Challenging an arbitrator’s award remains…challenging
Troy Maritime SA v Clearlake Shipping Pte Ltd [31.07.18]
One reason for choosing to arbitrate, rather than litigate, is that it is perceived as a more cost effective route to achieving a ‘final and binding’ award. However, whilst many arbitration rules and agreements specifically state that any award will be ‘final and binding’, in England and Wales this is subject to the Arbitration Act 1996 which provides three routes under which an arbitral award may be appealed to the High Court:
- s.67 - challenging the substantive jurisdiction of the award
- s.68 - challenging the award for serious irregularity
- s.69 - an appeal on a point of law.
However, the courts remain reluctant to interfere with arbitral awards and case law shows that the threshold for succeeding is high. Overall, successful applications remain the exception rather than the rule.
In the recent Troy Maritime case, a shipowner appealed against an arbitrator's award under s69. The case involved the deviation of the vessel in order to comply with flag state requirements for the maintenance of its safe manning certificate, and the question for the Tribunal was whether this was a "reasonable purpose" within the meaning of the relevant charterparty clause or a "reasonable deviation" within the Hague-Visby Rules (HVR) 1968 art.IV(4). The s69 application was ultimately unsuccessful.
During a voyage from Russia to the ARA-Hamburg range, the second engineer made a request for urgent repatriation to Ukraine (he ultimately disembarked at Istanbul). The vessel's estimated arrival date in Hamburg was 20 July 2016 and so the vessel’s manager applied for dispensation to allow the voyage to temporarily proceed without a second engineer. The Panama Maritime Authority, as the vessel's flag state, granted a dispensation for the vessel to sail from Istanbul to Hamburg "where the second engineer should board the vessel no later than 20 July".
It transpired that the vessel could not reach the discharge port by 20 July and so they deviated off course, calling at Gibraltar to take on a replacement second engineer and an additional technician. When near the coastline of Gibraltar, however, the hull of the vessel was damaged when it collided with a submerged nuclear submarine. Inspection and repairs had to take place in Portugal, after which the vessel was then able to continue to Rotterdam to discharge the cargo.
Various disputes arose and were referred to arbitration under the charterparty in which the shipowner claimed demurrage and port dues. The defendant charterer counterclaimed for damages in respect of the vessel's deviation to Gibraltar. In response to this, the shipowner submitted that the deviation was for a "reasonable purpose" within cl.26 of the charter, due to the flag state’s requirement that a second engineer had to have embarked by 20 July 2016 in order for the vessel to be in compliance with its safe manning certificate. The arbitrator disagreed and found that the deviation to Gibraltar was not for a "reasonable purpose". It appears that he was swayed by the argument that the initial period of dispensation was too short, when the shipowner should have requested a longer or further dispensation (thereby avoiding the need to deviate at all).
Section 69 appeal
On appeal, the shipowner claimed the argument that the initial period of dispensation was too short and that the shipowner should have sought a longer or additional dispensation was ‘legally irrelevant’. In response, the charterer submitted that the application under s69 was an impermissible attempt to contest the arbitrator's findings of fact, not law as is required.
Whether an award can be shown to be wrong in law can be found by analysing the arbitrator’s reasoning into ascertaining the facts in dispute, ascertaining the law (including material rules of statute and common law) and then, as a result of this process, reaching a decision.
An error of law may arise from the arbitrator incorrectly stating the law, or could be inferred where a correct application of the law to the facts leads inevitably to a different conclusion from the arbitrator’s.
In this case the court found that the question whether a deviation was for a "reasonable purpose" within cl.26 of the charter or whether the deviation was reasonable within the HVR, which was incorporated into the charter, was a question of fact, not law. The court further found that the appropriate legal test had been applied to the facts and that which facts were relevant was a matter for the arbitrator; the arbitrator's findings of fact could not be challenged under s69.
The s69 application therefore failed.
This case is further evidence that the threshold for challenging arbitration awards remains high and when considering any such appeal, it should be kept in mind that the court’s starting point will be reluctance to interfere.