MV Majesty: Section 68 Arbitration Act 1996 – Arbitrator Refuses to Admit Accounting / Arithmetical Error
/In Ducat Maritime Ltd v Lavender Shipmanagement Incorporated [2022] EWHC 766 (Comm), Butcher J set aside part of an award in an LMAA SCP arbitration under s. 68 of the Arbitration Act 1996, on the grounds that the arbitrator breached his general duty of fairness. The judgment provides clarification of what is to happen in the situation where the arbitrator makes an obvious accounting / arithmetical mistake but refuses a s. 57 application to correct that error.
The initial Award arose from a dispute under a time charterparty of the MV Majesty. Owners (Lavender Shipmanagement) commenced arbitration under the LMAA Small Claims Procedure, claiming USD 37,831 in unpaid hire. Charterers (Ducat Maritime Ltd) denied this by way of set off and counterclaim, including seeking to deduct USD 15,070 for underperformance. The Arbitrator found largely in favour of Owners, but in seeking to reconcile the figures presented by the parties in his Award, he wrongly added the Charterers’ unsuccessful counterclaim (USD 15,070) to the amount claimed by Owners before deducting the amounts on which Charterers succeeded. This resulted in the arbitrator awarding Owners USD 9,553.92 more than he should, having recognized that he could not award Owners more than they had claimed in the reference. Charterers made two unsuccessful applications to the arbitrator under s.57 of the 1996 Act to correct the Award, before issuing an application under s. 68 to have part of the Award set aside.
Charterers argued that there was an irregularity according to s.68(2)(a) – failure of the tribunal to comply with its s.33 duties - on two alternative grounds: Firstly, that the arbitrator reached a conclusion that was contrary to the common position of the parties, without providing an opportunity for the parties to address him on the issue; Secondly, that he had made an obvious accounting mistake.
Butcher J ruled in Charterers’ favour on the first ground, reasoning that the parties had been in agreement that the Charterers’ counterclaim did not form part of the Owners’ claim and that the parties had not been given the opportunity to address the point as it was not in “the arena”. The judge referenced the fact that the arbitrator realised there “seemed to be a problem” by limiting the amount awarded to the amount claimed when his calculations would have resulted in a greater sum being due to the Owners. He said “I consider that, when he realised that the amount he thought was due to Owners was more than the amount they had claimed, and that this was unexplained, he should not have proceeded to resolve the problem as he did, without giving the parties the opportunity of commenting on it.”
The judge’s findings on the second argument were obiter but worthy of note. Whilst accepting that illogicality or inadequacy of a tribunal’s reasoning does not bring the matter within s.68, which is focused on due process, he held that a gross and obvious accounting mistake or arithmetical error may constitute a failure to conduct proceedings fairly “because it constitutes a departure from the cases of both sides, without the parties having had an opportunity of addressing it”. He continued “…neither party’s case is likely to have included the mistake as a basis for the result arrived at, and, in making the error, the tribunal is likely to have departed from common ground between the parties as to how arithmetical processes work, or whether items in an account are credits or debits, and to have done so without giving the parties an opportunity of addressing the justifiability of the departure.” The judge concluded that “If a “glaringly obvious error” in the award, to use Merkin and Flannery’s phrase, can be said to arise in this way, section 68 can probably be regarded as applicable, without subverting its focus on process”.
As to the requirement of “substantial injustice” under s.68, Butcher J found this to be satisfied stating:
“I recognise that the sum involved is, by the standards of many commercial disputes, small. Nevertheless, it must be viewed in the context of the total amount of the Owners’ claim, over which the parties considered it appropriate to arbitrate, which was US$37,831.83. I regard it as substantially unjust that a party should, by reason of an error such as that made by the Arbitrator here, be ordered to pay about 33% more than was due by way of principal, and be ordered to pay interest on its own unsuccessful counterclaim.
I regard that as going well beyond what could reasonably be expected as an ordinary incident of arbitration, even SCP arbitration.”.
It therefore seems that in assessing substantial injustice the court may look to the financial consequence in comparison to the amount claimed, even if both are extremely small in comparison to the total amounts payable under the relevant contract.
Article Authors:
Andrew Patrinos (Partner) and Tomos Holmes Davies (Paralegal)