“Serious irregularity” in arbitration proceedings: section 68 of the Arbitration Act 1996 under the spotlight – Ducat Maritime Limited v Lavender Shipmanagement Inc. [2022] EWHC 766 (Comm)

A charterparty dispute between Ducat Maritime Limited (“Ducat”) (the charterer) and Lavender Shipmanagement Inc. (“Lavender”) (the owner) has resulted in a successful application under section 68 of the Arbitration Act 1996 (“the Act”) for the partial set aside of an arbitration award (the “Award”) on grounds that the arbitrator had breached his general duty of fairness.

Background

A dispute arose between Ducat and Lavender in connection with a time charterparty.  In accordance with the requirements of the charterparty, Lavender instigated arbitration proceedings against Ducat under the LMAA Small Claims Procedure 2017.  Lavender sought USD 37,831.83 by way of unpaid hire charges.  Ducat denied the claim (with the exception of certain bank charges and additional war risks premiums) and advanced a counterclaim in the sum of USD 15,070 for the chartered vessel’s alleged underperformance.

The arbitrator found that all of the sums claimed by Lavender were due and owing, with the exception of USD 9,553.92 representing damages which had been claimed for alleged inadequate hull-cleaning.  The arbitrator denied Ducat’s underperformance claim and, as such, no deduction of Lavender’s claim was permitted.

As a result of the arbitrator’s findings, Lavender should have been awarded USD 28,277.91 (being the USD 37,831.83 claimed less the USD 9,553.92).  This was common ground between the parties.  What actually happened was that the arbitrator added Ducat’s failed counterclaim to Lavender’s total claim, the result being that, together with interest, Lavender was awarded USD 53,692.66 i.e. a sum considerably more than the total amount it had claimed.

Upon receiving the Award, Ducat made an application to the arbitrator under section 57(3) of the Act, seeking a correction of the Award on grounds that there had been a clerical mistake or error arising from an accidental slip or omission.  In response, Lavender contended that the arbitrator had no jurisdiction to act as Ducat was seeking and that the arbitrator had done what he had intended to do.  The arbitrator declined Ducat’s application on grounds that there had been “no error or mistake in the calculations”. Ducat made a second application, which was also declined, and which resulted in High Court proceedings being issued.

The Act

Section 68 of the Act provides inter alia as follows:

“68 Challenging the award: serious irregularity.

(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.…

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

(a) failure by the tribunal to comply with section 33 (general duty of tribunal);

…”

Section 33 of the Act provides as follows:

“33 General duty of the tribunal.

(1)The tribunal shall—

(a) 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) 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.

(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.”

The Claim and the Judgment

Ducat’s case was that the “arbitrator had gone so wrong that justice called out for it to be corrected”.  It contended that there was a serious irregularity affecting the Award and that that irregularity had caused it substantial injustice, as per section 68 of the Act.  Ducat relied on the serious irregularity referred to under section 68(2)(a) of the Act, namely that the arbitrator had failed to comply with section 33 of the Act.  Ducat did so on two bases:

(1) The arbitrator had reached a conclusion that was both contrary to the common position of the parties and for which neither party contended, without providing an opportunity for either side to address him on it; and

(2) The arbitrator had made an “obvious accounting mistake”.

As to Ducat’s case on serious irregularity, Mr Justice Butcher held that the arbitrator’s failure to adhere to the common ground between the parties represented a failure to comply with the clear duty set out under section 33 of the Act. 

Butcher J also held that a gross and obvious accounting mistake may represent a failure to conduct the proceedings fairly, not because such mistake was extremely illogical but because it constituted a departure from the cases put forward by the parties, without them having had an opportunity to address the arbitrator on it.

As to Ducat’s case on substantial injustice, Butcher J held that it was substantially unjust for a party, by reason of an error such as that made by the arbitrator in this case, to be ordered to pay: (a) about 33% more than was due by way of the principal sum; and (b) interest on its own unsuccessful counterclaim.

As such, Ducat’s claim was successful and it was ordered that USD 9,553.92 of the Award be set aside.

Conclusion

For parties to arbitration proceedings, the Judgment provides some helpful guidance on the recourse available to a party where it considers that a Tribunal has issued an award containing a “glaringly obvious error” and when a correction application under section 57 of the Act is refused. 

For arbitrators, the Judgment emphasises the need for parties to be invited to comment on a Tribunal’s findings, prior to an award being made, in circumstances where that award departs from the positions put forward by the parties.  Had that happened in this case, Butcher J found that the arbitrator in question might well have reached a different view and proceedings could have been avoided altogether.