ASA -v- TL [2020] EWHC 2270 (Comm)

The Commercial Court in this case considered an application under section 68 of the Arbitration Act 1996 (the Act) brought by ASA (the Claimant) seeking to challenge an arbitral award on the basis of two alleged serious procedural irregularities.

The Claimant contended that the arbitrator had decided two issues on the basis of points which ASA did not have a fair opportunity to deal with because they were not put forward by either party or their experts, and departed from common ground.

Factual background 

In December 2005, TL (the Defendant) chartered a landing craft/general cargo vessel (the Vessel) to the Claimant for a term of three years, with Charterers having an option for a one-year extension. The hire rate was US$3250 per day and West Africa was identified as the area of operation (the 2005 Charter).

Between 9 September 2008 and 31 January 2009, the Vessel was mainly in dry dock. The repair costs were more expensive than anticipated and the Vessel returned to service in February 2009. It was then that the parties purported to enter into a further charter at the higher hire rate of US$6500 per day (the 2009 Charter). At this time, the Defendant and the Claimant had common shareholders, RT and AV.

In 2012, there was a falling out between RT and AV and in 2013, the Vessel was sold for US$380,000. In 2015, ASA, which was now under new ownership, asserted that a discount rate of US$1000 per day was applicable to the 2009 Charter, such that a credit of US$1,765,000 was owed to it.

In March 2017, TL commenced arbitration proceedings against ASA seeking a declaration that no discount rate was agreed in respect of the 2009 Charter and that, accordingly, no sums were owed. ASA brought a counterclaim for US$4,303,000 based on overcharged hire of US$3,250 for 1324 days. ASA contended that the market rate of hire for the 2009 Charter should have been at the rate of US$3250 per day – the rate in the 2005 Charter – and not at the higher rate of US$6500. ASA’s counterclaim was founded on a breach of fiduciary duty by RT and AV as they had acted for both TL and ASA in fixing the 2009 hire rate. ASA claimed, inter alia, (i) unjust enrichment; (ii) knowing receipt; and (iii) dishonest assistance. TL argued that the 2009 hire rate was the market rate since the Vessel could and did carry marine gas oil (MGO) cargoes.

An award was issued by the arbitrator (the Award), following a four-day hearing, in which extensive evidence was given by both parties and their experts on whether RT and AV had acted dishonestly in fixing the 2009 Charter and whether the 2009 Charter hire was above the market rate for vessels operating in West Africa. The arbitrator held that the market rate for the Vessel in 2009 was US$6500 per day commenting that TL’s expert’s experience was more helpful on the question of the market rate because TL’s expert had more specific experience of the market in West Africa. The arbitrator decided that the actions of AV and RT were attributable to TL but ASA had failed to establish the requisite dishonesty of TL for a dishonest assistance claim. The arbitrator concluded that the arrangements for paying the dry dock charges through increased hire were commercially realistic, were in the interest of both parties and did not exhibit dishonesty. ASA’s claims of unjust enrichment and knowing receipt also failed.

ASA challenged the Award under section 68 of the Act on the basis of two alleged serious procedural irregularities on the part of the arbitrator that had caused them substantial injustice.

Legal issues

The Claimant alleged that the arbitrator had failed to comply with her duty under section 33 of the Act to act fairly and impartially as between the parties, giving each a reasonable opportunity of putting its case and dealing with that of its opponent. ASA’s grounds for challenging the Award were as follows:

1. Market rate of hire, valuations and class

ASA claimed that the first irregularity causing it substantial injustice was the arbitrator’s determination that the hire of US$6500 per day for the 2009 Charter was the market rate. It was ASA’s case that in the arbitration the issue in question was whether the Vessel should be valued as a tanker for the purposes of determining its market hire. It was common ground between the parties’ experts that if the Vessel was not permitted to carry MGO the market rate hire would be considerably less that the rate for the 2009 Charter.

The Claimant argued that the arbitrator had decided this issue on her own reading of the class documentation. The arbitrator held that it was ‘unsurprising’ that there was no evidence that the Vessel had the class notation to act as an oil tanker because the class information available indicated that such a notation would only be available for a vessel primarily designed to carry oil. ASA contended that the arbitrator created this evidence herself, as it was not evidence, argument or analysis which either party or their experts had advanced. The Claimant also argued that the arbitrator was wrong in including in her determination whether the Vessel was in fact in class for the carriage of MGO, as this was not an issue before her and the Claimant did not have a fair opportunity to address it.

The Commercial Court rejected ASA’s claim and found that it was unsurprising that the arbitrator concluded that the Vessel’s class notation was a neutral factor in its valuation given that neither party had placed class at the centre of their case; ASA’s counsel commented in his oral closing submissions that the class issue may not need to be decided; and the arbitrator’s preference for TL’s expert’s evidence about the market rate of hire. The Court found that the arbitrator was drawing an inference, as she was entitled to, on an issue which ASA itself had raised during the course of the arbitration hearing through its expert evidence, and on the basis of other evidence which ASA itself had adduced in the form of the ABS guide to vessel notations.

Sir Ross Cranston, sitting as a judge of the High Court, found that the arbitrator’s comments on class notation could not be used to undermine her conclusions about the market valuation. The judge held that the arbitrator came to her conclusion about the market rate for the Vessel by taking into account that the Vessel could lawfully carry MGO in the niche West African market and there would have been no material difference to this outcome in the light of additional evidence on the Vessel’s class. The Court, therefore, concluded that none of these issues regarding the Vessel’s class notation disclosed an irregularity, and certainly no serious irregularity which caused the Claimant substantial injustices as required by section 68 of the Act.

2. Honesty in the context of the dry dock charges

ASA also claimed that the arbitrator relied on AV’s oral evidence as to payment for the dry-docking, through a shareholders’ loan, which was contrary to the parties’ pleaded case and what AV had said in his witness statement. The Claimant contended that it did not have a fair opportunity to address this issue and consequently there was a serious irregularity.

The judge noted that during the course of ASA’s counsel’s closing submissions the arbitrator asked counsel a number of times for evidence of how payment was made to release the Vessel from dry dock. ASA’s counsel accepted that ASA did not know who paid the dry-docking charges as the companies’ contemporaneous accounts were difficult to follow and submitted that the main point was that what had been done concerning the payment for the dry dock charges was objectively dishonest. The Court held that ASA had the opportunity to deal with this issue at the hearing and there was no irregularity.

Sir Ross Cranston commented that if ASA had considered that it needed more time to investigate how the dry dock charges were paid, it could, at the very least, have sought permission to adduce further evidence on this issue after the hearing, K -v- P [2019] EWHC 589 (Comm) applied. The judge found that ASA’s case on 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 it had ample opportunity to advance its case following AV’s evidence on the first day of the hearing.

The Court concluded that ASA’s application under section 68 of the Act failed. In rejecting both grounds ASA advanced in challenging the Award, the Court found that the Claimant sought ‘to attack an arbitrator’s findings of fact and her evaluation of the evidence on the basis of procedural unfairness when there was none’.

Comment 

The Commercial Court’s decision in this case serves as a stark reminder that the English courts will not accept challenges to arbitral awards under section 68 of the Arbitration Act where a party has had the opportunity to address all relevant issues at the hearing but failed to do so.