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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Lorand Shipping Ltd v Davof Trading (Africa) BV MV "Ocean Glory"  EWHC 3521 (Comm) (30 October 2014)
Cite as:  EWHC 3521 (Comm),  1 Lloyd's Rep 67
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QUEEN'S BENCH DIVISION
Fetter Lane, London, EC4A 1NL
B e f o r e :
| LORAND SHIPPING LIMITED
|- and -
DAVOF TRADING (AFRICA) B.V.
MV "Ocean Glory"
David Walsh (instructed by Stephenson Harwood) for the Respondent/Charterer
Hearing date: 24 October 2014
Crown Copyright ©
Mr Justice Eder:
"Any claim must be lodged, as above, within six months of the last day of discharge of the chartered vessel, or, in the case of non-performance of the charterparty, within twelve months of charterparty cancellation date. In the event of non-compliance with the arbitration time limit set down herein, any claim shall be deemed waived and be absolutely barred."
"The Claimants seek an Interim Award at this stage, for the claim for demurrage. The Tribunal's jurisdiction is to be reserved for any and all claims against the Respondents, relating to any claim for damage to cargo, that may be brought against the Owners by the cargo receivers under the Bill of Lading and/or in respect of any and all damage suffered by the Vessel, by reason of the extended stay of the Vessel at the Port of Nador and/or the extended services of the Salvors under the LOF (due to the Charterers' breach of the Charterparty) and in respect of which the Claimants will seek an indemnity from the Respondents at the appropriate time."
"An arbitration notice is valid only if it refers to an existing dispute between the parties. It was held by HHJ Humphrey Lloyd QC in Great Ormond Street Hospital NHS Trust v. Secretary of State for Health that an arbitration notice is ineffective if it relates to future disputes which have yet to arise. Were it otherwise, the inevitable effect of a general notice would be to satisfy the limitation period at the outset and make it possible for the claimant to raise a dispute at any time in the future."
"Only the claim for demurrage is currently the subject matter of these Submissions. Any other claims for damages arising from the delay in discharge of cargo and breaches of the Charterparty will be pursued later. The Owners deny the Charterers' allegations in paragraph 7 of their Defence Submissions that they are pursuing the wrong party in these proceedings. We repeat that the Owners' claim at this stage is solely for demurrage under the Charterparty. This is a claim for liquidated damages, which has arisen due to the Charterers' breach of the Charterparty terms. As per the terms of Clause 5(b) … the Charterers were responsible for the discharge of the cargo and the delay caused in doing so falls clearly upon them. This claim is unrelated to any and all other claims that may be brought against the receivers of the cargo under the Bills of Lading and/or against any and all other parties. This is clearly stated in paragraph 11 of the Claim Submissions."
"30. Given the length of time since the cargo was discharged and that the Owners' provided no evidence that the cargo receivers / interests had or indeed intended to bring a claim against them under the Bill of Lading, we refuse their application.
31. In the event that the cargo receivers / interests do make a claim, doubtless the Owners will consider whether it is possible to start new arbitration proceedings against the Charterers. It follows that this award is not made on an interim basis, but is final in respect of the issues decided herein."
Summary of Owners' case under s68 of the Arbitration Act 1996
i) It is plain from the terms of the Award that the Tribunal did not intend to shut out any further claims by the Owners against the Charterers in respect of any liability incurred by the Owners to third parties.
ii) The Tribunal was plainly not considering the merits of such claims and cannot have concluded that such claims were bound to fail.
iii) Moreover, the terms of paragraph 31 of the Award show that the Tribunal was not intending to rule out further claims by the Owners against the Charterers: implicit in paragraph 31 is an assumption that the Owners would not be shut out from commencing fresh arbitration proceedings after the Award had been published. If the arbitrators had recognised that Clause 27 made it impossible to start a new reference, paragraph 31 could not have been written in the terms that it was.
iv) Unwittingly, however, the effect of the Tribunal's Award is to shut out all further claims completely.
v) For the reasons set out below, that is the result of a serious irregularity causing substantial injustice within the meaning of s68 of the Arbitration Act 1996.
vi) Under s68(2)(a), a failure by the Tribunal to comply with s33 of the Arbitration Act 1996 (the so-called "general duty of the tribunal") may constitute a serious irregularity.
vii) S33(1) imposes obligations on the Tribunal (a) 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"; and (b) to "adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined".
viii) A central element of these duties is that the parties have the right to be given an opportunity to deal with any issue which will be relied on by the Tribunal when writing their Award:
ix) As it is put by the editors of Russell on Arbitration (23rd Ed, 2007), at para 5-050:"… the tribunal should give the parties an opportunity to deal with any issue which will be relied on by it as the basis for its findings. The parties are entitled to assume that the tribunal will base its decision solely on the evidence and argument presented by them prior to the making of the award, and if the tribunal is minded to decide the dispute on some other point, the tribunal must give notice of it to the parties to enable them to address the point."
x) The leading judicial analysis of this principle remains the judgment of Bingham LJ in Zermalt Holdings SA v Nu Life Upholstery Repairs Ltd  2 EGLR 14, 15:"If an arbitrator is impressed by a point that has never been raised by the other side then it is his duty to put it to them so that they have an opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission, then again it is his duty to give the parties a chance to comment … It is not right that his decision should be based on specific matters which the parties never had the chance to deal with, nor is it right that a party should first learn of adverse points in a decision against him. That is contrary both to the substance of justice and to its appearance …"See also The Vimeira  2 Lloyd's Rep 66, 74–75:"There is plain authority that for arbitrators so to decide a case without giving a party any warning that the point is one which they have in mind and so giving the party no opportunity of dealing with it, amounts to a technical misconduct and renders the award liable to be set aside or remitted" (Robert Goff LJ).
xi) This guidance remains valid under s68 of the Arbitration Act 1996: see the judgment of Colman J in Vee Networks Ltd v Econet Wireless International Ltd  1 Lloyd's Rep 192, 208.
xii) The particular dangers of infringing this principle where the arbitration takes place on paper were emphasised by Colman J in Pacol Ltd v Joint Stock Co Rossakhar  1 Lloyd's Rep 109, 115:"In a paper arbitration the temptation to arrive at a conclusion which may not have been envisaged by either party by reference to matters upon which the parties have not had the opportunity of addressing the arbitrators or in respect of which they have not had an opportunity of adducing further evidence, may be a particular temptation which arbitrators should be careful to avoid. It is important for the continuation of the standing and quality of international commercial arbitration in London, particularly in the commodity fields, that arbitrators should have this problem very clearly in mind. That being so, this application succeeds. The award will be set aside."
xiii) In the present case, the Tribunal adopted a course of action which was not being advocated by either party and without giving the parties any opportunity to comment on what they were proposing to do:a) The Owners were asking the Tribunal to reserve jurisdiction over any other claims arising under the charterparty.b) As against this, the Charterers were asking for those claims to be dismissed on their merits, once and for all.c) The Tribunal adopted neither of these courses of action, however. Instead they followed a path of their own devising, which was to refuse to exercise jurisdiction over other claims, on the assumption that such claims might be brought subsequently under a fresh reference to arbitration before a newly-constituted tribunal.d) Prior to publishing their Award, the Tribunal gave no indication that they were minded to proceed in this way. If they had done so – as their duty under s33 required – the Owners would immediately have pointed out that Clause 27 of the charterparty was an absolute impediment to the commencement of fresh proceedings.
xiv) Furthermore, in adopting this course of action, the Tribunal relied solely on two considerations which had not been raised by either of the parties and which the Tribunal gave the parties no opportunity to address before the Award was published. They arose instead out of the Tribunal's private and unarticulated deliberations:a) First, they relied on "the length of time since the cargo was discharged". However, if this had been raised with the parties, the Owners would have pointed out this was an irrelevant consideration because the Award was being produced only six and a half months after the completion of discharge. Accordingly, even on the assumption that there was a one-year time bar for cargo claims, the receivers still had plenty of time to commence proceedings. (In fact, the receivers have until August 2015 to commence proceedings, by reason of the two-year time bar under the Hamburg Rules which are applicable in Morocco.)b) Second, they relied on the fact that the Owners "provided no evidence that the cargo receivers / interests had or indeed intended to bring a claim against them". However, if this point had been raised with the parties, the Owners would have pointed out: (i) that arbitration proceedings had already been commenced between the Owners and cargo interests (and in which Mr Oakley was sole arbitrator); (ii) that the Owners had on 29 August 2013 provided a bank guarantee in favour of cargo interests in the sum of US$621,820.72; (iii) that the cargo receivers still had some 18 months, i.e. until August 2015, to lodge any claim; and (iv) that in these circumstances there was (at least) a real risk that cargo claims would be brought at some point before the expiry of the 2-year time bar in August 2015.
xv) As Robert Goff LJ held in The Vimeira  2 Lloyd's Rep 66, 75: "It is not fair to decide a case against a party on an issue which has never been raised in the case without drawing the point to his attention so that he may have an opportunity of dealing with it, either by calling further evidence or by addressing argument on the facts or the law to the tribunal."
xvi) The course of action adopted by the Tribunal has plainly caused the Owners substantial injustice, in that as matters stand they are now completely shut out from pursing any further claims against the Charterers. Accordingly, if cargo claims against the Owners are forthcoming, the Owners would have no ability to make any claim against the Charterers in respect of that liability – e.g. pursuant to Clause 5(b) of the GENCON terms, on the basis that the damage to the cargo was caused or contributed to by the Charterers' failure to discharge the cargo properly and reasonably.
xvii) The merits of any such claim are of course a matter for the Tribunal, rather than the Court. For present purposes, it is sufficient that: (i) the prospect of claims being brought by third parties against the Owners cannot be discounted; and (ii) if the Owners are held liable in respect of such claims in Morocco, they may in turn have a claim against the Charterers in respect of that liability, for damages and/or an indemnity.
xviii) Finally, the requirement under s68 to show "substantial injustice" does not require the Owners to satisfy the Court that the Tribunal would have reached a different view if it had complied with its duty under s. 33; it is sufficient that the Tribunal might realistically have reached a different conclusion: Cameroon Airlines v Transnet Ltd  EWHC 1829 (Comm), at  (Langley J). The Owners comfortably pass that threshold: indeed, it is difficult to see how the Tribunal could properly have declined to reserve jurisdiction if it had given the parties an opportunity to comment on the course of action which it had devised. It would have been immediately pointed out that Clause 27 would shut out any further claims, and this would surely have caused the Tribunal to reserve – rather than exhaust – its remaining jurisdiction.
"In short, Mr Waksman submitted that this was just such a case as the Departmental Advisory Committee had in mind when, at para 280 of its report on the Arbitration Bill which became the 1996 Act it referred to a case where "the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected". However I think it important to put that observation in the context of the whole paragraph in which it appears which reads as follows:
["]The test of "substantial injustice" is intended to be applied by way of support for the arbitral process, not by way of interference with that process. Thus it is only in those cases where it can be said that what has happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the Court to take action. The test is not what would have happened had the matter been litigated. To apply such a test would be to ignore the fact that parties have agreed to arbitrate, not litigate. Having chosen arbitration, the parties cannot validly complain of substantial injustice unless what has happened simply cannot on any view be defended as an acceptable consequence of that choice. In short, clause 68 is really designed as a longstop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.["]
Plainly those who subscribed to this passage envisaged that the hurdle to be overcome would be a high one - something "so far removed from what could reasonably be expected of the arbitral process", as opposed to an "acceptable consequence" of the choice of arbitration. In Lesotho Lord Steyn said of the requirement to show that there has been a "serious irregularity":
It is a new concept in English arbitration law. Plainly a high threshold must be satisfied.
There are many other judicial pronouncements to similar effect: Fidelity Management v Myriad International Holdings  2 All ER (Comm) 312, 314 (Morison J: a "long stop" to deal with "extreme cases where … something … went seriously wrong with the arbitral process"); World Trade Corporation Ltd v Czarnikow Sugar Ltd  2 All ER (Comm) 813, 816 (Colman J); Cameroon Airlines v Transnet  EWHC 1829 (Comm) at para 94 (Langley J: "the test is indeed an extreme case"); The Pamphilos  2 Lloyd's Rep 681, 687 (Colman J: "the substance and nature of the injustice goes well beyond what could reasonably be expected as an ordinary incident of arbitration"); Profilati Italia v PaineWebber  1 All ER (Comm) 1065, 1071 (Moore-Bick J: "it is intended to operate only in extreme cases"); The Petro Ranger  2 Lloyd's Rep 348, 351 (Cresswell J); Egmatra v Marco Trading  1 Lloyd's Rep. 826, 865 (Tuckey J: "no soft option clause as an alternative for a failed application for leave to appeal")."
i) The Tribunal did not misunderstand the issue in dispute. It was clear to the Tribunal from the Charterer's submissions that it sought a final award and that it was therefore opposing the Owners' application for what was, in effect, a partial award. The fact that it also disputed the substance of the alleged future claims is irrelevant.
ii) The Tribunal gave both parties an adequate opportunity to address it on all of the issues. The fact that the Owners chose to say nothing more than it did is hardly the fault of the Tribunal, let alone a serious irregularity.
iii) Quite why the Owners suggest that it ought to have been given forewarning that its application was going to be refused is unclear. No doubt all parties on the wrong end of awards would say that if only they had been told they were going to be unsuccessful, they would have made further submissions to the Tribunal. The fact that pre-award warnings are not given out is routine; it is not a sign that something has gone seriously wrong with the arbitral process. In any event, the further submissions that the Owners say it would have made all related to a point the Tribunal already had well in mind, namely the clause 27 time bar. Contrary to what the Owners say, it is clear from the Award that the Tribunal were fully aware of the implication of their decision in light of clause 27. As such, it is hard to see what difference any such further submissions would have made in any event.
i) There is no supporting evidence attached to substantiate any of Mr Abdelmjid's allegations. The Charterers have no way of verifying whether what Mr Abdelmjid says is right or wrong. It would not have been difficult to have appended, for example, the alleged notification from cargo underwriters.
ii) This is important in circumstances where Mr Abdelmjid's email is merely a response to an email from the Owners' representatives (not exhibited but obtained by the Charterers) which effectively tells him what to "confirm" in his message: "our lawyers ric are requesting your confirmation to the following" so that "your message may be produced to the court as evidence". Mr Abdelmjid duly obliged.
iii) Even if evidence to support Mr Abdelmjid's allegations had been adduced, all it would show is that a claim had been made against the Owners by cargo interests. There would still be no evidence to suggest that the claims advanced against the Owners are capable of being passed on to the Charterers. The reality is that if the Owners had a basis for advancing indemnity claims against the Charterers, that basis and some supporting evidence would have been revealed by now.