Nestor Maritime SA v Sea Anchor Shipping Co Ltd

This is an application by Nestor Maritime SA (the “Sellers”) for an extension of time under s.80(5) of the Arbitration Act 1996 (the “1996 Act”) and CPR Part 62.9 to bring a challenge under s.68(2)(g) of the 1996 Act against the award of the Tribunal dated 12 May 2011 in an arbitration between the Sellers and Sea Anchor Shipping Co Ltd (the “Buyers”). The latter section in effect gives a party to arbitral proceedings the right to challenge an award on the ground of serious irregularity which is, for present purposes, defined as follows:

“(2)

Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant –

(g)

the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy…”

As appears below, it is the Sellers’ submission that the award was here obtained by fraud and that although the present application is brought out of time the court should nevertheless extend such time.

The underlying dispute in the arbitration concerned the sale of an oil tanker in 2007 by the Sellers to the Buyers. In essence, it was the Buyers’ case that the Sellers misrepresented the condition of the vessel. The Sellers commenced arbitration proceedings against the Buyers for a declaration of no-liability but lost. In the event, the Tribunal upheld the Buyers’ counterclaim on the basis that the Sellers had fraudulently and negligently misrepresented the condition of the vessel. By the award, the Sellers were ordered on the Buyers’ counterclaim to pay the sums of US$4,838,631 and €20,565 to the Buyers.

Following the publication of the award, the Sellers sought (unsuccessfully) both to challenge and to appeal the award under s.68 and s.69 of the 1996 Act. In addition, I should mention that there are other proceedings (both civil and criminal) relating to the dispute between the parties and still pending before the Greek courts.

The present application is a new discrete challenge issued on 27 January 2012. Under s.70(3) of the 1996 Act, any such challenge is of right but must be brought within 28 days of the date of the award. In the present case, that period of time expired on or about 10 June 2011. Thus the present challenge was brought more than 6 months after the expiry of this time limit. However, it is common ground that the court has a power to extend such time limit under s.80(5) of the 1996 Act and pursuant to CPR 62.9. Hence the present application to extend time.

This application was supported by a witness statement also dated 27 January 2012 by Paul Herring of Ince & Co. (the Sellers’ solicitors) and four further witness statements all dated 26 January 2012 by Dimitrios Gkritzapis (“Gkritzapis 1”), Nikolaos Nakos, Evangelos A Bardakos and Georgios Pavlis. Shortly thereafter, a further statement dated 2 February 2012 by Capt Bardakos was served. Following directions made by the court, there was served in opposition to the application a witness statement dated 24 February 2012 by Leigh Williams of Clyde & Co (the Buyers’ solicitors). This prompted a further round of witness statements on behalf of the Sellers from Mr Gkritzapis (“Gkritzapis 2”) and Capt Bardakos (both dated 8 March 2012) and two new statements from Efthimios Angelopoulos and Andreas Pagalos (dated 8 and 14 March respectively).

Central to the Buyers’ case in the arbitration was the Report and the Supplement to it produced by a ship-surveying company called “ANCO”, following a survey of the vessel in Tuzla, Turkey, in July-September 2007 (shortly after the sale of the vessel). The Report dated 28 September 2007 and the Supplement produced in early January 2008 contained, or purported to contain, thickness measurements of key steel structural elements of the vessel. By comparing those measurements to others contained in a similar report commissioned by the Sellers in 2005, it was the Buyers’ case (upheld by the Tribunal), that the rates of corrosion the comparison revealed were too great to have occurred in reality; leading to the conclusion that the Sellers had fraudulently procured the 2005 report to over-state the true condition of the vessel.

In essence, the Sellers now seek to allege that the thickness measurements in the Supplement were fabricated to the knowledge of the Buyers; that they were then fraudulently presented to the Sellers and fraudulently relied upon in the arbitration by the Buyers when the Buyers knew that those figures were false; and that accordingly the award in favour of the Buyers was procured by the Buyers’ fraud. That is the essence of the Sellers’ allegation in support of the challenge they seek to make under s.68 of the 1996 Act.

In particular, the Sellers advanced the following submissions:

The starting position is that the court should be reluctant to interfere generally, and under S.68(2)(g) in particular: Profilati v Paine Webber [2001] 1 Lloyd’s Rep 715 at 719-780; Thyssen Canada Ltd v Mariana Maritime S.A & Another [2005] EWHC 219 (Comm) per Cooke J at 13. The importance of finality in arbitrations is well recognised as a matter of policy underlying the 1996 Act: Thyssen Canada para 55. One important aspect of that general policy is s.73 of the 1996 Act which provides in material part:

“73.(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection … (d) that there has been any other irregularity affecting the tribunal or the proceedings, he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection …”

It follows that where a party knows of a serious irregularity but takes a deliberate decision to continue to take part in the proceedings without objection and takes the point only after losing the arbitration, such party will generally be precluded from raising such irregularity at that later stage. As stated by Cooke J in Thyssen Canada:

“Moreover, the expression “continues to take part in the proceedings” in section 73 is broadly worded and is designed to ensure that a party who believes he has grounds for objecting on the basis of serious irregularity should raise that objection as soon as he is, or reasonably ought to be, aware of it. He is not permitted to allow the proceedings to continue without alerting the Tribunal and the other party to a serious irregularity, which, in his view, renders the whole arbitral process invalid. As Moore-Bick J points out, this is not only to avoid a waste of time and expense but is based upon a more fundamental point of fairness and justice. It cannot be right for a party to participate in proceedings, which he believes to be fundamentally irregular, with the intention of taking advantage of any decision in his favour, whilst keeping up his sleeve an objection to an irregularity, which he will only produce in the event of an unfavourable decision.”

Such conduct can properly be characterised as an abuse of process: see Thyssen Canada at para 57.

Moreover, the effect of s.73 is that an objection to a serious irregularity may not be raised by a party after participating in the proceedings without taking objection, unless that party can show that at the time of participation the grounds for the objection were not known to him and he could not with reasonable diligence have discovered them: Rusal Gill & Duffus [2000] 1 Lloyd’s Rep 14 at 20-21; Thyssen Canada at para 18. If the respondent can show that the applicant took part in or continued to take part in the arbitral proceedings without objection, after the grounds of objection arose (as happened in the present case since the alleged facts which are the basis for the objection occurred almost 3 years before the hearing of the arbitration), the burden passes to the applicant to show that he did not know and could not with reasonable diligence have discovered those grounds at the time: Thyssen Canada at para 18.

The scope of s.68(2)(g) was considered by Aikens J in Elektrim SA v Vivendi Universal [2007] 1 Lloyd’s Rep 693 at [79-81]:

“…I agree with Moore-Bick J (as he then was) who stated in Profilati Italia Srl v Paine Webber Inc [2001] 2 Lloyd’s Rep. 715 at para 17, that it would be unwise to attempt to define all the circumstances when an award is "obtained by fraud" or "procured contrary to public policy" within section 68(2)(g). However, I note that section 68(2)(g) does not refer to the fraud of a party to the arbitration. On the face of the wording it would seem that the "fraud" referred to in the paragraph can be committed by anyone who is connected with the arbitration process. If this were right, then (for example) if it were proved that a witness for one side or another has committed perjury when giving evidence before the tribunal, that would be a "fraud" within para (g). If so then, if it were also proved that the perjured evidence resulted in the award being in favour of that party then, logically, the award would have been "obtained by fraud".

80.

But I have concluded that this is not the correct construction of the words "obtained by fraud". It is a party to an arbitration that obtains an award in its favour or has one made against it. The words "obtained by fraud" must refer to an award being obtained by the fraud of a party to the arbitration or by the fraud of another to which a party to the arbitration was privy. This fits in with the general ethos of the Act, which is to give the courts as little chance to interfere with arbitrations as possible. If this wording referred to the fraud of anyone that was involved in the arbitral process, whether or not the fraud was committed with the knowledge of the relevant party to the arbitration, then that would give unsuccessful parties carte blanche to apply to the court to set aside or remit an award. The unsuccessful party need only assert (for example) that a witness of the successful party had committed perjury (even without the knowledge of the successful party) and the award had as a result been in the favour of that party. It could then be asserted that the award had been "obtained by fraud", resulting in "substantial injustice"; therefore the award must be set aside or remitted.” (Emphasis added)

I respectfully agree with those observations. It follows that it is not sufficient for the applicant merely to show that a witness who gave evidence during the arbitration lied or that there had been perjury and conspiracy to fabricate evidence on the part of one or more witnesses. S.68(2)(g) only applies where the award has been obtained by the fraud of a party to the arbitration or by the fraud of another to which a party to the arbitration was privy.

It is common ground that the court has power to extend the time to bring the challenge under s.68 by virtue of s.80(5) of the 1996 Act which provides:

“Where any provision of this Part requires an application or appeal to be made to the court within a specified time, the rules of court relating to the reckoning of periods, the extending or abridging of periods, and the consequences of not taking a step within the period prescribed by the rules, apply in relation to that requirement.”

The relevant rule in relation to s.80(5) is CPR Part 62.9, which provides:

"(1)

the court may vary the period of 28 days fixed by section 70(3) of the 1996 Act for (a) challenging the award under s.67 or 68 of the Act ..."

In Kalmneft v Glencore [2002] 1 Lloyd’s Rep 128, Colman J made the following remarks before setting out the considerations which would be relevant to any s.80(5) application to extend time.

“52.

... Further, the relatively short period of time for making an application for relief under ss. 67, 68, 69 also reflects the principle of finality. Once an award has been made the parties have to live with it unless they move with great expedition. Were it otherwise, the old mischief of over long unenforceability of awards due to the pendency of supervisory proceedings would be encouraged.

53.

At this point it is necessary to have in mind the general principle set out in s.1 of the 1996 Act:

“(1)

the provisions of this Part are founded on the following principles, and shall be construed accordingly –

(a)

the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense; ...”

54.

The reference to unnecessary delay is pertinent to identifying the relevant discretionary criteria …”

Colman J set out the factors relevant to a s.80(5) application at [59] viz

“(i)

the length of the delay;

(ii)

whether, in permitting the time limit to expire and the subsequent delay to occur, the party was acting reasonably in all the circumstances;

(iii)

whether the respondent to the application or the arbitrator caused or contributed to the delay;

(iv)

whether the respondent to the application would by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed;

(v)

whether the arbitration has continued during the period of delay and, if so, what impact on the progress of the arbitration or the costs incurred in respect of the determination of the application by the court might now have;

(vi)

the strength of the application;

(vii)

whether in the broadest sense it would be unfair to the applicant for him to be

denied the opportunity of having the application determined.”

In Nagusina Naviera v Allied Maritime Inc [2002] EWCA Civ 1147, Mance LJ, in reviewing the first instance decision, stated that the primary factors among those considered by Colman J in the Kalmneft case were factors (i) to (iii): [39]. Mance LJ said in relation to factor (vii) at [42]:

“Finally, as to factor (vii), general considerations of fairness, the judge must have had well in mind considerations of overall justice and fairness. They must, however, always be viewed in the particular context that Parliament and the courts have repeatedly emphasised the importance of finality and time limits for any court intervention in the arbitration process.”

This approach was reiterated and adopted by Akenhead J in L Brown & Sons Ltd v Crosby Homes (North West) Ltd [2008] EWHC 817 (TCC), a case concerning a 66 day delay. At [32], Akenhead J said this in relation to the strength of the section 68 application.

“…(c) The weight to be given to factor (vi) (the strength of the section 68 application) is not a primary factor. However, an intrinsically weak case will count against the application for extension whilst a strong case would positively assist the application. An application which is neither strong nor weak will not add significant weight to the application for extension of time.”

On behalf of the Buyers, Mr Hill QC submitted that the Sellers’ challenge under s.68(2)(g) is, in effect, inevitably doomed by virtue of s.73(1)(d) of the 1996 Act which I have already quoted in relevant part and considered above. In particular, Mr Hill QC submitted that even assuming for present purposes that the alleged fraud was committed, the Sellers cannot satisfy the burden on them to show that they could not with reasonable diligence have discovered what they now say was a fraud by the Buyers. In particular, Mr Hill QC relied upon the following points:

In response, Mr Bloch QC made a number of detailed submissions. First, he referred to Sumakan Ltd v Commonwealth Secretariat [2007] EWCA Civ 1148 (where a challenge was brought under s.68 on the basis that the arbitrator had not been properly appointed) in particular the judgment of Walker LJ (at §§36-38) upholding the first instance judge’s view that “it would be wrong to construe section 73 so as to hold that [the challenging party] could with reasonable diligence have discovered facts which it neither knew nor believed nor had grounds to suspect.” On this basis, Mr Bloch QC submitted that a party will not fall foul of s.73(1) unless it knew, believed, or had grounds to suspect the facts which form the grounds for the objection. Second, as to the facts, Mr Bloch QC submitted that the Sellers did not know, believe or have grounds to suspect the alleged fraud. In that context, he relied upon a number of general points in particular (i) it does not lie well in the mouth of a party against whom fraud is alleged to say “be that as it may you should have discovered it sooner”; (ii) in light of Sumakan it is not enough that the Sellers might reasonably have pursued a “train of enquiry” that may have led to them stumbling across what the Sellers now allege to be the true facts; and (iii) the inherent improbability of fraud as referred to, for example, in the speech of Lord Nicholls in Re H [1996] AC 563 at p586.

Further, Mr Bloch QC relied upon a number of specific points viz.

In addition, although Mr Bloch QC accepted that in the arbitration the Sellers did challenge the 2007 Reports, he submitted that this was primarily on the basis that the measurements contained therein were taken by way of measurements of localised corrosion which were not representative of the general condition of the Vessel. In that sense, they claimed that the 2007 survey “had not been done properly”; but Mr Bloch QC submitted that that is a quite different suggestion to one that the numbers had no basis in reality at all. In that context, Mr Bloch QC submitted that although the suggestion of “murkiness” surrounding the production of the Supplement was raised, the point that was being made in the Sellers’ written closing at §§109-117 was that the Sellers had little idea of what had taken place on the vessel in Tuzla, as they had not been notified of the apparent problems with the vessel or given an opportunity to respond. The inference that the Sellers sought to draw from the “murkiness” (at §125 of their written closing) was that the substitute readings were taken in areas of localised corrosion – not that they were entirely fabricated. Mr Bloch QC accepted that Dr Kirby (the Sellers’ expert) did suggest that one explanation of the incompatibility between the 2005 and 2007 readings was that the 2007 readings were incorrect or inaccurate (because, for example, they were taken in way of localised corrosion) – but not that they were fabricated. Moreover, contrary to the suggestion in Mr Williams’ statement, Mr Bloch QC submitted that the fact that the fraudulently produced documents were before the Tribunal does not mean that the documents that supposedly evidenced this fraud were before the Tribunal in any meaningful sense; and that although the documents were before the Tribunal, the fact that they were fraudulent documents was only revealed once Mr Gkritzapis came clean. I should also note that it was the Sellers’ case that the Buyers were, behind the scenes, taking steps to try to put the provenance and accuracy of the 2007 Report beyond doubt, by seeking to bribe Mr Gkritzapis (or at least giving him the impression that was what they were trying to do) to give evidence in the Arbitration: see Gkritzapis 1 §64, Mr Angelopoulos (§23).

As appears from the above summary, the respective arguments advanced by both parties under this head ranged far and wide. To my mind, four points stand out.

First, I recognise there is a potential inherent difficulty in the Buyers’ submission with regard to s.73 which is perhaps best exemplified by the statement of Lord Cranworth in Reynell v Spyre (1852) 1 de G.M. & G. 660 at p710: “No man can complain that another had too implicitly relied on the truth of what he has himself stated.” That is, in effect, the principle relied upon by Mr Bloch QC when he submitted that the alleged fraud, if accepted, was intended not to be discoverable; and that the Buyers should not therefore be able to take advantage of the sophistication of their own fraud in being permitted to say that the Sellers were too slow in identifying it. However, it seems to me that such a general principle formulated in such terms provides the Sellers with only limited assistance in the present context and in the particular circumstances of the present case. That is because of the terms of s.73(1)(d) of the 1996 Act which, in effect, imposes a statutory bar on any party raising any objection based on an “irregularity” affecting the proceedings subject of course to the exception stipulated in the last part of s.73(1). (For the avoidance of doubt, I did not understand Mr Bloch QC to suggest that s.73 did not apply to an irregularity founded on s.68(2)(g).) In my view, it follows that the Sellers cannot raise an objection based on such irregularity unless they bring themselves within the exception and, in relevant respect, they can only do that by showing (ie the burden is on them) that they could not with reasonable diligence have discovered the grounds for the objection. Thus, in my view, the principle relied upon by Mr Bloch QC is not a complete answer to s.73; but I accept that it may be relevant in considering what could be discovered by “reasonable diligence”.

Second, as Mr Bloch QC submitted, in considering the strength of the argument, the focus is not merely the alleged fraud in relation to the measurement exercise carried out by the Buyers in relation to the Report and the Supplement but what the Sellers say was the Buyers’ fraud in obtaining the award. Plainly, these two overlap but I accept that it is the latter which is the foundation of the Sellers’ application under s.68(2)(g).

Third, there is no doubt that the accuracy of the measurements taken in 2007 as appear in the Report and the Supplement were the main focus of the arbitration. Indeed, this was the central issue. In such circumstances, the distinction which underlies most of Mr Bloch QC’s arguments in this context (viz the distinction between measurements that are, on the one hand, incorrect or inaccurate and, on the other hand, measurements which are fabricated) is, to my mind, at best, somewhat artificial particularly in the light of the other issues in the arbitration. Given all the various allegations of fraud advanced both in the arbitration and the Greek proceedings, I do not consider that this is a case where a suggestion that the measurements might have been fabricated was inherently improbable. Nor in my view is this a case where it might be said that if there was a fraud it was, in effect, one which the Sellers might - but only with some luck - stumble upon in some way but in respect of which there were no “grounds to suspect” (adopting the words of Walker LJ in Samoukan).

Fourth, I find it quite extraordinary that the Sellers did not themselves obtain statements and adduce evidence in the arbitration from Mr Gkritzapis and the other witnesses whose evidence the Sellers now seek to rely upon.

In my view, Mr Hill QC is right for the reasons he gives that if there had been the fraud which is now alleged, it could have been discovered with reasonable diligence; that contrary to the Sellers’ submissions, there were here “grounds to suspect” that the measurements were fabricated; and that, at the very least, the Sellers have not satisfied the burden on them under s.73 to show that the alleged fraud could not with reasonable diligence have been discovered. On this basis, I agree with Mr Hill QC that the application under s.68 is inevitably doomed and for that reason alone I should decline to grant the extension of time now sought by the Sellers. However, if that is wrong, I go on to consider whether the court should grant the extension of time as a matter of discretion focussing, in particular, on the various factors identified by Colman J in Kalmneft as summarised above.

& (ii) Length of Delay/Whether, in permitting time to expire and the subsequent delay to occur, the party was acting reasonably in all the circumstances

As to the length of delay, Mr Hill QC submitted that the delay in this case (ie over 6 months) is excessive; that a 20-week (or 5 month) delay in Thyssen was, on the facts, objectionable; and that there would have to be an overwhelming case for such a lengthy extension, especially when other s.68 and s.69 challenges had been brought within time and have all now been dismissed as hopeless. In my view, the fact that the court has dismissed other applications is of little, if any relevance; and reference to the length of delays in other cases is at best over-simplistic. Of course, the court must bear in mind the terms of the 1996 Act and the general policy considerations in favour of finality but, in my judgment, each application for an extension of time must be considered on it own particular facts. Mr Hill QC also submitted that in truth the Sellers deliberately waited until effectively Monday 30 January 2012 to serve the present application barely three clear days before the last hearing; and that this was a cynical and improper attempt to delay the enforcement of the award in circumstances where the Sellers (rightly) expected that their then existing s.68 challenges would fail. That suspicion may or may not be well-founded. I do not know and cannot say. For present purposes, that suggestion can and should be ignored.

Here, as I have stated, the Sellers could have brought its challenge under s.68(2)(g) as of right within 28 days of 12 May 2011; and the present application was made on 27 January 2012. So the relevant period of delay in bringing the challenge is some 6 and a half months. As to this delay, Mr Bloch QC submitted that the duration of the arbitration proceedings and the subsequent period before making the application were “dwarfed” by the period of time spent in relation to the related Greek proceedings (both civil and criminal). Against that background and having regard to what he described in his skeleton argument as “commercial cases of this size and complexity and with an international element” Mr Bloch QC further submitted “that a period of 6 and a half months delay is not especially remarkable in and of itself.” I do not agree. The delays in relation to the other Greek proceedings are, in my view, totally irrelevant as is the period relating to the conduct of the arbitration proceedings prior to the making of the award. So too is the suggestion that commercial cases of a certain size and complexity and with an international element are generally entitled to expect greater laxity. In my judgment, there is no basis whatsoever for such suggestion. On the contrary, the observations of Colman J. in Kalmneft which I have already quoted above apply equally to all arbitration proceedings and bear repetition and emphasis: “…..the relatively short period of time for making an application for relief under ss. 67, 68, 69 also reflects the principle of finality. Once an award has been made the parties have to live with it unless they move with great expedition. Were it otherwise, the old mischief of over long unenforceability of awards due to the pendency of supervisory proceedings would be encouraged.” The reference to the need for “great expedition” once an award has been made is important. Parliament has laid down a period of 28 days to bring any challenge as of right. Although that period may, of course, be extended by the exercise of the court’s discretion in appropriate circumstances, the assertion by Mr Bloch QC that a period of 6 and a half months is “not especially remarkable” is, in my judgment, fundamentally misguided.

It is convenient to consider the period of delay in two parts. First, there is the period following the publication of the award on 12 May 2011 and, in particular, from the expiry of the time limit on or about 10 June 2011 until about mid-November when, according to Capt Bardakos’ evidence, he discovered the alleged fraud. Second there is the period from about mid-November 2011 until the date when the present application was made ie 27 January 2012.

Mr Bloch QC submitted that the Sellers were certainly “…not sitting on their hands…” during this period and were pursuing a number of lines of enquiry in an attempt to challenge what they perceived to be a surprising and very unfair award; and that although many of those lines of enquiry were not ultimately pursued formally or the pursuit of these was unsuccessful (e.g. the s.69 challenges), that is a very different thing from saying that the Sellers were acting unreasonably in diverting their efforts and resources to those exercises at the time. In that context, Mr Bloch QC relied upon the evidence of Capt Bardakos with regard to the various tasks and lines of enquiry undertaken by the Sellers during this period viz instructing new legal representatives; preparing for the s.69 challenges; examining the Buyers’ quantum case in more detail; enquiring with experts as to what the appropriate cost of steel repairs would have been in Tuzla at the material time; enquiring with other Greek ship owners regarding the situation in Tuzla at the material time; visiting Turkey and instructing Turkish lawyers to look into the arrangements at Tuzla in more detail; and attempting to make contact with relevant personnel of DNV.

Although I am prepared to accept that the Sellers were not sitting on their hands during this period and were pursuing the lines of enquiry referred to above, I am not persuaded that the Sellers acted with the necessary expedition or even reasonable diligence so far as the present applications are concerned. For present purposes, I assume in the Sellers’ favour that they have a good arguable case that the award was obtained by fraud. However, the conclusions which I reached in relation to s.73 apply equally, if not with greater force, in this context. As submitted by Mr Bloch QC, it was the Sellers’ own case that following the publication of the award they were pursuing lines of enquiry in an attempt to challenge what it perceived to be a surprising and very unfair award. If that is so, it seems to me that the obvious line of enquiry was to make further enquiries with ANCO including, of course, Mr Gkritzapis and Mr Angelopoulos. It seems to me that, as I have stated, there were, at the very least, “grounds to suspect” and that it was still an obvious line of enquiry to pursue particularly since, again as Mr Bloch QC accepted and indeed positively asserted, the Sellers did have some grounds to believe that the Buyers were capable of fraudulent conduct in the arbitration proceedings in the light of the Tribunal’s conclusions in paragraph 116 of the Award – although, for the avoidance of doubt, I should emphasise that Mr Hill QC disputed that such conclusions constituted any finding of fraud. If it had been pursued there is no reason to suppose that what is now alleged to be fraud on the part of the Buyers would not have come to light much earlier.

For these reasons, it is my view that the period of delay following the publication of the award until mid-November 2011 militates strongly against the grant of an extension of time.

Mr Bloch QC submitted that, in the circumstances, the Sellers had acted entirely reasonably and with requisite haste between mid-November 2011 (when according to Capt Bardakos he discovered the alleged fraud) and 27 January 2012 when the application was made. In summary, he submitted as follows:

These submissions were advanced by Mr Bloch QC with considerable persuasiveness but I am unable to accept them. Taking the Sellers’ case at its highest, although the total delay between the time when the alleged fraud was discovered (ie mid-November 2011) and the date when the application was made (ie 27 January 2012) is about 9 weeks, I am prepared to assume in the Sellers’ favour that the relevant period is somewhat shorter – say 4 weeks or so. However, even taking account of the points raised by Mr Bloch QC to explain this delay and giving them due weight, it seems to me that such delay falls far short of the need in these circumstances for expedition or even reasonable diligence. That conclusion is, in my view, fortified when it is borne in mind that the award was published so many months earlier ie in May 2011.

In my judgment, this further period of delay constitutes a further factor militating strongly against the grant of an extension of time.

Whether the respondent to the application or the arbitrator caused or contributed to the delay

Under this head, Mr Bloch QC relied upon matters raised earlier. In particular, he submitted that the alleged fraud, if accepted, was intended not to be discoverable; that the Buyers should not be able to take advantage of the sophistication of their own fraud in being permitted to say that the Sellers were too slow in identifying it; and that the Buyers’ counter that the alleged fraud was “squarely in play” in the arbitration is without foundation. I have already addressed these points above. On the basis, as I have concluded, that the alleged fraud, if it had existed, could and should have been discovered with reasonable diligence, it seems to me that such submissions bear little, if any weight.

Would the Buyers by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed ?

Mr Bloch QC submitted that there was no irremediable prejudice; that the Buyers are fully protected by an HSBC guarantee; that the interest payable on the award (4.5% interest compounded at three monthly rests) is, if anything, generous; that if the Sellers’ case is not ultimately successful, the Buyers will no doubt receive their costs – and it would be open to the court to grant any extension of time on terms that the Sellers provide security for costs; and that any prejudice that might exist must be compared to the risk of the Buyers “getting off the hook” for their fraud.

Mr Hill QC submitted that there was irremediable prejudice in particular because (i) the Buyers are being kept out of a very substantial amount of its money in tough economic times and (ii) any further hearing will involve very substantial costs (which may in part be irrecoverable even if the Buyers succeed) and the cost of management time (which will also be irrecoverable).

As to these submissions, it seems to me that there is some force in Mr Hill QC’s points. In particular, I am very conscious that there is at least some irremediable prejudice when a commercial party is being kept out of its money. However, I am prepared to assume in Mr Bloch QC’s favour that there is none. I proceed on that basis.

Has the arbitration continued during the period of delay and, if so, what impact on the progress of the arbitration or the costs incurred might the determination of the application by the court have ?

The arbitration has been finished for some time. There is no impact.

The strength of the application

Buyers’ case with regard to the strength of Sellers’ application

The Buyers’ case is that the original story set out in Gkritzapis 1 is not only inherently implausible but, as demonstrated by the lengthy and detailed exposition in Mr Williams’ witness statement (“Williams”), is completely untrue; and that Mr Gkritzapis has now had radically to change and to embellish his story in his most recent statement (ie Gkritzapis 2) in an attempt to keep his lies alive but this has simply had the effect of compounding his lies. In short, Mr Hill QC on behalf of the Buyers submitted that the Sellers’ application was founded upon a “story” which was “utterly hopeless” and a “pack of lies”. In support of that broad submission and relying principally on points identified in Williams, Mr Hill QC made 8 separate points with regard to Gkritzapis 1 and the first witness statements of Mr Nakos and Mr Bardakos which were, in summary, as follows:

In light of the above, Mr Hill QC submitted that recognising that Mr Gkritzapis’ original story as set out in Gkritzapis 1 had been shown to be fatally flawed in a large number of respects, the Sellers and Mr Gkritzapis made up a new, embellished story a week before the present court hearing; and that this new story put forward by Mr Gkritzapis in Gkritzapis 2 and supported, in particular, by the new evidence of Mr Angelopoulos, is even more unbelievable than the first version of the story. In support of that submission, Mr Hill QC relied upon a number of points which, in summary, were as follows:

As for the new evidence from Mr Pagalos of DNV, Mr Hill QC submitted that this takes the Sellers’ case nowhere. Thus, Mr Hill QC submitted in summary as follows:

In summary, Mr Hill QC submitted that this is one of those cases where the case is so intrinsically weak that it counts against the application to extend time; that the Sellers’ new case on its own terms is not credible; that it was incredible in the first place; and that, in its now embellished form, it sets what he described as “new standards for invention”. In short, Mr Hill QC submitted that this new proposed s.68 challenge is another fraud; that Capt. Bardakos has concocted another completely false story; and that it is highly relevant that the tribunal has already found that Capt. Bardakos behaved fraudulently, where ANCO and ANCO employees were involved, entirely independently of any inferences to be drawn from the incompatibility between the 2007 and 2005 UTM figures. In other words, completely ignoring the 2007 UTM results (which are the subject of this present s.68 challenge), Mr Hill QC submitted that Capt. Bardakos has a proven track record of behaving fraudulently and fraudulently with ANCO; that at the hearing of the arbitration Capt. Bardakos sought to argue that the 2005 survey by the Sellers was an honest exercise; and that although he repeats that refrain in his new witness statement, the tribunal found as a fact (i) that Capt. Bardakos and his colleague Mr Demeroukis behaved dishonestly in relation to the 2005 UTM survey in China by dismissing a Chinese UTM company when it refused to falsify UTM readings and then flying ANCO down from Greece to do the job instead (award paras 86 and 87); and (ii) that the previous set of UTMs in 2003 were known to be false by Capt. Bardakos because if they were genuine the vessel had grown steel between 2000 and 2003 that was not physically possible and would have been obvious to him (see award para 84). ANCO were the UTM company used by the Sellers in 2003. Accordingly, the tribunal found a pattern of fraud in relation to the 2003 and 2005 UTM surveys irrespective of the 2007 UTM results and found that Mr Bardakos was privy to both those frauds. In view of this history, the overwhelming likelihood is that this new challenge is another Bardakos/ANCO fraudulent conspiracy.

Furthermore, Mr Hill QC submitted that in any event, even taking all the Sellers’ evidence at face value, it cannot be said that the award was obtained by fraud or the award or the way in which it was procured was contrary to public policy within S.68(2)(g) of the 1996 Act; and that as stated above, s.68(2)(g) only applies where the award has been obtained by the fraud of a party to the arbitration or by the fraud of another to which a party to the arbitration was privy. Here, submitted Mr Hill QC, there was not a shred of evidence that the senior management/directors of Queensway or the Buyers were involved in any fraud or knew about it. As a matter of law, the Buyers will not be taken to know of the fraud being perpetrated on it: see Re Hampshire Land [1896] 2 Ch 743.

The Sellers’ response with regard to the strength of the application

On behalf of the Sellers, Mr Bloch QC submitted that it was, at the very least most surprising that the Buyers had elected not to put in any statement from someone with first-hand knowledge of the events in Tuzla denying the accounts put forward by Mr Gkritzapis. The reason offered by Mr Williams for not putting in evidence directly countering Mr Gkritzapis’ account from someone with first-hand knowledge is that this “would be of little assistance to the Court since there will be a straight conflict of evidence on a number of points which it will not be in a position to resolve without hearing oral evidence.” However, Mr Bloch QC submitted that this purported justification for such omission does not work: it might be right for the Buyers to say that they cannot defeat this application simply by offering a conflicting account to Mr Gkritzapis’ - but that does not justify the decision not to present a conflicting account at all (if, indeed, the Buyers say they have one). Even if the Buyers did not think it appropriate to offer a point-by-point response, Mr Bloch QC submitted that does not explain their failure to counter the general thrust of the Sellers’ allegations; that they have not put in any evidence to rebut the allegation that Mr Gkritzapis was instructed to produce documents containing fabricated and low thickness measurements and that these were used to present a misleading impression of the vessel’s condition to the Tribunal.

Further, Mr Bloch QC submitted that Mr Williams’ evidence is, in effect, of little value. Mr Williams is, submitted Mr Bloch QC, a solicitor with no direct first-hand knowledge of the relevant events nor of the documents in question. In any event, Mr Bloch QC submitted that Gkritzapis 2 comprehensively answers all the apparent issues Mr Williams raises regarding the documents. In that context, Mr Bloch QC addressed in considerable detail many of the points raised by Mr Williams both in written form as summarised in paragraphs 32-64 of his skeleton argument and in his oral submissions. In any event, it was his submission that the court could not on this present application resolve the issues which had been raised and that such determination could only be made with the benefit of oral evidence and cross-examination.

As to the question of attribution of knowledge, Mr Bloch QC accepted that the Sellers would ultimately need to demonstrate that the fraud was that of the Buyers, rather than some third party. In that context, Mr Bloch QC submitted that so far as the Sellers have been able to determine, the Buyers were a “paper company”; that in all material respects it had acted through Queensway, who managed the vessel, and whose representatives gave evidence in the arbitration on behalf of the Buyers; that it is therefore, Queensway’s knowledge of the fraud that is material for these purposes; that the Sellers’ evidence points clearly to Mr Melis, Queensway’s Technical Manager, having knowledge of the true nature of the Supplement; and that Mr Melis was the “directing mind” of Queensway in the sphere of matters technical and in particular the person responsible for all technical matters, including the condition of the vessel and the main witness on behalf of the Buyers dealing with technical matters, and the Supplement in particular. (I should mention that Mr Bloch QC originally submitted that Mr Melis was the most senior person in Queensway who gave evidence at the arbitration – but Mr Bloch QC recognised that this was incorrect and, in the course of oral argument, submitted that if necessary the case of fraud could and would be alleged against Mr Terzis, the chief executive of Queensway.) On this basis, Mr Bloch QC submitted that the true nature of the Supplement is to be attributed to Queensway and, therefore, the Buyers. In that context, he relied on Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 in particular in the speech of Lord Hoffmann at pp 506-507.

I should also mention that Mr Bloch QC addressed at some length in his written submissions a number of points viz that if the alleged fraud existed (a) it would have had a significant impact or influence on the outcome of the arbitration (paras 116-132); (ii) it would have assisted the Tribunal in evaluating the earlier survey reports in 2000, 2003 and 2005 (paras 133-140); and (c) it would have had a significant effect on quantum (paras 149-154). It does not seem necessary to consider these in any detail. I am content to proceed on the basis that Mr Bloch QC is correct in such submissions.

Discussion with regard to the strength of the application

I agree with Mr Bloch QC that although there may be good reason for the Buyers not adducing a point-by-point response it does seem surprising (at least at first sight) that the Buyers put in no evidence at all from anyone with first-hand knowledge of the events in Tuzla denying the accounts put forward by Mr Gkritzapis. However, this is often a difficult tactical decision. Evidence from a witness which consists of little more than a bare denial is often (rightly) criticised because of its failure to descend to any detail; and, as stated by Mr Williams, there is here much force in the view that a more detailed point by point rebuttal would be of little assistance (at least to the Buyers) because there would be a straight conflict of evidence which the court could not resolve without hearing oral evidence. Be that as it may, what is clear is that the assertion by Mr Hill QC in a footnote in his skeleton argument that Messrs Melis, Devaris and Erzaim vehemently deny the allegations does not fill the gap identified by Mr Bloch QC, is of no evidential value, carries no weight and must be ignored; and that I must deal with the application on the evidence before me.

For present purposes, I am also prepared to assume in Mr Bloch QC’s favour that I should disregard the Tribunal’s conclusion that Capt. Bardakos had previously acted dishonestly in relation to the 2005 survey and that there was a pattern of fraud in relation to the 2003 and 2005 surveys irrespective of the 2007 results to which Capt. Bardakos was privy – although as submitted by Mr Hill QC there are perhaps strong reasons why such conduct should not be disregarded because it is arguably unaffected by the events in 2007

Nevertheless and despite Mr Bloch QC’s forceful submissions, I am bound to say that I regard the case now sought to be advanced on behalf of the Sellers as, at best, extremely weak. That is so for two independent reasons.

First, as stated above, s.68(2)(g) only applies where the award has been obtained by the fraud of a party to the arbitration or by the fraud of another to which a party to the arbitration was privy and, in my view, even taking the Sellers’ evidence at face value, such evidence falls far short of showing any fraud on the part of the Buyers or which could properly be attributed to them. As Mr Bloch QC fairly conceded, the assertion in para 46 of his skeleton argument that Mr Melis was the most senior person in Queensway who gave oral evidence at the arbitration was an error. It is also fair to say that such error was perhaps excusable because it was founded on an error in the award itself and Mr Bloch QC did not himself appear in the arbitration. Be that as it may, I was frankly astonished when Mr Bloch QC felt able to assert orally for the first time in the course of his reply that if necessary the case of fraud could and would be alleged against Mr Terzis, the chief executive of Queensway. In my judgment, there was no proper basis for such assertion.

Second, on the technical side, it seems to me that the manner and timing in which this new case has emerged are, of themselves, relevant to what, if any credence, can be given to it. In particular, I bear in mind that the Sellers had at the very least used ANCO to carry out the earlier surveys in 2003 and 2005; and that on Capt Bardakos’ own evidence, he spoke to Mr Angelopoulos from time to time about the arbitration and, in particular, both to him and to Mr Gkritzapis either just before or at the early stages of the arbitration. Given what Capt. Bardakos himself recognised was a “tension” between the reports in 2005 and 2007, it is, at the very least, somewhat surprising that the Sellers did not call Mr Nakos or Mr Gkritzapis at the arbitration; and that, again on his own evidence, it was not until mid-November 2011 that Capt Bardakos considered that the Buyers’ story about the nature of the Supplement might not be true. In any event, the flaws in the Sellers’ evidence, in particular the evidence of Mr Gkritzapis, identified by Mr Hill QC and summarised above are, in my view, overwhelming. As submitted by Mr Bloch QC, it is true that Gkritzapis 2 does, in a sense, provide answers to the numerous points raised by Mr Wiliams with regard to Gkritzapis 1.

However, in the light of the contemporaneous documents, the various accounts and explanations given by, in particular, Mr Gkritzapis are, in my judgment, simply not credible or inconsistent or both. In particular, the inconsistencies summarised above between Gkritzapis 1 and Gkritzapis 2 are so striking that it seems to me difficult, if not impossible, for the court to give any credence at all to the case now sought to be advanced by the Sellers on the basis of this and the other new evidence.

To my mind, the most blatant example of such inconsistency concerns Mr Gkritzapis’ evidence relating to thickness measurements taken in the forepeak tank. Thus, in Gkritzapis 1 para 55, Mr Gkritzapis states: “…I think [Mr Davaris’] concern to cover his back was also the reason why he videotaped the forepeak, when I was asked to diminish the actual measurements of the bulkhead plating (steel sheets), which were very close to the “as built” thickness, by recording values near to the same values entered for the grooving on the stiffeners. I therefore thought I was doing him a favour, helping him.” However, in Gkritzapis 2, Mr Gkritzapis states in para 49 “…..In case it from was not clear in my first witness statement, I would like to clarify that the measurements of the fore-peak collision bulkhead contained on these diagrams were accurate, unlike those of the under deck longitudinals. As I mentioned in my first witness statement, Mr Davaris filmed this measurement exercise, and so there was independent verification of these measurements. As he was filming it, I assumed he didn't want me to insert different numbers onto the diagrams. The measurements were still not indicative of the general condition of the metal, however, as they were taken in areas of localised corrosion and grooving.” These two statements are manifestly contradictory: they are simply impossible to reconcile. Mr Bloch QC frankly accepted that these two accounts were “quite different” and that the two cannot both be accurate. However, Mr Bloch QC submitted that this inconsistency could be explained by a false memory and that there was considerable scope for what he described as “muddle and confusion”, an experience which (he submitted) we all share. Otherwise, Mr Bloch QC was unable to provide any satisfactory explanation of this inconsistency; nor of the other inconsistencies referred to above. His only response was that whatever inconsistencies existed could not properly be resolved at this stage without oral evidence and cross-examination and that itself is a reason why the court should grant an extension of time to allow the challenge to proceed.

I am very conscious of the dangers of the court carrying out a mini-trial on the affidavits. However, this is not a case where the inconsistencies lie between the evidence advanced by each adverse party in the litigation. Here, the inconsistencies are on one side. Moreover, such inconsistencies are not remote or peripheral. Rather, the inconsistencies in the Sellers’ evidence are manifest and lie at the very heart of the case now sought to be advanced; and, as stated above, are so striking that, in my judgment, this is a case where exceptionally the court is entitled to conclude even at this stage that the case advanced is, at best, extremely weak.

Would it in the broadest sense be unfair to the Sellers for them to be denied the opportunity of having the application determined.

In a sense, any refusal to extend time which has the result of denying a party the opportunity of having the substantive application determined is “unfair” to that party. But the question of overall justice and fairness must be considered in the context of the overall scheme of the 1996 Act and in particular the policy considerations (including the importance of finality in arbitrations) which I have already referred to above. Notwithstanding the gravity of the allegations, it is my view that any relevant unfairness is outweighed by the delays in bringing the application and the fact that, as I have concluded, the alleged fraud is, at best, extremely weak.

In my judgment, the Sellers have failed to satisfy the burden on them under s.73 of the 1996 Act that if the alleged fraud existed it could not with reasonable diligence have been discovered given, in particular, that there were here “grounds to suspect”. For that reason, the substantive application under s.68(2)(g) is inevitably doomed and, on that ground alone, the application for an extension of time to bring the substantive application must fail. Even if that is wrong, the delays in bringing the application and the fact (as I have found) that the application is, at best, extremely weak persuade me that I should in the exercise of my discretion refuse the application for an extension of time. In my view, any unfairness to the Sellers is outweighed by such matters.

Counsel are requested to seek to agree a draft order (including costs) for my approval failing which I will deal with any outstanding issues.