OAO Northern Shipping Co v Remolcadores de Marin SL [2007] EWHC 1821 (Comm) 26th July 2007
This was an application by the claimant buyers, OAO Northern Shipping Co, under section 68 of the Arbitration Act 1996 (“the Act”), for an order setting aside, or alternatively remitting to the tribunal for further consideration, a small claims arbitration award made in October 2006.
The original dispute arose out of an agreement, based on an amended Norwegian Sale Form (“NSF”), for the sale and purchase of an ice classed tug. It was referred to London arbitration. The buyers argued that the sellers had induced the agreement by misrepresenting the total power rating of the tug’s engine when putting forward a Germanischer Lloyd certificate of class at the pre-purchase inspection. They argued that the fact the class document included this information was enough to found an action for misrepresentation; since the sellers thereby represented that the vessel’s total power rating was as stated in the certificate.
The tribunal found that:
(i) any such representation would have been false since the actual power of the vessel’s engine was in fact 25 per cent lower than the figure quoted in the class certificate;
(ii) the representation would have induced the contract since it had not been superseded by buyers’ own enquiries;
(iii) whilst the sellers had in fact believed the total power rating figure referred to in the class certificate to be true, they had not shown reasonable grounds for holding this belief;
(iv) the buyers’ right to damages for misrepresentation had not been excluded by the terms of the MOA, nor had it been waived;
(v) the representation would have caused the buyers to suffer loss.
Despite these findings the tribunal stated that the buyers’ claim failed to surmount its first and critical hurdle, since there had not in fact been any misrepresentation by sellers in putting forward the class certificate. The tribunal concluded that the sellers had represented not that the certificate was “true”, but merely that it was “authentic”. Buyers in their appeal submitted that the first they had heard of this argument was upon publication of the award.
Sellers did not instruct lawyers to attend the arbitration. Nor, as a small claim, was any transcript taken. Bringing the appeal, buyers were able to confirm to the court that no argument or discussion was directed towards the “representation” issue at the hearing. Accordingly, buyers submitted, the arbitrators had found against them on a ground which had neither been raised nor seriously disputed by sellers, but in respect of which they were not invited to address the tribunal whether by way of submissions or further evidence.
The buyers asked the court to consider whether there had been a serious irregularity where the arbitrators had found against buyers on a ground which had neither been raised nor seriously disputed by the sellers.
By the time of the hearing the sellers’ submissions had been limited to:
(i) the “as is” nature of a NSF sale and the corresponding absence of guarantees as to the vessel’s particulars;
(ii) the level of inspection conducted by buyers;
(iii) whether buyers had proved the figure stated in the class certificate was incorrect and the representation was therefore false;
(iv) quantum.
In order to challenge the award as they sought to under section 68 of the Act the buyers had to prove, firstly, that the category of circumstances giving rise to the “serious irregularity” pleaded was one of the nine types that appear within the Act’s exhaustive list (at section 68(2) of the Act) and, secondly, that the serious irregularity had or would cause them “substantial injustice” (per Lesotho Development v Impregilo SpA 1).
The right to appeal on a point of law (provided for at section 69 of the Act) had been expressly excluded by agreement between the parties. The court also noted that the threshold for a party bringing an appeal under section 68 of the Act was necessarily a high one which would only be met in “extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”.
The buyers argued that the award should be set aside for serious irregularity and substantial injustice under section 68(2)(a) of the Act since the tribunal had failed in its general duty under section 33 of the Act to “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”.
The court referred to three cases which, while they ante-date the Act, have been repeatedly upheld as reflecting the fundamental principles enshrined in its section 68(2)(a) and which must therefore be considered when reviewing a challenge made under that specific provision.
The first of these is The Vimeira 2 where Lord Ackner stated:
“If an arbitrator considers that the parties or their experts have missed the real point… then it is not only a matter of obvious prudence, but the arbitrator is obliged, in common fairness, or as it is sometimes described, as a matter of natural justice, to put the point to them so that they have an opportunity of dealing with it…”.
The second case is Zermalt Holdings SA v Nu Life Upholstery Repairs Ltd 3 in which Lord Justice Bingham stated that the tribunal must give a party a chance to comment wherever it considers that:
(i) there has been a point which has impressed the arbitrators but which has never been raised by either side;
(ii) the proper approach is one that has not been explored or advanced in either parties’ evidence or submissions; or
(iii) where the tribunal is relying on its own personal experience in a specific way.
The third case the court referred to is ABB AG v Hochtief Airport GmbH 4 which is taken to lay down that a tribunal must give the parties “a fair opportunity to address its arguments on all of the essential building blocks in the tribunal’s conclusion”.
Considering the requirement in ABB AG v Hochtief Airport GmbH, the court held that in the arbitral proceedings which formed the subject of the buyers’ appeal the “representation” issue was one such “essential building block” of the tribunal’s decision and one which the buyers should accordingly have been given the opportunity to address. This was particularly so given that:
(i) it was a small claims arbitration and therefore one in respect of which the parties could be expected to limit their oral advocacy;
(ii) the sellers had not instructed English lawyers and the tribunal was, to a certain degree, putting forward the sellers’ points vicariously;
(iii) the irregularity was clearly a serious one since the buyers successfully overcame all the other hurdles and would have won substantial damages but for the tribunal’s “no representation” finding.
Turning to assess the further requirement that there had been or would be “substantial injustice” to the buyers, the court cited Vee Networks Ltd v Econet Wireless International Ltd 5and BTC Bulk Cooperation v Glencore International 6. Having reviewed these authorities Mrs Justice Gloster stated that buyers’ argument would succeed if it could be shown they had been deprived of the opportunity to advance submissions which were “at least reasonably arguable or even simply something better than ‘hopeless’”.
Had the “representation” point been raised during the arbitral proceedings it could have been explored with the buyers’ representative, the actual representee, and evidence or submissions put forward by the buyers concerning the sellers’ conduct in putting forward the class certificate and the extent to which buyers relied upon this. Such submissions would have had an arguable prospect of success and buyers had satisfied the court that there had been a serious irregularity which would, if not rectified, cause substantial injustice to them. The court therefore set aside the award and remitted it for further consideration by the tribunal.
It is perhaps too early to comment on the possible interplay between OAO Northern Shipping and the recent decision of the Court of Appeal in The Magdalena Oldendorrf 7. However, in that case the Court of Appeal dismissed an appeal by owners under section 68 of the Act against the refusal of the Commercial Court to allow an application for remission of an award on the ground of unfairness. The subject of the original arbitration in that case also concerned an ice-classed vessel. However, in that case the owners were claiming for unpaid hire and charterers were claiming to be able to set off damages for breach of warranty as to the vessel's ice breaking capabilities.
To summarise the appeal under section 68 in that case, owners’ primary argument was that the critical point on which they lost the arbitration was one with which they were not given a reasonable opportunity to deal or on which they were not given a reasonable opportunity of putting their case.
Their Lordships concluded that, where a party, such as owners in that instance, were represented at the arbitration by experienced counsel and solicitors “there was no reason for the arbitrators to have concluded that the owners had not appreciated that [a] point was being taken, still less that they had a complete answer (in addition to their other arguments) to the point”. The distinction between the two decisions therefore appears to be a fine one since in OAO Northern Shipping the buyers were also represented by experienced counsel at the arbitration.
What is clear following both these decisions, and ABB AG v Hochtief Airport GmbH, is that the threshold for appeals under section 68 of the Act remains a high one. Section 68 continues to be a ‘longstop’; its primary task being to block the path of any party proceeding with an unmeritorious challenge to an arbitral award. However, OAO Northern Shipping demonstrates how, like a solitary icebreaker arriving to release a stricken ship, section 68(2)(a) can sometimes come to the rescue of a party that has found itself ‘lost’ at the conclusion of an arbitration due to a serious irregularity during the course of the proceedings.
With thanks to Peter Gercans of MFB Solicitors for preparing this article.
1 [2005] 2 Lloyd’s Rep 310
2 [1984] 2 Lloyd’s Rep 66
3 [1985] 2 EGLR 14
4 [2006] 2 Lloyd’s Rep 1
5 [2005] 1 Lloyd’s Rep 192
6 [2006] EWHC 1957 (Comm)
7 [2007] EWCA Civ 998
