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Arbitrator as Advocate?

SSM Roundel

Steamship Mutual

Published: March 01, 2012

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The recent Commercial Court decision in ED&F Man Sugar Limited v Belmont Shipping Limited [2012] EQHC 7992 (Comm) has provided some clarity on the scope of Section 33 of the Arbitration Act 1996 (“the Act”) confirming that a tribunal is not obliged to alert a party to potential arguments different to those which it has advanced.

Factual Background

The underlying dispute concerned a demurrage claim and the commencement of laytime.

ED&F Man Sugar Limited, the claimant charterers, chartered MV Amplify from Belmont Shipping Limited, the defendant owners, on an amended Sugar Charter Party 1999 form dated 30 July 2009 for a voyage from Santos, Brazil (the load port) to Paradip and Haldia, India.  Clause 19 of the charterparty governed the load port laytime and Clause 23 governed the calculation of demurrage and despatch.

The vessel arrived at the load port on 16 September 2009.  Notice of Readiness (NOR) was tendered immediately (and was re-tendered on 19 September 2009).  Charterers denied that the NOR was valid because the vessel’s holds were not fit for cargo.  On 18 September 2009 a surveyor inspected the vessel and noted certain defects.  The defects were corrected and the vessel was approved ready to load at 11:40 on 20 September 2009.  The vessel did not berth until 23:40 on 5 October 2009.  Following completion of loading at 05:45 on 7 October 2009, owners claimed demurrage.  It was agreed that the load port laytime was 5 days and 3 hours but there was a dispute as to the commencement of laytime at the load port.

Demurrage Claim

Owners argued, in their written submissions, that laytime commenced at 14:00 on 16 September 2009 when NOR was first tendered, but conceded that time did not count during the period when the vessel’s holds were unfit.  

Charterers denied that laytime commenced on 16 September 2009 but accepted that “an NOR was good on 21st September 2009 (normal office hours) and laytime commenced at 14:00 as per Charterers’ calculation”.  Charterers reasoning was that had Owners, following the completion of the surveyor’s inspection, re-tendered NOR, it would pursuant to Clause 19 of the charterparty, have been effective at 08:00 21 September 2009 and laytime would have commenced at 14:00 21 September 2009.

Award

The tribunal made and published their award, which was based on documents alone, on 25 October 2010.  The award stated that neither the NOR dated 16 September 2009 nor that dated 19 September 2009 was valid due to the fact that the vessel was not ready to load.  Accordingly, the tribunal held, as was charterer’s case, that laytime ran from 14:00 on 21 September 2009 meaning the vessel was on demurrage for 1 day 7 hours 50 minutes at a cost of US$13,263.89.

At paragraph 13 of their award, the tribunal stated:

The Charterers did not rely upon the decision in the Happy Day [2002] 2 Lloyd’s Rep 487 so the potential consequences of that decision have not affected our conclusion.”

The decision in the Happy Day [2002] would have afforded charterers the argument that laytime should have commenced on 5 October 2009, when loading began.  On that basis, no demurrage would have been due at the load port.

The Appeal

Despite the fact that the tribunal had found for charterers on the commencement of laytime, charterers sought to challenge the award under Section 69, and in the alternative Section 68 of the Act, seeking for the first time, to contend that laytime commenced at the time loading began relying upon the decision in the Happy Day [2002]

Section 69

Charterers primary application for permission to appeal was made under Section 69 of the Act which provides:

          “69. Appeal on point of law

(1)  Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings.

Charterers sought to appeal the following question under Section 69:

In a situation where no valid notice of readiness has been tendered and the vessel proceeds to load, should laytime commence at the beginning of loading as opposed to some other notional date and if so what date?”

Steel J refused the application for permission to appeal under Section 69 on the basis that the question posed was not one which the tribunal was asked to determine. 

Section 68

Having failed under Section 69 of the Act, Charterers sought permission to appeal under Section 68, the notoriously more demanding ground.  Section 68 provides:

          “68. Challenging the award: serious irregularity

(1)  A party to arbitral proceedings may…apply to the court challenging an award in the proceedings on the ground of serious irregularity…

(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-

  1. Failure by the tribunal to comply with section 33 (general duty of tribunal)

Charterers sought to argue that the tribunal had breached their duty under Section 33 of the Act to “act fairly and impartially as between the parties, giving each party a reason opportunity of putting his case”.

Charterers argued that this duty required arbitrators, who were aware that a party had failed to advance an argument based on a particular case-law precedent, to enquire of the party whether it wished to do so.  Charterers sought to rely on a comment made by Waller LJ in the Magdalena Oldendorff [2008] that “if an arbitrator appreciates that a party has missed a point then fairness requires the arbitrator to raise it so that the party can deal with it”.  Their failure to do so in this case, it was argued, was a serious irregularity which had caused the claimant substantial injustice.

 

Owners argued that charterers’ application was without academic, judicial or legislative support and should be dismissed.  Owners submitted that the facts of this case did not amount to a serious irregularity nor did it cause a substantial injustice on the ordinary meaning of the words.  Moreover, the February 1996 report of the Departmental Advisory Committee (DAC) on Arbitration Law specifically excludes the current situation as a basis for an application under Section 68 of the Act.  Lastly, owners highlighted that charterers’ application was inconsistent with the policy of the Act and the authorities on the proper scope of Section 68(2)(a) of the Act.

Judgment

The Commercial Court dismissed the challenge to the award under Section 68 of the Act.

Teare J reiterated that the arbitrators had a duty to give charterers a reasonable opportunity to put their case.  The arbitration was conducted on documents alone.  The parties put their respective cases by way of written submissions and asked the tribunal to proceed to a reasoned award.  In light of these facts, Teare J held “it would appear impossible to suggest that the arbitrators failed to give the charterers a reasonable opportunity of putting their case”.

Teare J went on to state that he did not consider that Section 33 of the Act required arbitrators to alert the charterers to the possible argument.  Teare J stated “arbitrators are not barred from asking a party whether it has considered raising a different case from that which it has advanced but section 33 of the…Act does not oblige them to do so.”  In other words, the duty to allow a party a reasonable opportunity to put its case does not require arbitrators to give a party an opportunity to put a case different from that which it has chosen to put. 

In his judgment, Teare J held that the statement of Waller LJ in the Magdalena Oldendorff [2008] on which charterers’ sought to rely, should be read in context.  In the Magdalena Oldendorff [2008], the point that was missed was one which was already in issue and needed to be dealt with.  In the present case, due to the concessions made by the claimants as to the effect of the relevant demurrage clause, there was no live issue to which the Happy Day [2002] point could have gone.  For these reasons, Teare J held that there was no breach by the tribunal of its duty pursuant to section 33 of the Act and as such, there was no serious irregularity.

The Court briefly considered whether, assuming there was a serious irregularity, there was a substantial injustice.  Teare J quoted from the DAC Report, which explains that Section 68 was “designed as a long stop, available only in extreme circumstances where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected” (DAC Report).  Giving effect to a concession would not be an example of this.

Consequences

The decision in ED&F Man Sugar Limited v Belmont Shipping Limited [2012] emphasises to parties to arbitration and their advisers that, irrespective of the nature of the arbitral proceedings, a party must take responsibility for putting its own case and advancing all potentially necessary arguments at the earliest opportunity.  A party cannot assume that a tribunal will make its arguments for it.  If the Court had agreed with charterers’ interpretation of Section 33 of the Act, this would undoubtedly have opened a can of worms and resulted in further issues of procedural unfairness.  The tribunal would effectively become the advocates, inventing further possible arguments and claims which could tip the balance in favour of one party or another.

It is relevant to repeat that the arbitration in question was conducted on the basis of a documents-only procedure.  It was common ground that had there been an oral hearing, the Happy Day [2002] argument may have been raised by the Tribunal.  Nevertheless, the court’s view was that a party must be alive to the fact that electing to adopt a less expensive and truncated procedure necessarily affords it a more limited opportunity to put its case.

This case is a timely warning that the drive to limit time and costs in arbitration must be balanced with a procedure that will do justice and not overly restrict the exposition of important arguments.  Nonetheless it also reminds advocates of the need to prepare comprehensively, particularly for documents-only arbitrations, so that important authorities are not overlooked. 

It is not the arbitrators’ responsibility to be the advocate.

 

With thanks to Kate Greensmith of Ince & Co for preparing this article.

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