Hawk Shipping Ltd v Cron Navigation Ltd

This is an application under s.68 of the Arbitration Act 1996 to challenge on grounds of serious irregularity an award made by the Arbitrator, Mr. William Packard, under the L.M.A.A. Small Claims Procedure. Under the procedure the parties waive all rights of appeal, but that does not preclude a challenge where there has been serious irregularity.

The arbitration arose out of a time charter of the vessel Sea Hawk II.

The charterers, Cron Navigation Limited, and the owners, Hawk Shipping Limited, are both Maltese companies. The charter party was on an amended Baltime 1939 form for a period of four months, plus or minus ten days, with options for the charterers to renew for two further periods of three months.

The vessel was delivered at Kherson in the Ukraine on 21st July 2000 and performed a number of voyages before being withdrawn from charter by the owners on 20th October 2000.

Disputes ensued and arbitration proceedings were begun by the charterers. A considerable number of issues and counter-issues were raised in the arbitration. Both sides relied on written submissions and neither requested an oral hearing.

In an award given on 13th September 2002 the Arbitrator found that the owners had wrongly withdrawn the vessel and that they were liable to the charterers for US $72,477.32 plus interest and costs.

The owners allege that there was serious irregularity by the Arbitrator in the way that he dealt with the claim for loss of earnings.

In their letter of claim the charterers asserted that they would have extended the charter party for its maximum duration, and they claimed as loss of profit the difference between the freight they would have earned over that period and the expenses they would have incurred in earning it.

In their points of defence and counterclaim at para.53.2, the owners said:

In his award the Arbitrator assessed the charterers' loss of earnings over the remainder of the contractual period at $46,600 in addition to a specific sum which he awarded for loss on a particular voyage. In so doing he adopted the approach taken by the charterers but he applied his own commercial judgment in deciding what he thought would have been a reasonable profit level to expect over what he calculated to be the relevant period. He assessed the former at $200 per day and the latter at 233 days.

On 10th October 2002 solicitors for the owners made an application to the Arbitrator under s.57(3)(a) of the 1996 Act, which provides that:

Thirdly, the owners complained that there had been inadvertent double counting because the Arbitrator's period of 233 days included a period for which he had made a separate award for loss in respect of the particular voyage to which I have referred.

On 3rd December 2002 the Arbitrator issued a correction to his final award and wrote an explanatory letter. He accepted that the double counting point was valid and that in this regard there had been an accidental oversight on his part which had led to a miscalculation of figures. He therefore issued a correction which reduced the amount of the total award from $72,477.32 to $68,477.32.

In relation to the general claim for loss of earnings he said in his letter:

Mr. Raphael, on behalf of the owners, puts his allegation that there was serious irregularity in two ways. First, he submits that in making his original award the Arbitrator simply overlooked the owners' contention in para.53.1 of their defence and counterclaim, and therefore failed to address an essential issue which he had to determine. He further submits that the explanation subsequently given in the Arbitrator's letter of 3rd December 2002 for rejecting that defence, was, as he termed it, sophistry. What he meant was that it was not a genuine exercise of his independent judgment as an arbitrator but was a disingenuous attempt to cover up a serious irregularity on his part in having overlooked a central part of the owners' case. Mr. Raphael invites me to reach that very serious conclusion by inference from the omission of reference to the point in the Arbitrator's original award and by the way in which he dealt with it in his subsequent letter which, according to Mr. Raphael's submissions, exhibited defensiveness.

I am not prepared to draw any such conclusion of fact against the Arbitrator. The point in para.53.1 of the defence and counterclaim was one of very many points raised in the pleadings. It was not dealt with at length and, as the Arbitrator observed, no evidence was put forward to him on the point. It would have been better if the Arbitrator had expressly addressed it in his award but I do not think that it would be right to draw the conclusion that because he did not do so it follows that he ignored the point. He determined the basis on which the loss of earnings claim was to be assessed and set that out in some detail. Nor, in my judgment, is there proper ground for concluding that what he wrote in his letter of 3rd December 2002 was a disingenuous cover up. It is a grave allegation to make and I do not consider that the language of his letter provides any proper foundation for drawing that inference. If what he had said in the letter by its very nature invited incredulity it would or might be another matter, but that leads me to the second ground of challenge made to the award.

It is submitted that there was on any view grave irregularity in the way that the Arbitrator proceeded in this area of the case for the following reasons: first, it was for the charterers to prove the amount of their loss; second, in a case of this kind the ordinary measure of damages is the difference between the contract rate of the vessel under the charter and the market rate for obtaining a substitute vessel; third, it was therefore incumbent on the charterers as claimants to establish by evidence either that there was no substitute vessel available or that the market rate had by then risen so that the charterers' loss on that method of calculation was as great as the Arbitrator found, i.e. $200 per day; fourth, the Arbitrator reversed the burden of proof by adopting the method of assessing the loss put forward by the claimants without any evidence from the charterers to establish either of the two matters to which I have referred; fifth, he did so by surprise, that is to say without giving any advance warning to the owners that he had that course in mind, so as to give them the opportunity either to address him on the point of law or to put in their own evidence to show that there was or would have been a substitute vessel or vessels available for the relevant period or a substantial part of it; sixth, on a careful analysis of the charterer's own pleadings, they accepted that there was or would have been substitute vessels available and therefore in concluding otherwise the Arbitrator was deciding a matter contrary to the common position adopted by the parties to the arbitration.

I will deal with the last point first. I do not read the pleadings as indicating any such thing. Mr. Raphael's argument in that regard is founded on one passage from the charterers' letter of claim and another passage from their points of reply. They were certainly not saying in express terms that they accepted that they could have chartered an alternative vessel or vessels for the remainder of the period of the charter. It is said that this is the implication to be derived from the points which they were making. I do not think that any such implication necessarily arises. The charterers were making different points in those parts of the pleadings and I think that Mr. Raphael's argument in this regard is over-sophisticated. The simple conclusion I draw from the pleadings is that the charterers were saying that the appropriate way of calculating their loss was that for which they contended. The owners were saying that the appropriate rate was the difference between the contract rate and the rate of chartering an alternative hypothetical vessel, but neither party put in any factual evidence as to what alternative vessel might have been chartered or at what rate.

To go back to the beginning of Mr. Raphael's submissions on this part of his argument, is it axiomatic that the burden was on the claimants to establish their loss. I begin to part company with him when he comes to his second proposition. As in any claim for damages for breach of contract, the loss recoverable by the charterers was the loss naturally and directly resulting from the breach. The charterers put forward their case as to what that loss was (The Arbitrator did not entirely accept the way in which they put it but applied his own commercial knowledge in deciding what he thought what the appropriate figures were, and no criticism can be made of him in that regard. When parties choose the L.M.A.A. small claim procedure they do so in the expectation that the Arbitrator will bring his own specialist knowledge to bear in determining the claim).

It is the law, whether in relation to contracts for the sale of goods or vessels or for the hire of goods or vessels, or indeed for the performance of other services, that where one party to the contract fails to perform his obligations, and where there is an available market in which a substitute vessel or substitute goods or substitute services can be obtained, the normal measure of loss will be the difference between the contract rate and the rate of obtaining a substitute in the market, because that will normally be the loss naturally and directly resulting from the breach. Thus, for example, under s.50 of the Sale of Goods Act, dealing with damages for non acceptance of goods, it is provided that the measure of damages of the estimated loss directly and naturally resulting in the ordinary course of events from the buyer's breach of contract, and that where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price or the market or current price at the time or times when the goods ought to have been accepted. There is, so far as I am aware, no legal presumption that in contracts for the supply of goods or services there will be an available market, so as automatically to make the latter rule applicable. It would be very odd if there were any such presumption of law. Whether there is an available market is a question of fact. It is, in my judgment, therefore, wrong to say that the charterers began by having to displace a legal presumption that there was such an available market, which would be the effect of holding that they had a burden to prove that there was no such market. Whether there was an available market or not was, as I have said, a question of fact.

I accept that it was implicit, although not explicit, in the owners' pleadings that they asserted that there was an available market, and in their s.57 application to the Arbitrator they invited him, in para.16, to make the factual finding that the charterers would have been able to have hired a substitute vessel at around the same time or within a reasonably short period. But they provided the Arbitrator with no material on which to make that factual finding, and to say that he should make that factual finding because the charterers had not proved to the contrary was a non sequitur. In response to this point to Mr. Raphael accepted that he was unaware of any authority to suggest that there was a legal presumption that an available market existed, but he said that in the real mercantile world everybody would take it as read that there was an available market and that there was what he termed a factual, not a legal, presumption that such an available market existed.

I have two observations to make about that. First, if it was a matter of fact, then it was a matter for the Arbitrator to determine. The parties chose an expert arbitrator and if he decided the facts in the way that one party dislikes, which will almost inevitably be the case, that is not the beginning of a foundation for saying that there has been a serious irregularity. Second, I would not for my part accept that in the mercantile world it is automatically factually to be assumed that there will always be an available market in the event of the wrongful termination of a charterparty. As a matter of fact it will depend on a whole variety of matters, the nature of the vessel, the state of the market and so on. The fact that neither party put in any evidence on the subject is at one level surprising, because when there is an issue as to the existence of an available market parties usually do address it, but it has to be remembered that this was a small claim proceeding by a fast track method before a specialist arbitrator. Part of the object of the scheme is to keep costs to a minimum. The maximum costs allowable against the other side are limited to £1,750. There may be all sorts of reasons why a party may put forward an assertion in its pleading about an available market, but decide not to go to the expense of obtaining expert evidence on the point, being content to leave the matter for the adjudication of the Arbitrator. It cannot be the duty of the Arbitrator in this type of case to have to point out to both sides, before he delivers an award, what he may see as deficiencies in either side's evidence in relation to some issue which they have raised on the pleadings.

In these circumstances, and with no direct evidence on the point, the Arbitrator considered the matter himself and in his letter of 3rd December 2002 said why he was not persuaded that a suitable replacement vessel could have been located. He was not prepared to make the factual inference that it could have been from his knowledge of the market. I cannot see that in reaching that conclusion he was guilty of anything which could be described as an irregularity nor, as I have indicated, was it his obligation to indicate to the parties in advance that he was minded to make such a finding.

In reality the complaints in this case are, as so often when applications are made under s.68 in relation to L.M.A.A. arbitral findings, in reality complaints either about conclusions of fact or possibly about matters of law, but there is nothing which approaches irregularity, let alone serious irregularity, within the meaning of s.68. Accordingly, this application is dismissed.