Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR JUSTICE HAMBLEN
Between :
L | Claimant |
- and - | |
R | Defendant |
John Russell (instructed by Andrew Jackson) for the Claimant
Julian Kenny (instructed by Waterson Hicks) for the Defendant
Hearing dates: 11 October 2012
Judgment
Mr Justice Hamblen :
Introduction
This is an application pursuant to section 68 of the Arbitration Act 1996 (“the 1996 Act”) to set aside an arbitration award for serious irregularity.
By a “Final Award” dated 2 March 2012 (“the Award”) the arbitrators, Messrs. Farrington, Sheppard and Scott, (1) held and found that the claim of the Defendant (“R”) for demurrage succeeded in the amount of US$480,283.33 which sum it was awarded and adjudged that the Claimant (“L”) must immediately pay; (2) dismissed R’s other claims and (3) prohibited L “at any further stage of this arbitration reference from either advancing or relying upon” certain “alleged set-offs”.
L challenges the Award on two grounds. It contends that:
The Tribunal’s Award was a money award, and not a declaratory award, which is what the parties had agreed or at least reasonably expected. As a result, L says, it has lost the value of a set-off which it was entitled to make against its liability for demurrage – a set-off founded on the R’s alleged unlawful conduct in relation to the arrest of the MV ORMOS in February 2005 (“the Ormos Claim”).
In its Award, the Tribunal wrongly purported to prohibit L from advancing its alleged set-offs, which included the Ormos Claim. Hence again, L has lost the value of that claim as a set-off.
In summary, R’s response is as follows:
As to (1), R applied for a money award and the parties never agreed, nor could reasonably have expected, that the Tribunal would make a declaratory award only. In any event, L has not shown that it has suffered any substantial injustice: there is no evidence that the Ormos Claim had any chance of success.
As to (2), R accepts that this was an irregularity. The Tribunal had no power to prohibit L from relying on the Ormos Claim as a set-off in proceedings following the Award. However the order created no injustice because there were no claims against which the Ormos Claim could have been set-off in proceedings following the Award. Alternatively, there is no substantial injustice because L has not produced evidence to show that the Ormos Claim had any chance of success.
Background facts
The voyage charterparty which gave rise to the dispute was for the carriage of a cargo of bagged rice from Bangkok, Thailand to Warri, Nigeria. It was made on an amended Gencon Form and was dated 20 September 2004.
Discharge at Warri took much longer than had been anticipated. 80 days of delays gave rise to parallel claims by the vessel’s owners, B Shipping (“B”), against R and by R against L.
Both R and L had additional claims.
R made claims in respect of alleged unlawful interference with its contractual relations with headowners, conspiracy, and in respect of a cargo claim brought by receivers.
L made a claim in respect of R’s alleged unlawful interference with L’s interests by unlawful means. In summary, under another transaction, L had chartered a vessel, the “ORMOS”, to carry a cargo of rice from Kakinada, India to West Africa. Following loading of the cargo, it was discovered that the vessel was unseaworthy. L put together a rescue package to enable the voyage to be completed. Shortly before the rescue package was to be put into effect R obtained injunctions to prevent L and the owners of the “ORMOS” from dealing with the cargo on board the ship or taking the ship from Kakinada. L contended that the effect of the arrest was to increase greatly the costs of the rescue and cause L other loss and damage and that the arrest was unlawful under Indian law and constituted a tortious unlawful interference with its interests.
The procedural history of the arbitration
On 18 April 2005, R served Claim Submissions (references to L and R in this context include references to solicitors corresponding on their behalf), which claimed:
Damages for detention;
Demurrage;
Damages for ‘unlawful interference’ and conspiracy: and
An indemnity in respect of stevedore damage;
On 20 May 2005, L served its Defence and Counterclaim Submissions. In its Defence, L denied all R’s claims, on the grounds – amongst others – that it was entitled to set-off its counterclaims.
L advanced two counterclaims:
One was for various breaches of the charterparty which, it was said, had delayed the discharge at Warri (“the Warri Delay Claims”);
The other was the Ormos Claim, which was a claim founded on the economic tort of unlawful interference with L’s interests. The claim was said to arise from R’s arrest of the cargo on board the ORMOS which it was alleged was unlawful under Indian law.
On 28 July 2005, R served Reply and Defence to Counterclaim Submissions, which included an application for an interim award. That application was for a money award. It was expressed as follows:
“On 22 April 2005, [B] requested the Tribunal in the head arbitration to make an immediate Interim Award requiring [R] to pay forthwith to them the sum of US$480,283.33 being the amount of demurrage claimed as due and payable from [R]… [R] make the same request for an Interim Award in this arbitration as against [L] and on the same grounds.”
After this, there was a long interval during which the arbitration made no progress. During that interval:
On 30 November 2005, R was put into liquidation; and
On 16 July 2008, a contract was made between R and B, under which R assigned to B the future proceeds of its claim against L, agreeing in the meanwhile to allow B to conduct the arbitration on its behalf.
Eventually, on 20 February 2009, R wrote to the Tribunal, saying it now wished to pursue the application for “an Interim Award in the sum of US$480,283.33 in respect of the demurrage claim” which it had first made in its Reply.
L responded on 25 February 2009 saying:
“Two questions arise.
The first is one of the insolvency set-off, given that our clients’ counterclaim exceeds the claimants’ claim…”
In a further message sent on 22 June 2009, L expanded its position on the insolvency set-off, saying:
“Further, we must point out that insolvency set-off applies to the arbitration proceedings, so that the Tribunal has no power to make a monetary award without dealing with L’s counterclaims, which are set-off against R’s claims…”
As to the insolvency set-off, the position, as was common ground, is that:
Under r.4.90 of the Insolvency Rules, the order for winding-up made on 30 November 2005 gave rise to an immediate and automatic set-off of all liabilities between the parties.
Therefore, whatever may have been the position before 30 November 2005, after that date L had an indisputable right to rely on its counterclaims as set-offs against its liability for R’s claim.
At first, however, R did not recognise this. On 31 July 2009, R sent an email to the Tribunal saying:
“the claim for demurrage is in our respectful submission an obvious discrete are[a] which the Tribunal can address in an Award without having to deal with the distraction of the shadowy counterclaims raised by L”.
This provoked a further message to the Tribunal from L the same day, in which it insisted that it was entitled to rely on its counterclaims as set-offs. L then went on to canvass (and dismiss) the possibility of an award which, because it would be declaratory only, would not have to deal with L’s counterclaims, saying:
“Insolvency set-off undoubtedly applies in this case. We say it ousts the jurisdiction of the Tribunal to make any award of a sum of money without determining L’s counterclaims. We concede… that the Tribunal could declare R’s entitlement to demurrage, but this would not result in any amount being payable by L to R, and so is a pointless and costly exercise.”
That suggestion appears to have prompted R to write to the Tribunal on 8 December 2009 to suggest that the Tribunal give directions for an interim award, on the basis that the issue “Whether the Tribunal has jurisdiction to issue a money Award or whether it must be only declaratory can be dealt with in the course of the parties’ Submissions”.
L responded in its email of 14 January 2010, maintaining that there had been “an automatic set-off, so that R’s claim against L became a claim for the net balance due to R after deduction of L’s counterclaims”; and continuing to reject the suggestion that the Tribunal could make an award without dealing with its counterclaims:
“The only monetary award that the Tribunal can make is to ascertain the net balance if any due from L to R. R’s application for an Interim Award is entirely pointless... the net balance cannot be ascertained until L’s set-offs are determined”.
In the light of the impasse which had been reached R suggested on 21 January 2010 that the application should proceed to a purely declaratory award:
“The present application before the Tribunal is that it should proceed to an award on documents in respect of the claim for demurrage and issue an award which is declaratory as to the amount due to R from L in respect of that claim. L have already made the point that R may not have a money award which is enforceable against it because of the insolvency set-off rules; this has already been dealt with in correspondence and it has been made clear (we hope) that what R seeks is a declaratory award as to the amounts due to it in respect of the demurrage claim, in effect, immediately before the company entered into liquidation. This will then deal with the major item in dispute between the parties and will assist in achieving quantification of the net balance position between the parties.”
L relied on this email as defining the scope of R’s application at all material times thereafter.
L responded to this the same day stating that:
“What we can say at this stage is that, it is clear from the message below, any interim award will not determine the net balance due from L to R (if any). At best, it will only deal with part of the issues…”
At that stage it therefore appeared to be agreed between the parties that the application would be for a declaratory award only. However at this point the Tribunal intervened and in a message of 25 January 2010 made it clear that it considered that the claim and the counterclaim should be determined together. It said:
“Going by stages:- 1. The Tribunal considers that in principle the claim and counterclaim should be determined together, but this can only occur if adequate provision is made for the Tribunal’s fees…”
The Tribunal then made various proposals for securing the Tribunal’s costs of
dealing with both the claim and counterclaim.
In its response of 17 February 2010, R seemingly adopted the Tribunal’s suggestion, saying, “[R] are content to proceed on the basis suggested by the Tribunal’s email of 25 January…”, i.e. dealing with claim and counterclaim together. R then went to propose that each side provide security for the costs of the Tribunal.
In its message sent the same day, L also seemingly agreed that claim and counterclaims should be dealt with together, saying “We agree with paragraph 1 of the Tribunal’s email” but then went on to say that it could not be required to provide security for the Tribunal’s fees (“However, for the net balance due to R to be determined, R must resolve the set-offs asserted by L. It is R that must pursue a hearing of the claims, and R must be responsible for the Tribunal’s fees.”)
R and L then corresponded about how to deal with claim and counterclaims together:
On 18 March 2010, R sent an email to L, which recites, “1. The Tribunal considers in principle that the claim and counterclaim should be determined at the same time”. R then went on to suggest that each side should provide security for a proportion of the Tribunal’s fees.
On 26 March 2010, L responded, saying, “We must correct your reference to “counterclaim” in paragraph 1 of your email of 18 March… L’s counterclaims were also pleaded as a set-off against R’s claims, and thus formed part of L’s defence of the claims made by R… So paragraph 1 should read: “1 The Tribunal considers in principle that the claim and set-offs should be determined at the same time””. L then rejected any suggestion that it should be required to provide security for any part of the Tribunal’s fees. L thereby acknowledged that it was the Tribunal’s position that the claim and set-offs should be dealt with together.
There then followed a series of exchanges in which the parties corresponded with the Tribunal about the proposed Award on the seemingly shared assumption that R’s claim and L’s set-offs would be determined together.
First, on 16 April 2010, R wrote to the Tribunal, addressing the question of how an Award dealing with both the demurrage claim and the set-offs should be dealt with:
“It seems that the first point which needs to be addressed one way or another is (a) … whether L wishes to prove its alleged set-offs against R. This will impact significantly upon the cost and duration of the hearing. L has taken the position to date that it is reluctant to prove its alleged set-offs since it will not be able to recover these amounts against R. However it is incumbent upon L to at least take a view on this since the claim of R has been held up pending L’s reluctance to prove its alleged set-offs. If L wishes to pursue these set-offs it may use them, if successful, to reduce or extinguish the demurrage claim of R. If it does not wish to prove them the demurrage claim of R must be allowed to proceed for determination by the Tribunal.
We shall be grateful if the Tribunal will therefore [order] that:
(i) L shall state within 7 days whether it wishes to prove its alleged set-offs against R and
(ii) L shall when replying apportion its security for costs demand between the costs of defending the demurrage claim… and the costs of proving its own set-offs…”
On 19 April 2010, L responded, rejecting any suggestion that it should be obliged to provide security for the Tribunal’s fees and demanding that R be ordered to provide security for all of L’s costs of the proceedings.
The same day, R responded saying, “L say they have a right to assert insolvency set-off: we do not appear to disagree with them about this, merely we emphasise they are required to prove their claims for the purposes of set-off. They cannot merely assert that they have a claim which extinguishes R’s claim for demurrage…”. This was self-evidently correct. If L wanted to rely on its set-off by way of defence it would have to prove it. It could not defend the claim on the basis of mere assertion. In effect R’s position was that L should “prove it or lose it”.
Following these exchanges, the Tribunal ordered R to provide L with security for its costs in the sum of £35,000 and to provide security for the Tribunal’s fees in the sum of £10,000.
On 12 May 2010, R wrote to the Tribunal, pressing them to order L to give an answer as to whether it intended to prove its set-offs:
“it would be helpful if L would respond to the matter raised in our [email of 16 April 2010] namely whether it still wishes to prove its alleged set-offs against R.”
On 15 June 2010, the Tribunal ordered L to clarify its position.
By an email dated 30 June 2010 R sought to bring matters to a head and stated:
“...we request an order that unless L states by cob tomorrow 1 July that it wishes to prove its alleged set-offs that the Tribunal fix a two day hearing to deal with the claim of R and that the alleged set-offs of L shall be held over and shall not be heard unless or until L provides security for the Tribunal’s fees for dealing with such a claim.”
L submitted that R was thereby abandoning its “prove it or lose it” approach in that it was not seeking an order that the set-offs be struck out, or that L should be debarred from pursuing them, merely that they should be “held over” and that the Tribunal should get on with resolving its detention/ demurrage claim.
On 1 July 2010, L wrote to the Tribunal, saying they were still considering their position with respect to the set-offs, in particular investigating what had happened in respect of the Ormos Claim. It concluded its email:
“Once [L] have completed their investigation, they will have to take a view… what set-offs to argue at present. We would remind R that a final determination of the accounting position between R and [L] in the liquidation of R will require resolution of all the set-offs, and until that takes place R cannot pursue Respondents for any balance.”
On 14 July 2010, L wrote to the Tribunal saying:
“We understand that R are pursuing the following claims:
1 Damages for detention…
2 Demurrage…
3 Cargo claim…
We assume all other claims are no longer being pursued…
L will continue to argue the defences set out in paragraph 19 of L’s defence and counterclaim submissions, save that in relation to paragraph 19 (10) (b), L, for the present, will limit its set-offs to the claim for dispatch… referred to in paragraph 32(c)…
L reserves the right to pursue all other set-offs (and, insofar as it is permitted, its counterclaims) later in these proceedings.
L protests that the decision to restrict the extent of the set-offs pursued at present has been forced upon it by the Tribunal’s decision on L’s application for security for costs, which has left L effectively unsecured as to costs…”
L was therefore making it clear that it would not be seeking to establish the Ormos Claim as a set-off in response to R’s application but was purporting to reserve the right to do so at a later date. It had no “right” so to do. The Tribunal could have permitted this to be done, but this would have meant that R’s claims could not be finally determined and the Tribunal’s position since January 2010 had been that they should be.
In response, on 19 July 2010, R emailed the Tribunal saying, “R seeks an immediate Interim Award for demurrage…” and suggesting directions for exchange of submissions.
There then followed two messages indicating that the parties had different ideas about what the effect of the Award would be:
On 27 July 2010, L wrote to the Tribunal saying, “the interim award could, at best for R, only be a declaration of entitlement, and would not take the resolution of accounts in the liquidation of R much further … If R succeeds, then L’s other set-offs will need to be determined before any final balance can be established.” L’s position was that there could be no final balance until all its set offs had been determined.
On 2 August 2010, R responded saying, amongst other things, “It is L who need to establish any alleged set-offs if they are to prevent the enforcement of an Interim Award for demurrage…”. That was clearly contemplating a money award since that would be the only type of award which could usefully be enforced. R’s position was that the only obstacle to a money award for demurrage were set offs which L was prepared and able to prove.
On 2 August 2010 the Tribunal said, “Submissions on these interlocutory matters are now at an end. The Tribunal will confer.” It issued its procedural order later the same day. It addressed the question of an oral hearing (and rejected this) and then said (emphasis added), “It is now time to bring the reference to a close in so far as it relates to the Claimant’s claims.” L relied on this as indicating that the award which the Tribunal was intending to publish related only to R's claims and was not going to dispose of L's set-offs/counterclaims. However, it was L itself which had drawn and stressed the distinction between its right of set-off and its counterclaim. To bring the reference to a close so far as it related to R’s claims meant finally disposing of any defences to those claims. That would necessarily mean dealing with any set-off defence. The effect of the Tribunal’s order was that if L wanted to rely on its set-offs as a defence it had to do so now.
The parties then exchanged submissions. R’s Claim Submissions were served on 30 September 2010. These Submissions sought a money award:
The first paragraph says, “these [are] the final submissions of [R] in the application for an interim award for damages for demurrage and/or detention”.
Paragraph 8 set out the laytime used and then says, “In the premises, by reason of [L’s] breach of Charterparty, there is now due and owing to [R] the sum of US$480,283.33”.
The prayer says, “And [R] claim: 1) Demurrage in the sum of US$480,283.33; and/or 2) Damages for detention in the sum of US$1,059,811.88; and 3) Interest pursuant to the Arbitration Act 1996 at such rate and for such period as the Tribunal thinks fit…”
No declaratory relief was sought.
L served their final Defence Submissions on 14 December 2010:
In paragraph 2, L say that they “make these submissions in response to [R’s] final claim submissions in their application for an interim award for damages for demurrage and/or detention dated 30 of September 2010.”
In paragraph 4, L assert that they “reserve the right to argue further set-offs in addition to the claim for dispatch in the sum of USD23,681.25 … in paragraph 13 below or in the sum of USD 13,920.83 referred to in paragraph 36 below, should [R] succeed in their claims…”
In paragraph 67, L say, “in awarding interest and costs of the arbitration proceedings, and assuming [R] succeed to some extent in their claims, the Tribunal should take into account the extent to which [R] have succeeded and R’s delay in pursuing these proceedings.” Interest would only be awarded if there was a money award.
The final Defence Submissions contain no suggestion that the Tribunal should make any kind of declaration, nor did it state that L’s purported reservation of its rights meant that no money award could be made.
In its Reply Submissions R stated that it could not be right that L could reserve the right to argue set-offs/counterclaims subsequently if it could not reserve the right to argue its additional claims subsequently. L relied on this as showing an acceptance that R could hold over its set-offs. However, at most it was an acceptance that they could do so if R’s own claims were allowed to be held over. It did not detract from R’s stated and pleaded position that set-offs which were sought to be held over were no defence to its claim for a demurrage money award.
Following further rounds of submissions, the Tribunal published its Award on 2 March 2012 , in which it:
Dismissed all of R’s claims, except its claim for demurrage.
Awarded R US$480,283 in respect of that claim.
Prohibited L from pursuing any other “alleged set-offs”.
Awarded R interest and costs.
The relevant principles
L accepts that the threshold for a section 68 challenge is high, as made clear by the DAC report which said that section 68 was, “really designed as a long stop, available only 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”.
As the authorities make clear this is a “high hurdle” – see, for example, ABB AG v Hochtief Airport GmbH [2006] 2 Lloyd's Rep 1 (Tomlinson J at [63]); The Magdalena Oldendorff [2008] 1 Lloyd's Rep 7 (Waller LJ at [38]). It is intended for cases where what has happened is “so far removed from what could reasonably be expected of the arbitral process that the court could be expected to take action” – per Collins LJ in The Magdalena Oldendorff at [46].
In relation to the need to establish that the serious irregularity “has caused or will cause substantial injustice” I was referred to the guidance provided by Colman J in Vee Networks Ltd v Econet Wireless International Ltd [2005] 1 Lloyd’s Rep 192 at [90]:
“The element of injustice in the context of s 68 does not in such a case depend on the arbitrator having come to the wrong conclusion as a matter of law or fact but whether he was caused by adopting inappropriate means to reach one conclusion whereas had he adopted appropriate means he might well have reached another conclusion favourable to the applicant. Thus, where there has been an irregularity of procedure, it is enough if it is shown that it caused the arbitrator to reach a conclusion unfavourable to the applicant which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is at least reasonably arguable.”
In order to establish “substantial injustice” it is therefore necessary to show that but for the irregularity the Tribunal might well have reached a different conclusion, which means establishing that such a conclusion is at least reasonably arguable.
It follows that in the present case L needs to establish that the Ormos Claim is at least “reasonably arguable”.
Ground 1: failure to make a declaratory award
Two questions arise:
Was it an irregularity to make a money award?
If so, did L suffer a substantial injustice as a result of not being able to bring its Ormos Claim into account?
Was a money award an irregularity?
L submitted that by the exchanges set out above, leading to the Tribunal’s order of 2 August 2010, and that order itself, it was, or at least objectively appeared to be, common ground between the parties and the Tribunal that the award would be a declaratory award. That was because a money award could only be made when the net balance as between R and L was ascertained, and that required a determination of all claims and set-offs/ counterclaims. However, the Tribunal was not being asked to determine L’s set-offs/ counterclaims in respect of the unlawful arrest of the “ORMOS” and her cargo for the present; those questions were to be held over.
That being so, it was submitted that there was an irregularity falling within sections 68(2)(a) and (c) of the Act.
As to section 68(2)(a), the Tribunal failed to comply with section 33 of the Act (and thus were guilty of an irregularity falling within section 68(2)(a)) in that they did not give L a reasonable opportunity of putting its case.
As to section 68(2)(c), the parties had agreed the scope of the award which the Tribunal was being invited to make, and in particular had agreed that:
Only a declaratory award in relation to the detention/ demurrage claim could be made.
Of L’s arguments, only those relating to detention/ demurrage/ despatch were to be addressed.
Therefore, the Tribunal failed to conduct the proceedings in accordance with the procedure agreed by the parties, which was an irregularity pursuant to section 68(2)(c).
R submitted that it was objectively clear that its application was not for declaratory relief and that there was certainly no agreement to that effect.
I find the effect of the various exchanges relied upon to be as follows.
It is correct that in early January 2010 both parties were proceeding on the basis that there should be a declaratory award in respect of the demurrage claim and that the net balance position between the parties would be held over.
However, by their order of 25 January 2010 the Tribunal, no doubt concerned by the substantial delays which had already occurred, made it clear that they wished both claim and counterclaim to be determined – i.e. finally determined.
L subsequently clarified that, since there was no leave to bring an independent counterclaim, this meant claim and set-offs should be determined and it was common ground that this was what the Tribunal considered should happen.
In the light of the Tribunal’s indication there was then a debate about how the claim and set-offs were to be determined. R’s position was that L could not avoid the determination of R’s claim by the mere assertion of a set-off. If L wanted to rely on a set-off as a defence then it would have to prove it. L was accordingly pressed to identify which set-offs it would seek to prove in answer to R’s claim. The answer ultimately given was that it would rely on its claim for despatch only. Subject to proof of that set-off it was and remained R’s position that it would be entitled to a money award for demurrage.
It is correct that L continued to assert that it was reserving its “right” to pursue the other set-offs and that this meant that no net balance could be determined. However, that was not agreed to or accepted by R. Its position was that the only set-offs which could be relied in answer to its demurrage claim were those which L was prepared to prove, which was its despatch claim only.
I do not consider that R’s email of 30 June 2010 involved a departure from its consistently stated position throughout this period. Although it contemplated set-offs being “held over” unless and until security was provided, this was because it was recognised that the position might change before the anticipated hearing actually took place. Even if that be wrong, the correspondence needs to be considered as a whole and R’s position before and after this email was that it was entitled to a money award even if L sought to “hold over” claims it was not prepared to prove. At most it was a holding over in respect of any claims which R itself was permitted to hold over. It did not relate to R’s demurrage claim.
In any event, the Tribunal did not accept that L could reserve the right to bring set-offs at some unspecified future time and thereby preclude final determination of R’s claim. Its order of 2 August 2010 was for a final determination of R’s claims. That is the only possible meaning of the clear statement that “it is now time to bring the reference to a close in so far as it relates to the Claimant’s claims”. Those claims could only be brought to a close if they were finally determined, which would necessarily mean dealing with any defences to those claims.
Thereafter the parties conducted themselves consistently with the Tribunal’s order. Thus R plainly advanced a claim in its submissions for a money award, not a declaration. L addressed that money claim, including the claim for interest, and at no stage re-asserted its position that only a declaratory award could be made. It is correct that L purported to reserve its “right” to argue further setoffs at a later stage, but it did not state that that meant no money award could be made.
From the perspective of the Tribunal, it had clearly ordered that R’s claims should be finally determined, which would mean, if successful, a money award. Extensive Submissions had been exchanged involving the assertion of money claims and a defence to those claims, with no suggestion being made that only a declaratory award could be made. Against that background I do not see how the Tribunal could be criticised for proceeding to a money award, still less for that to be a serious irregularity.
It was not the Tribunal’s task to trawl through the parties’ correspondence to seek to divine what was being proposed or discussed at various earlier stages. Its general intent that there be a final determination of the claim was made clear by its January 2010 order. That had been put into effect by its August 2010 order. Thereafter the parties had exchanged submissions on a basis that reasonably appeared to be consistent with that order. There was no reason for the Tribunal to proceed other than in accordance with its own order.
I find that following the Tribunal’s January 2010 order there was no agreement or mutual understanding that the award would be declaratory only, nor, if there was, that this would or should have been reasonably apparent to the Tribunal. There was no irregularity, still less a serious irregularity.
In summary, there was at most a misunderstanding on L’s part. Viewed objectively I find that it should have been clear to L by the time of Final Submissions that a money award was being sought and that the Tribunal did not act unfairly or irregularly.
If the form of the Award was irregular, has there been substantial injustice?
The only practical effect of the Tribunal’s decision to make a money award is that L has been deprived of an opportunity to set-off the Ormos Claim against its liability for demurrage. That is because the alleged breaches of Charterparty which underlay the Warri Delay Claims were in fact advanced and relied upon by way of defence in L’s final Defence Submissions served in December 2010. They have all therefore been disposed of by the Tribunal’s Award.
The question therefore is whether the loss of the Ormos Claim set-off amounts to a substantial injustice. On that issue, L has the burden of proof and it needs to show that the claim is “at least reasonably arguable”. Unless it can show that, it cannot say that it has suffered any substantial injustice.
In relation to the Ormos Claim L relied upon the facts and matters set out in its Defence and Counterclaim Submissions in the arbitration. There L pleaded:
“37. [The injunction obtained by R] was unlawful under Indian law…
PARTICULARS
Indian Law
Respondents will rely on the affidavits filed by (“P”) in the Indian Proceedings and the orders made in those proceedings…”
However, as R submitted, if one then turns to those documents, one finds that none of them identifies any evidential basis on which it could be said that the actions of R were unlawful under Indian law. The affidavits of P assert that the injunction should not have been granted. However they do not assert that the actions of R in obtaining the injunction were unlawful under Indian law, nor do they identify what provisions or principles of Indian law may have been contravened. In any event, P is not an Indian lawyer.
L objected that they had no notice that R would be putting them to proof on this issue and that they had been taken by surprise. Their Submissions recognise that expert evidence may need to be adduced. Further, the allegations made by P include allegations of false representations and fictitious claims which, if made out, might be expected to contravene Indian law. L was unable, however, to set out or explain any properly particularised case.
I do not consider that this is good enough. L has had 7 years to set out a proper basis for its claim. As the Tribunal stated, “enough is enough”. It clearly has the burden of proving “substantial injustice” for the purpose of its section 68 application. R has not run any positive case on this issue. It has simply put L to proof, as it is entitled to do. Regardless of R’s position L would have needed to satisfy the Court that there was “substantial injustice” in order to obtain the relief sought. I do not consider that the exiguous material before the Court does establish a reasonably arguable case that the injunction was obtained unlawfully as a matter of Indian law. On this ground also the application accordingly fails.
Ground 2: prohibition on pursuing the Ormos Claim
In the Award the Tribunal purported to “PROHIBIT L at any further stage in this arbitration reference from either advancing or relying upon the alleged set-offs mentioned in paragraph 4 of their submissions dated 14th of December 2010”. In effect, that was a prohibition on L subsequently deploying the Ormos Claim as a set-off in the reference (there were no other potential set-offs which had not already been disposed of by the Award).
R was prepared to accept that this was an irregularity in that the Tribunal did not have a power to prohibit L from relying on the Ormos Claim by way of set-off in subsequent proceedings.
I am not convinced that this was an irregularity, still less a serious irregularity. The “prohibition” need not have been expressed and made no difference to the substantive position. L could never have deployed the Ormos Claim as a set-off, even if had been allowed to because:
It was and is too late for L to deploy the Ormos Claim as a set-off against its liability for demurrage. The Award, which was a final award, had already determined that “R’s claim for demurrage succeeds in the amount of US$480,283.33”. In the circumstances, there could be no further proceedings “in this arbitration reference” in relation to the demurrage claim: the Tribunal was functus.
Equally, there could never be any need for L to deploy the Ormos Claim as a set-off against any of R’s other claims. That is because the Tribunal had already dismissed all R’s other claims.
Even if that be wrong and the prohibition was a “serious irregularity” it can have caused no substantial injustice for the same reasons.
Alternatively, or in any event, the order gave rise to no substantial injustice because L has not proven that the Ormos Claim is reasonably arguable.
Conclusion
For the reasons outlined above L’s applications must be dismissed.