The High Court has held that in circumstances where an arbitral award contains a ‘glaringly obvious error’ and the tribunal refuses to correct its mistake, a decision can be challenged on the basis that it has departed from the common ground shared between the parties.
Factual Background
The award in question arose from a dispute between Lavender Shipmanagement (‘owners’) and Ducat Maritime (‘charterers’), under a charterparty in respect of the “MV MAJESTY” (the ‘vessel’). The charterparty contained an arbitration clause, requiring the parties to submit any disputes to arbitration under the LMAA Small Claims Procedure 2017.
The owners were the claimants in the arbitration and sought USD 37,831.83 by way of unpaid hire on the basis of their Final Hire Statement (FHS).
Charterers agreed that they had mistakenly calculated an extra day of hire (amounting to USD 11,000). However, they raised disputes in relation to a minor off-hire period; owners’ claim for damages for inadequate hull-cleaning; amounts claimed by owners in lieu of hull-cleaning and dunnage removal; and a deduction for balance that was allegedly due in respect of the “MV FAITH” (a ship under the same management as the vessel). Charterers also sought to deduct USD 15,070 for the vessel’s underperformance.
If charterers had succeeded on all their defences and the underperformance counterclaim, they would have been entitled to USD 6,258.35. If owners succeeded on every issue, they would have been entitled to the full amount which they claimed of USD 37,831.83.
The arbitrator found that the owners’ claim succeeded: that all of the disputes items on the owners’ FHS were properly due and payable save for the USD 9.553.92 in relation to the damages for inadequate hull-cleaning and USD 2,500 for dunnage removal costs. The arbitrator also found that the underperformance counterclaim in the sum of USD 15,070 failed.
The arbitrator should have awarded USD 28,277.91 (being USD 37,831.83 less USD 9,553.92). However, the arbitrator added the charterers’ unsuccessful counterclaim of USD 15,070 for underperformance to the owners’ total claim. The result was that he found that owners’ total claim was actually worth USD 53,692.66, which was more than the USD 37,831.83 that owners had, in fact, claimed.
On 7 and 17 September 2021 charterers applied to the arbitrator under section 57(3) of the Arbitration Act 1996. Both applications were opposed by owners and the arbitrator declined to correct the award, maintaining that there was ‘no error or mistake in the calculations’.
It was in this context that charterers sought to challenge part of the award under section 68 of the Arbitration Act 1996 (the ‘1996 Act’).
High Court Decision
The judge set out the relevant statutory provisions and in particular section 68 of the 1996 Act which provides that an applicant must show an irregularity of a kind that falls within the exhaustive list of categories set out in section 68(2) and that this irregularity has caused or will cause substantial injustice to the applicant.
Charterers’ case was that there was an irregularity which caused them substantial injustice and which fell within section 68(2)(a) under two grounds:
- The arbitrator reached a conclusion that was contrary to the common position of the parties, without providing an opportunity for the parties to address him on the issue.
- He had made an obvious accounting mistake.
In respect of the first ground, Butcher J held that there was an irregularity. This was on the basis that the arbitrator had failed to adhere to the common ground between the parties in 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. The position was that the parties had been in agreement that the charterers’ counterclaim did not form part of the owners’ claim. They had not made submissions on that point because there was no need to – that issue was not in the arena.
In relation to the second ground, charterers submitted that the very fact there had been ‘an obvious accounting mistake’ amounted to an irregularity. Charterers relied upon the case of Danae Air Transport ASA -v- Air Canada [2000] 1 WLR 395. In that case, the arbitrators had treated a Calderbank offer as including the value of the offer to forego a counterclaim when comparing it with the amount they had awarded. The Court of Appeal decided that the award could be remitted to the arbitrators under section 22 of the Arbitration Act 1950, on the basis that there was a procedural mishap and that the injustice was ‘rank’ or ‘gross and obvious’. Charterers maintained that although the Danae case was decided under the Arbitration Act 1950, the position should be the same under the Arbitration Act 1996.
Owners submitted that the courts had made it clear that section 68 is not available for challenges based on the inadequacy or illogicality of the reasoning of the tribunal.
Butcher J found that a gross and obvious accounting or arithmetical mistake may well represent a failure to conduct the proceedings fairly, not because it represents an extreme illogicality but because it constitutes a departure from the case put by both sides, without the parties having had an opportunity of addressing it. He noted that there was common ground between the parties as to how the arithmetical processes work that the arbitrators had not adhered to.
He concluded that if a ‘glaringly obvious error’ in the award, can be said to arise in this way, section 68 can probably be regarded as applicable, without subverting its focus on process.
Accordingly, Butcher J found that there was a serious irregularity which affected the award and that there was substantial injustice. He therefore set aside part of the award in the sum of USD 9,553.92.
Comment
This decision clarifies that in circumstances where an arbitral award contains a ‘glaringly obvious error’ and the tribunal refuses to correct its mistake, a decision can be challenged on the basis that it has departed from the common ground shared between the parties. Hill Dickinson has recently applied this judgment in an arbitration to successfully oblige a sole arbitrator to correct a mistake in an award by an application made under section 57(3) of the Arbitration Act 1996.
For further information, please contact:
Jack Redrup, Hill Dickinson
jack.redrup@hilldickinson.com
