Andy Powell Partner
Court dismisses challenge to award on grounds of procedural unfairness
ASA v. TL  EWHC 2270 (Comm)
This case involved an unsuccessful appeal to the Court, where charterers contended that there was serious irregularity in the way that the sole arbitrator had dealt with two issues in the underlying arbitration, which had caused them substantial injustice.
It provides helpful guidance on the principles applicable to such a challenge based on a breach of the tribunal’s general duties to act fairly and impartially as between the parties and to give each a reasonable opportunity of putting their case and dealing with that of their opponent. It also demonstrates the Court’s reluctance to entertain a party’s unjustified attack on an arbitrator’s findings of fact on the basis of procedural unfairness.
The background facts
The defendant Owners chartered a landing craft/general cargo vessel (“the Vessel”) in 2005 to the claimant Charterers for a term of three years at a rate of US$ 3,250/day. The Vessel was to be operated within West Africa. The Vessel spent nearly five months undergoing repairs between September 2008 and January 2009, with the repairs being more expensive than anticipated. After the Vessel left dry dock, the parties purported to enter into a further charterparty in February 2009 at a rate of US$ 6,500/day.
At the relevant time, the Owners and Charterers had common shareholders, two of whom were described as Charterers’ ‘managers’. Following a falling out between these persons and the sale of the Vessel in 2013, the Charterers asserted in 2015 that a discount rate of US$ 1,000/day was applicable to the 2009 charter, such that they were owed US$ 1,765,000.
The arbitration proceedings
The Owners commenced arbitration, seeking a declaration that no discount rate was agreed and that, therefore, no sums were owing.
The Charterers counterclaimed US$ 4,303,000 on the basis that the market charter rate from 2009 should have been the rate in the 2005 charter (US$ 3,250) and not the US$ 6,500/day in the 2009 charter. The claim was founded on a breach of fiduciary duty by the managers acting for both parties in fixing the 2009 charter rate. The Charterers consequently claimed (i) unjust enrichment; (ii) knowing receipt; and (iii) dishonest assistance.
The Owners’ contended that the 2009 rate was the market rate on the basis that the Vessel could, and did, carry MGO cargoes (a valuable trade in West Africa at the time).
The Award was issued following a four-day hearing, at which there was extensive evidence on the market rate. During the hearing, the Charterers criticised the fact that the witness evidence given on the costs of dry-docking was inconsistent with previous statements.
In her Award, the sole arbitrator identified the central legal disputes as being the effect of the 2009 charter and the payments under it. The factual disputes were whether the managers had acted dishonestly and whether the hire agreed was above the market rate as at 1 February 2009.
The arbitrator found in the Owners’ favour and held that the applicable hire rate for the 2009 charter was the higher rate of US$ 6,500/day. She held that the Charterers had failed to establish the requisite dishonesty on the Owners’ part and that their criticisms were overstated, unfounded or of limited weight.
The Commercial Court decision
The Charterers appealed under s.68 of the Arbitration Act 1996, arguing that there had been serious irregularity on the part of the arbitrator that had caused them substantial injustice. Among other things, they alleged that she had breached her duty under section 33 of the Act to act fairly and impartially as between the parties, giving each a reasonable opportunity of putting his case and dealing with that of his opponent.
The principles applicable to such a challenge are as follows:
There will generally be a breach where a case is decided on the basis of a point which one party has not had a fair opportunity to deal with;
Notice needs to be given to the parties if a tribunal considers that the parties have missed the point and/or contemplates a completely different basis for a decision (i.e. not a nuance or inference) so that the parties can consider the position and respond; and
The applicant does not need to show that the substantial injustice would necessarily or probably have led to a different result: he simply has to show that the tribunal might well have reached a different view and produced a significantly different outcome.
The Charterers challenged the Award on two grounds:
1) Market rate of hire, valuation and class:
The Charterers claimed that the determination that the hire of US$ 6,500/day for the 2009 charter was market rate was the first irregularity causing it substantial injustice. The issue in the arbitration was whether the Vessel was to be classed as a tanker: if she was, then it was common ground between the parties’ valuation experts that the rate would be higher than it would be if she was not permitted to carry MGO. The arbitrator had held that the absence of a class notation as an oil carrier was a neutral factor and that instead the market rate should be based on the Vessel’s actual use in carrying parcels of MGO.
The Charterers contended that the arbitrator had decided the issue on her own reading of the class documentation: she concluded that the lack of tanker class notation in the ship particulars was because such notation was only available to vessels primarily designed to carry oil. They further contended that, in determining the market rate, the arbitrator was wrong in considering whether the Vessel was in class for the carriage of MGO. They said that this was not an issue before the arbitrator and that they had not had a fair opportunity to address this point.
The Court considered how the issues had been raised in the submissions and developed during the course of the hearing, including the fact that neither party had placed class at the centre of their case and the fact that the Charterers’ counsel had said in his closing submissions that it was not necessary to decide the class issue. The Court found that in considering the ‘class information available’, the arbitrator had relied on an ABS guide to vessel notations that the Charterers themselves had placed in evidence.
As such, the Court held that the arbitrator had drawn an inference, as she was entitled to, on an issue that the Charterers had themselves raised during the course of the hearing and on evidence which they had adduced. The case had been decided on an issue that was ‘in play’ or ‘in the arena’ in the proceedings. It was further held that the Charterers would not have conducted their case any differently or been able to show that any loss of the opportunity to advance any material submissions caused substantial injustice.
2) Honesty in the context of the dry dock charges
The Charterers further claimed that the arbitrator relied on one of the managers’ oral evidence as to payment for the drydocking, through a shareholders’ loan, which was contrary to the parties’ pleaded cases and what had been said in a witness statement. They submitted that they did not have a fair opportunity to address the point and consequently that there was a serious irregularity that caused them substantial injustice.
The Court considered, however, that the Charterers did have the opportunity to deal with the issue at the hearing. Had they considered that further time was required, they could have sought permission to adduce further evidence on this point after the hearing. The Court concluded that this ground was an attempt to challenge the arbitrator’s findings of fact and her assessment of the evidence on the funding of the dry dock charges, when the Charterers had had ample opportunity to advance their case following the oral evidence given on the first day of the hearing.
The Court concluded that neither of the grounds argued constituted the procedural unfairness required for the purposes of a s.68 challenge. Instead, it held that this was a case where a party sought to challenge findings of fact in the guise of procedural unfairness when there was none. The appeal was, therefore, dismissed.
Parties in an arbitration, or indeed before a lower court, should ensure that they argue all relevant points and put forward all relevant evidence at the hearing. They may not be allowed to do so on appeal.