Key takeaways
Serious irregularity in arbitration proceedings
Serious irregularity must lead to substantial injustice, otherwise the challenge will be unsuccessful.
S.68 of the Arbitration Act 1996
This section is only available in extreme cases where the tribunal has gone very wrong.
Dealing with key issues
A tribunal does not fail to deal with issues if it does not answer every question that qualifies as an issue.
This case highlights that challenges under s.68 of the Arbitration Act 1996 (1996 Act) to arbitration awards, on the ground of serious irregularity leading to substantial injustice, will only succeed in those relatively rare cases where the tribunal has gone so wrong in its conduct of the arbitration that the Court feels bound to intervene.
The background facts
The defendant charterers chartered the vessel from the claimant owners for a voyage to carry a cargo of petcoke cinder from India to New Orleans, USA.
On arrival at New Orleans, the vessel’s holds and cargo were found to be flooded with a substantial quantity of water. Discharge of the cargo was disrupted, and a dispute arose between the parties which related, at least in large part, to which of them bore contractual responsibility for delays and extra expenses caused by the presence of water in the vessel’s holds.
The owners argued that all the water was loaded with the cargo, claiming, amongst other things, demurrage of about US$544,350.81.
The charterers argued that, at the time of loading, the cargo did not have an excessive moisture content. As such, they contended that water entered the vessel’s holds as a result of leaking valves on the vessel, and that the delayed unloading of the cargo was the owners' responsibility.
Charterers also brought a shortage claim that was based on the difference in weight between the cargo recorded as loaded and that recorded by the truck weighbridge scales after discharge.
The arbitration proceedings
In their award, the Tribunal found that:
The effective cause of the delays was the ingress of water via leaking and defective valves in the vessel's bilge system. In particular, the Tribunal found that there had been ingress into Hold 4.
The owners were liable for the cargo shortage claim.
The owners applied under s.57 of the 1996 Act for clarification and/or correction of the award. The Tribunal found no clarification or correction was required.
The owners then applied to the Court under s. 68 of the 1996 Act, seeking to challenge the award on the ground of serious irregularity leading to substantial injustice. They argued that:
The Tribunal breached its duty under s.33 of the 1996 Act to act fairly and impartially between the parties and to ensure that each party has a reasonable opportunity to present its case and to deal with its opponent’s case. The owners alleged that the Tribunal had decided the case on a point not argued by either party, contrary to their common ground and without giving the parties the opportunity to deal with it.
The Tribunal failed to address key issues that were put to it. To substantiate such a challenge, it is necessary to show that (i) there was an issue, (ii) it was put to the Tribunal, (iii) the Tribunal failed to deal with it and (iv) this caused a substantial injustice.
The Commercial Court decision
The Court dismissed the owners’ challenges.
General duty under s.33 of the 1996 Act
The owners argued that the Tribunal had to be satisfied that the water ingress resulted from leaks through defective valves at each of five stages of the bilge system. If the Tribunal could not be satisfied that butterfly valves BLV 12 and 13 were defective and leaking, but could, rather, have been left open, then they had to dismiss the charterers' case.
The owners’ internal defects lists, dated 3 February 2022, mentioned leaks in various non return and overboard valves, but did not refer to BLV 12 or BLV 13 because it concerned non return valves, not butterfly valves. A separate defects list dated 9 January 2022 did mention BLV 12 and 13, but both parties accepted that, when read together with later lists, the proper inference was that these valves were not defective.
The owners maintained that the Tribunal wrongly interpreted the 3 February 2022 defect list as including BLV 12 and 13, even though neither party had argued this and the Tribunal did not seek submissions on the point. This unargued finding was said to be a serious irregularity causing substantial injustice, as it could have affected the Tribunal’s conclusion on whether the valves were defective. The owners, therefore, wanted the question of whether BLV 12-13 were leaking and defective to be remitted to the Tribunal.
The Court found that the owners had not established any serious irregularity, and that they were impermissibly attempting to re open the Tribunal’s factual findings on the vessel’s longstanding bilge system defects and identified defects, which could have allowed water to enter the vessel’s holds.
The Court also stated that the Tribunal did not rely solely on the 3 February defect list to find that BLV 12 and 13 were defective; the Tribunal had, in fact, considered multiple defect lists, contemporaneous communications which showed that owners' personnel thought that BLV 12 and 13 were defective, and technical evidence consistent with leaking valves.
The Court also decided that the owners had every opportunity to address the issue of whether BLV 12 and 13 were defective and had done so. Furthermore, the Tribunal was not bound by the parties’ cases as to what the 3 February defect list meant, and the Tribunal was not acting unfairly not to have notified the parties of the interpretation which it would be putting on that document. Even if there had been some procedural irregularity in this regard, it did not cause a substantial injustice, because the Tribunal would still have arrived at the same conclusion.
Failing to address key issues
The owners contended that the Tribunal failed to deal with issues relating to the charterers' cargo shortage claims.
The charterers claimed for a cargo shortfall based on the load/discharge weight difference. The owners argued the loss was only water, not petcoke, and that charterers suffered no loss in any event because (i) water would have been pumped off regardless and (ii) charterers were paid by commission, with no claim from their receivers.
The Tribunal found that the owners failed to prove the weight difference was due to the removal of water from the vessel’s holds: the bilge records were incomplete or fabricated, and water ingress was also occurring. With no satisfactory explanation from owners, the Tribunal held the shortage was established as a cargo loss.
The Court concluded that the Tribunal had addressed the real issue - unexplained shortage - and was not required to consider the owners’ further arguments, which did not arise on the Tribunal’s factual findings.
Comment
An 'issue' for the purposes of such a challenge is distinct from arguments or line of reasoning; it is something capable of determining the whole claim and which fairness requires the tribunal to address. A failure to provide any or sufficient reasons for a decision is not the same thing as failing to deal with an issue.
Furthermore, a tribunal does not fail to deal with issues if it does not answer every question that qualifies as an 'issue'. It can 'deal with' an issue where that issue does not arise in view of its decisions on the facts or its legal conclusions. It is up to the tribunal to structure an award and address the essential issues as it sees fit.
Ultimately, whether there has been a failure by the tribunal to deal with an essential issue requires a fair, commercial, commonsense reading of the award, not a hypercritical analysis.
