ENGLISH HIGH COURT CHARACTERISES UNSUCCESSFUL CHALLENGE TO AWARD UNDER S68 AS “SEEKING TO ATTACK AN ARBITRATOR’S FINDINGS OF FACT AND HER EVALUATION OF THE EVIDENCE” UNDER GUISE OF PROCEDURAL IRREGULARITY

In the recent decision in ASA v TL [2020] EWHC 2270 (Comm), the English High Court (the “Court”) rejected an application brought by ASA under s68 Arbitration Act 1996 (the “Act”) that sought to challenge an arbitral award on the basis of two alleged serious procedural irregularities.

ASA had contended that the arbitrator had decided two issues on points which ASA did not have a fair opportunity to deal with, as they had not been raised by either party or their experts, and departed from common ground.

Background

The Dispute

In December 2005 TL (the “Owner”) had chartered the vessel to ASA, in order to transport cargo for the on-shore and off-shore oil industry. West Africa was identified as the area of operation (the “2005 Charter”).

Between September 2008 and January 2009, the vessel was mainly in dry dock. Following the payment of the repair costs (the “Dry Dock Charges”), the vessel returned to service in February 2009. ASA and the Owner then purported to enter a further charter party (the “2009 Charter”), with a higher rate of hire (set by the vessel’s managers, who were also ASA’s shareholders). At this time, ASA and the Owner were in common ownership.

In September 2015, ASA (which was now in new ownership) asserted that a discount rate was applicable to the 2009 Charter and that the Owner therefore owed ASA substantial sums. The Owner subsequently commenced arbitration proceedings against ASA, seeking a declaration that no such sums were owed to ASA. In the course of proceedings, ASA’s case was that the managers were in breach of their fiduciary duties as they had acted for both the Owner and ASA in setting the rate of hire in the 2009 Charter. ASA contended, inter alia, that the Owner (i) had been unjustly enriched because the rate of hire paid under the 2009 Charter was above the market rate and (ii) was liable for dishonest assistance, with the dishonesty of the managers being attributable to the Owner.

The Owner argued that the 2009 rate of hire was at the market rate, given that the vessel did, and could, carry marine gas oil cargoes (“MGO”). ASA raised the question of whether the vessel was in class to carry MGO. The Owner’s expert had said that he was “convinced…[the vessel] is trading in line with the law”. This was on the basis of “his expertise from working in the West African market…Those in international markets did not touch vessels not in class, he said, and this vessel must have been in class.”

The Award

Following a 4 day hearing, in which ASA’s expert and the Owner’s expert both gave evidence on the market rate of hire for the vessel in 2009 operating in West Africa, and evidence was given by a shareholder-manager as to the honesty of the managers in setting the hire rate, the sole arbitrator rendered an award. The award held, among other things, that:

• the market rate of hire was in fact the hire rate set in the 2009 Charter, with the “catalyst” for the increase being the unexpected level of Dry Dock Charges; and
• ASA had failed to establish the required dishonesty of the Owner in relation to the dishonest assistance claim, despite the managers’ actions being attributable to the Owner. The arbitrator accepted the shareholder-manager’s evidence at the hearing that the Dry Dock Charges were paid for by what amounted to a “shareholder’s loan”, as it reflected the “commercial reality” of what had happened, even if there was no documentation to this effect.

The arbitrator noted that while both market experts were very experienced and gave evidence honestly, the Owner’s expert’s experience was more helpful on the question of the market rate, as the Owner’s expert had more experience of the West Africa market. In addition, the shareholder-manager’s decision to raise the rates had meant the Owner could cover the Dry Docks Charges, which allowed ASA to continue utilising the vessel for its West Africa operations and was therefore considered to be in the commercial interests of both the Owner and ASA.

ASA’s application under s68

ASA subsequently challenged the award under s68 of the Act, alleging that the tribunal had breached its s33(1)(a) obligation to act fairly and impartially between the parties and to give each party a reasonable opportunity of putting its case and dealing with that of its opponent. This was on the grounds that:

• the arbitrator’s finding that the rate of hire in the 2009 Charter was the market rate was decided on the arbitrator’s own reading of the class documentation (the “Market Rate Challenge”); and
• the arbitrator relied on the oral evidence of the shareholder-manager as to the payment of the Dry Dock Charges, which was contrary to the parties’ pleaded cases and contrary to what the shareholder-manager had said in his witness statement (the “Oral Evidence Challenge”).

The Court’s decision

The Court rejected both of ASA’s challenges to the award.

In doing so, the Court characterised ASA’s challenges to the award as ASA “seeking to attack an arbitrator’s findings of fact and her evaluation of the evidence on the basis of procedural unfairness when there was none.”

(i) Market Rate Challenge

In regard to the Market Rate Challenge, ASA argued that the arbitrator had created the evidence to support her finding that it was “unsurprising” that there was no evidence that the vessel did not have a class notation to act as an oil tanker, because such a notation would only be available where the primary purpose of the vessel was to carry oil. ASA submitted that this point was not in evidence and was not  an argument or analysis which either party (or their experts) had advanced.

In rejecting this challenge, the Court firstly considered that the arbitrator was “drawing an inference, as she was entitled to do, on an issue which [ASA] itself had raised during the course of the hearing through its expert’s evidence and on the basis of other evidence which [ASA] had put into evidence”. The arbitrator’s finding on the point of class notation had been made on the basis of the American Bureau of Shipping Guide, which ASA had put into evidence.

Secondly, the Court further considered that this particular finding on class notation did not in fact form part of the arbitrator’s reasoning as to the finding that the 2009 Charter hire rate was not above market rate. The Court reasoned that “although the arbitrator’s expression at this point in the Award is infelicitous… her comments on class notations cannot be used to undermine… what her conclusions were about market valuation”.

In the eyes of the Court, the arbitrator’s conclusion on the market rate was based on the finding “that the vessel could carry MGO lawfully” and the determination “that this was a valuable feature in setting its hire in the West African context”. The arbitrator was not using “special knowledge.. so as to provide evidence on behalf of the party [the Owner] which they had not chosen to provide for themselves”. Instead, the arbitrator had merely favoured the evidence of the Owner’s expert on the issue, rather than ASA’s expert’s evidence. The arbitrator’s assessment as to the expert’s expertise, based on the evidence the arbitrator had heard, was not reviewable under s68.

(ii) Oral Evidence Challenge

In regard to the Oral Evidence Challenge, the Court considered that ASA had the opportunity to deal with the issue as to who had paid the Dry Dock Charges at the hearing.

The Court observed that during closing submissions ASA’s counsel had accepted that ASA did not know who paid the Dry Docks Charges resulting in the vessel being released from the dry docks, and that the accounts it had earlier relied upon in arguing that ASA had paid the charges were “difficult to follow”. The Court considered that if ASA had needed more time to investigate how the Dry Dock Charges were paid, it should have sought permission to adduce further evidence. The Court further noted that ASA’s counsel cross-examined the shareholder-manager on the issue of the shareholder’s loan at “some length” on the first day of the hearing. In the eyes of the Court, ASA was trying to “challenge findings where the arbitrator has taken a different view of matters contrary to its submissions”.

Comment

The Court’s decision is one of the latest in a long line of cases in which the English courts have rejected challenges to arbitral awards under s68 of the Act where the applicant has perhaps been viewed as attempting to have a second bite of the cherry on the merits of the dispute under the guise of correcting a serious procedural irregularity.

The decision further serves as a good reminder of the importance of squarely addressing key issues that arise in the course of arbitration proceedings – including those arising out of oral witness evidence at the hearing. The English courts will be reluctant to disturb the findings of an arbitrator when a party has had the opportunity to address an issue in some form, but has not done so. It is accordingly vital to ask for more time to address new points at the hearing, where that is needed.

For more information, please contact Nicholas Peacock, Partner, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.