers been given the opportunity of commenting on the matter before the award was made, a significantly different outcome might well have been produced. As to the costs of putting the mistake right, in comparison to the amount involved, if the Owners had accepted the mistake earlier, those costs would have been avoided.
The Court declined to remit the award back to the arbitrator and set aside the disputed part itself.
It is unclear from the decision why the arbitrator decided that there was no error in his calculations and chose not to ask the parties to make submissions on the amount awarded, or why the Owners did not concede the point early on, opting instead to resist a challenge to an obvious mathematical error involving a minor amount.
The Court was clearly unimpressed and made it clear that an accounting mistake of this type could amount to serious irregularity leading to substantial injustice where it amounted to a failure of due process.
This article was written with the assistance of Harriet Dool.
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