BV Scheepswerf Damen Gorinchem v The Marine Institute

By an arbitration claim form dated 20 October 2014, the claimant (to which I will refer as “Damen”) applies to set aside the Award of the arbitrator, Mr Patrick O’Donovan, dated 23 September 2014 pursuant to section 68 of the Arbitration Act 1996. The grounds for the application are that:

Pursuant to section 68(2)(a) and/or (c) the delay in publishing the Award (of some 376 days after a three day hearing) was a failure by the arbitrator to comply with his general duties under section 33 of the Act and/or a failure to comply with the procedure agreed between the parties, clause 20 of the LMAA terms;

Pursuant to section 68(2)(a) and/or (d) the arbitrator failed to deal with all of the issues put to him and/or failed to consider central issues and/or failed to take proper consideration of key evidence.

The dispute between the parties arose under a contract dated 19 December 2000 pursuant to which Damen agreed to build and The Marine institute (“TMI”) agreed to purchase a multi-purpose research vessel subsequently named the CELTIC EXPLORER. The vessel’s engines were not commissioned at Damen’s yard in Romania, but the vessel was towed to Holland where commissioning of the engines took place. For the purposes of keeping the engines in position during the towage, additional distance plates (“ADPs”) were fitted on either side of each engine. Those ADPs should have been removed during the commissioning of the engine but were not. Unbeknownst to TMI they remained fitted when the vessel was delivered to TMI in December 2002. Subsequently damage was found which necessitated repairs to the vessel at Falmouth in January and February 2008 and later at Galway in July and August 2008.

Clause 19 of the contract provided for disputes to be submitted to a single arbitrator in London pursuant to the terms of the London Maritime Arbitrators Association (“LMAA”) and the parties appointed Mr O’Donovan. In the arbitration, TMI claimed against Damen that the failure to remove the ADPs was a breach of contract and claimed damages for that breach of contract consisting of (i) €1,195,444.10 in respect of inspections and remedial work and (ii) €856,000 in respect of loss of hire. By the time of the hearing, which took place over three days on 9, 11 and 12 September 2013, Damen had admitted that it was in breach of contract, but asserted that the presence of the ADPs had not caused the damage sustained. It put forward three potential causes of the damage, none of which was the fault of Damen: (i) misalignment caused by normal wear and tear of the flexi-mounts (which permitted movement of the engines whilst in service); (ii) failure to turn the engine when not in use; and (iii) some underlying problem which was the common cause or a common cause for both the damage observed in 2008 and subsequent damage observed in 2011, the root cause perhaps lying in the Trelleborg mounting system.

Both parties were represented at the hearing by leading counsel. Expert marine engineering evidence was called from Mr John Gibson of Brookes Bell for TMI and Mr Nicholas Chell of London Offshore Consultants, who had exchanged reports sequentially (Mr Gibson’s report being produced first) and produced a joint memorandum. Both were cross-examined in detail. It should be noted at the outset that, although Mr Chell’s evidence in his reports and orally dealt with the first two potential causes of the damage referred to in the previous paragraph, misalignment and failure to turn the engine, no evidence was led from him about the third potential cause, the common cause of the 2008 and 2011 damage, (notwithstanding that at [7.2] of his first report, Mr Gibson had expressed the opinion that there were differences between the damage noted in 2008 and that noted in 2011 and that there was no connection between the causes of the damage). The common cause point was not pleaded by Damen but was raised for the first time in his written opening submissions by Mr Vineall QC on behalf of Damen. He cross-examined Mr Gibson about it at some length and, throughout, Mr Gibson maintained his opinion that the damage in 2011 was significantly different from the damage in 2008 and not caused by the same problem. Damen not having led any evidence from Mr Chell on the common cause theory, Mr Hill QC on behalf of TMI understandably did not cross-examine him about it.

It was not until more than five months after the end of the hearing that, on 24 February 2014, Mr O’Donovan emailed the parties to update them on the likely date of publication of the award which he envisaged would be in the second half of March. Neither party had chased him in the meantime, nor did they react to this email. A further two months passed until the arbitrator sent a further email on 29 April 2014 saying his earlier indication had been over-optimistic, but he was confident of publishing his Award in the week of 12 May 2014. On 20 May 2014 he wrote again apologising for the delay and saying he was making good progress and hoped to publish the following week, which seems to me to be a fair indication that he had started writing the Award by then.

However, he did not publish the Award the following week and wrote again on 3 June 2014, saying he envisaged publishing the following week or at the latest early in the week after that. On 30 June 2014, he emailed saying the Award was substantially drafted, but he was in a hearing and would be unable to finalise it that week but would do so the following week. TMI’s solicitors responded asking the arbitrator if he could provide them with a figure for the costs of the Award but did not comment on the delay. On 28 July 2014, he emailed again saying he had hoped and expected to publish the Award before going on holiday the following weekend but that had not proved possible and he now envisaged publishing shortly after his return on 13 August 2014. On 5 August 2014, his assistant corrected the date for his return to 20 August 2014.

However, the Award did not appear shortly after his return from holiday and, on 28 August 2014, he emailed to say he was back in harness after the holiday and would publish the Award the following week. He did not. On 5 September 2014 he emailed again apologising that he would not publish that week, but stating he would definitely do so by the end of the following week. Again he did not do so and, on 16 September 2014, emailed saying he was in a hearing but would publish by the end of the week. On 23 September 2014, he published the Award and informed the parties by email apologising again for the delay in doing so. At no stage had either party chased the Award or complained about the delay.

For reasons which I elaborate later in the judgment, delay in publishing an Award is not in itself a ground of serious irregularity under section 68(2) of the Arbitration Act, because, without more, the delay will not have caused the applicant serious injustice. There must be something else, for example that the delay has led to a failure to deal with issues under subsection (2)(d). However, it does not follow that extensive delay, let alone inordinate delay of twelve months in publishing an Award, should be permissible. The arbitrator has not provided any explanation for this delay, other than on occasions in the emails suggesting it was due to the pressure of other work. If that is the explanation, then it is no excuse. If, because of pressure of work, an arbitrator cannot produce an Award for many months, then the solution is take on fewer appointments to ensure that Awards can be produced within a reasonable time of the conclusion of the hearing. Clause 20 of the LMAA terms provides that the Award should: “normally be available within not more than six weeks from the close of the proceedings”. Whilst that is not intended to be an immutable rule, in a normal case, of which this was one, LMAA arbitrators should be aiming to produce Awards in that timescale and certainly not exceeding it to the extent that the arbitrator did in this case.

By the Award the arbitrator found that all the loss and damage claimed was caused by Damen’s breach of contract and negligence. He provided 30 pages of Reasons supporting that conclusion. After the award was published, Damen’s solicitors wrote on 20 October 2014 asking the arbitrator to correct the Award and provide further reasons pursuant to section 57 of the Arbitration Act in respect of various issues with which it was contended the arbitrator had not dealt in his Reasons. In his email response on 27 October 2014, the arbitrator said that he did not consider further Reasons were necessary or appropriate and he rejected the criticisms that Damen had made of the Award.

It is against this background that Damen brings its section 68 application. Before setting out the arbitrator’s conclusion and reasoning in more detail I propose to summarise the applicable legal principles.

Section 68 of the Arbitration Act 1996 provides, inter alia, as follows:

The researches of counsel have not disclosed any decision under the Act where delay in publishing the Award has amounted to serious irregularity. Mr Timothy Hill QC for TMI suggested that the reason for this was very simple. Not only is delay in producing the Award not one of the kinds of “serious irregularity” listed, but delay in producing the Award is dealt with elsewhere in the Act in section 24 headed: “Power of Court to remove arbitrator” which, so far as relevant, provides as follows:

Mr Hill submitted that, if Damen had wished to complain about late production of the Award, its remedy was to apply to have the arbitrator removed under section 24 before the Award was published, but that delay in producing the Award would not amount to serious irregularity under section 68. I cannot accept that submission. The first head of serious irregularity under section 68(2) is failure to comply with the general duty under section 33. One of the aspects of that general duty under section 33(1)(b) is “avoiding unnecessary delay” which it seems to me would encompass delay in publishing an Award, so that on the face of it, unnecessary delay such as in this case is capable of amounting to a serious irregularity. However, more problematic for Damen is the question whether the delay has caused or will cause substantial injustice. I return to that question below.

Damen also submitted that the delay amounted to failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties within section 68(2)(c), here the LMAA terms and, specifically, clause 20. It seems to me to be a distortion of language to describe that provision as “the procedure agreed between the parties” and, in any event, as I have said, the provision is not an immutable rule as to when an Award must be published. However, even if that analysis were wrong and the delay was a failure within sub-section (2)(c), the problem Damen faces is still one of showing that the delay, without more, has caused substantial injustice.

The legal principles applicable in cases where the alleged serious irregularity is failure to deal with the issues were recently usefully summarised by Akenhead J in Secretary of State for the Home Department v Raytheon Systems Ltd [2014] EWHC 4375 (TCC):

Mr Vineall QC accepts that in a normal case where section 68(2)(d) is invoked those principles apply, but submits that the position is different in cases of delay such as this. He submits that where there has been delay such as in this case, the Court can and should examine very closely and carefully the tribunal’s findings and, in an appropriate case, set aside the Award and remit it, if necessary to a different tribunal. In support of that submission he relies by analogy on appellate decisions in cases where there has been an appeal from a judgment delivered after an inordinate delay or where there has been some serious procedural or other irregularity in the proceedings before the court of first instance within CPR 52.11(3)(b).

The first case he relied upon was the decision of the Privy Council in Cobham v Frett [2001] 1 WLR 1775, an appeal from a decision of the Court of Appeal of the British Virgin Islands to set aside a judgment of the court of first instance where there had been a delay of more than twelve months between conclusion of the trial and judgment. The grounds of appeal did not in fact include delay in producing the judgment but contended that the judge had misinterpreted the evidence (see 1782D in the judgment of Lord Scott of Foscote), so that this was an appeal on issues of fact. The Board allowed the appeal against the decision of the Court of Appeal. At 1783E-H Lord Scott stated:

Mr Vineall QC also relied upon the decision of the Court of Appeal in Bond v Dunster Properties Limited [2011] EWCA Civ 455. In that case, judgment had been delivered some 22 months after the conclusion of the hearing. As in Cobham v Frett, the appeal was against the findings of fact. In a section of her judgment headed: “Standard of review on appeal against findings of fact in a seriously delayed judgment” Arden LJ said at [7]:

After a careful analysis of the evidence and the judge’s findings, Arden LJ went on to find that the delay in delivering the judgment did not render his conclusions on the issues on appeal unsafe. Longmore LJ and Lord Neuberger MR agreed. At [119] of his judgment, the Master of the Rolls said:

The other decision of the Court of Appeal upon which Mr Vineall QC particularly relied was Crinion v IG Markets Ltd [2013] EWCA Civ 587. That was not a case of delay in producing a judgment, but a case where the basis for the appeal was that almost all the judge’s judgment was “cut and pasted” from one side’s counsel’s submissions which he had received in Word and revised it to include some, but not much material of his own. The appellants’ argument was that the judgment created the impression that the judge had abdicated his core judicial responsibility to think through and decide the issues for himself and that he had failed to address their case, which amounted to a serious procedural irregularity causing the decision to be unjust. However, the appellants’ counsel refused to be drawn as to whether the decision was in fact right on the merits.

Mr Vineall QC evidently relied on this case as another example of the Court of Appeal examining the judge’s findings carefully where there has been what appears to be a procedural irregularity. Having done so, they dismissed the appeal. At [17]-[18] Underhill LJ said:

Underhill LJ then went on to examine carefully each section of the judgment. Longmore LJ at [42]-[43] said this:

It seems to me that there is a fundamental problem with the analogy which Mr Vineall QC seeks to draw with those appellate decisions. Damen’s solicitor said in terms in her witness statement in support of the section 68 application, that the application was not an attempt to challenge the arbitrator’s findings of fact. In contrast, in those cases of appeals against judgments, the appellate court was being invited to examine closely the findings of fact either (in Cobham and Bond) because the appeal was against the findings of fact or (in Crinion) because it was being said that the judge had not engaged with the losing party’s case in the findings he had made. It was open to and indeed necessary for the appellate court to examine closely the findings of fact. In contrast, in section 68 cases, the Courts have said time and again that it is not possible for an applicant to use the section to attack findings of fact made by the tribunal.

It seems to me that the furthest the analogy with the appellate decisions on which Mr Vineall QC relied can be taken on a section 68 application is that, in a case of lengthy delay between the hearing and the Award, the Court might be more likely to subject the reasons to a close analysis to check that the arbitrator has dealt with all the issues put before him. However, if that analysis reveals that he has dealt with all the issues, how he has dealt with them, whether well or badly, is irrelevant on a section 68 application. As I said in my judgment in Primera Maritime (Hellas) Ltd v Jiangsu Eastern Heavy Industry Co Ltd [2013] EWHC 3066 (Comm); [2014] 1 Lloyd’s Rep 255 at [40-[41]:

Mr Vineall QC sought to overcome the fundamental obstacle that it is not open to an applicant on a section 68 application to challenge the arbitrator’s findings of fact by submitting that, because something had gone seriously wrong with the procedure in this case which he said cried out for correction, when that was corrected by sending the case back to another arbitrator, it would be open to Mr Vineall QC to challenge the findings of fact and invite the new arbitrator to make different findings. That submission simply demonstrated that this application is exactly what Mr Hill QC characterised it as being in his skeleton argument, an impermissible attempt to challenge the arbitrator’s findings of fact. I consider that there is no basis whatsoever for reaching the conclusion that this restriction on the scope of section 68 applications does not apply in cases where there has been inordinate delay in producing the Award.

Were the position otherwise, the obvious question is where would the line be drawn in terms of the length of delay in publication of an Award required before the Court would interfere and examine closely the findings of fact in the way in which Mr Vineall QC suggests. Would a delay of three or four months be enough? Would the position be different if the arbitrator had a valid excuse for the delay, such as illness or if the arbitrator were able to demonstrate that despite the delay, he had in fact written the part of his Award dealing with the evidence within a matter of weeks of the hearing? The reality is that there is no principled basis for the approach which Mr Vineall QC advocates.

Mr Vineall QC pointed out that much of the first ten pages of the Reasons reflected TMI’s opening submissions, which is neither surprising nor exceptionable, since those sections set out an outline of the dispute, the contractual provisions, who had given evidence and TMI’s case in outline. The Reasons then set out Damen’s case in outline, derived from Damen’s opening. There were then two sections headed “The relevant facts” and “Repairs” which Mr Vineall QC submitted was also mainly derived from TMI’s opening. However, even if it were open to Damen to complain about the findings of fact (which it is not for the reasons I have given in the previous section), there was nothing untoward in any of those findings. In the next section of the Reasons, the arbitrator set out in turn a summary of the expert evidence in their respective reports of Mr Gibson and Mr Chell, their joint meeting by telephone and then their supplemental reports.

The next section of the Reasons is headed “Discussion and my findings”. Although this is only three pages long, it is all the arbitrator’s text and none of it is derived from either party’s written submissions. He begins by noting the submissions by Damen that the burden was on TMI and the principle that where there are many possible theories and explanations, it is for the claimant to show that its explanation is the most likely. He then referred to the fact that Damen had criticised what was referred to as TMI’s “Delphic pleadings” and “unclear expert evidence” and Damen’s complaint about late production of finite element analysis (“FEA”) evidence and about non-disclosure, evidently a reference to late disclosure by TMI of certain documents. The arbitrator then stated that these points were not accepted by TMI who complained that the common cause case was run for the first time in Damen’s opening skeleton argument at the arbitration.

At this point, it is worth pointing out two matters. First, the FEA was produced by TMI after the joint meeting of experts at the behest of Mr Gibson, to address the fact that Mr Chell seemed to him to be unable to appreciate that the movement of the engines would be different in a dynamic situation such as would occur in service at sea from in a static situation which was all Mr Chell seemed able to contemplate. Mr Gibson had the FEA done, as he explained in his evidence, not to prove the figures used which he accepted were not necessarily accurate but by way of comparative analysis to prove that the movement of the engines was indeed different in the dynamic situation as he maintained. Second the late disclosure produced by TMI related largely to the 2011 damage and consisted of meeting notes and technical materials relating to that damage. There is some force in TMI’s point that, until shortly before the arbitration, it was not obvious that Damen were putting the 2011 damage in issue, as the “common cause” theory only emerged in Mr Vineall QC’s opening submissions. In this context, although Damen complained about the late disclosure, no application for any sort of adjournment to deal with it or for Mr Chell to consider it was made to the arbitrator.

At [78] to [81] of the Reasons, the arbitrator then dealt with the potential three causes put forward by Damen in these terms:

The arbitrator then went on to dismiss at [82]-[84] allegations made by Damen about failure of TMI to mitigate its loss. He indicated at [85] that he had adjourned issues of quantum until after his determination of liability.

The first issue in relation to Damen’s case on delay with which I need to deal is TMI’s suggestion that Damen has lost the right to object to the delay because it failed to make any application to the Court under section 24 or at least, complain about the delay to the arbitrator before the Award was published. In my judgment there is nothing in this point. It is always a delicate matter for counsel or solicitors to raise with a judge or arbitrator when a long outstanding judgment or Award is going to be produced, for fear of causing offence. It seems to me wholly unreal to suggest that, by not making some complaint about delay before the Award was issued, Damen had lost the right to complain about the delay after it was produced.

As set out above, the inordinate delay in publishing the Award was capable of amounting to a serious irregularity because it was a breach of the arbitrator’s general duty under section 33. However, Damen still has to show that that irregularity has caused or will cause it substantial injustice. In this context, Mr Vineall QC placed particular reliance on [90] of the judgment of Colman J in Vee Networks Ltd v Econet Wireless International Ltd [2004] EWHC 2909 (Comm); [2005] 1 Lloyd’s Rep 192:

In order to satisfy that test of serious injustice, Damen still has to show that, but for the inordinate delay (which on this hypothesis amounts to the relevant “serious irregularity”), the arbitrator might well have reached a different conclusion more favourable to Damen. It seems to me impossible to satisfy that test unless Damen can show that there has in fact been a failure to deal with all the issues within section 68(2)(d). If the Award is otherwise unimpeachable and has dealt with all the issues, it makes no difference whether it was produced a month or twelve months after the hearing, since however long the Award has taken to produce, the applicant cannot show that it has caused or will cause substantial injustice. That is why delay on its own does not amount to serious irregularity. Furthermore, since for the reasons I have given, it is never open to an applicant under section 68 to complain about the findings of fact, it avails Damen nothing to criticise the findings of fact, even if there were anything in its criticisms, which, for the reasons set out below, there is not.

In its application and evidence in support, Damen relied upon four grounds in relation to which it contended that the arbitrator had failed to deal with all the issues:

Failure to deal with the “common cause” issue.

Failure to deal with the FEA evidence.

Failure to deal with the evidence of TMI’s failure properly to maintain the engines.

Failure to deal with Damen’s case of contributory negligence.

In his skeleton argument, Mr Vineall QC sought to introduce as a first “issue” with which the arbitrator had not dealt, a refinement on his “common cause” point, that the arbitrator had failed to deal with the issue as to whether there was misalignment between the engines and their alternators after the 2008 repairs and before the 2011 failure. However, this misalignment point is exactly that, a “point” not an issue, and even if the “common cause” theory was an issue (and as set out below, I do not consider it was) the misalignment point was no more than a sub-issue or a sub-sub-issue within that issue. In terms of what Mr Vineall QC described as the granularity of issues, this criticism for failure to deal with misalignment is exactly the sort of “salami slicing” of points in the case, which are not by any stretch of the imagination essential issues, of which the cases on subsection (2)(d) disapprove. In any event, on the basis of Mr Gibson’s expert evidence, which the arbitrator expressly accepted, there was nothing in this point.

So far as the suggestion that the arbitrator had failed generally to deal with the common cause issue is concerned, that allegation is hopeless for a number of reasons. First, this was not on analysis an “issue” but at best a “sub-issue” of the main issue which was whether the 2008 damage was caused by the breach of contract and negligence of Damen. So, even if the arbitrator had failed to deal with it, that could not be the subject of a successful section 68 challenge.

However, whether it was an issue or not, the arbitrator has dealt with it. He notes the potential causes alleged by Damen, including this one, at [78] of his Reasons, then at [79] prefers the expert evidence of Mr Gibson whom he finds was consistent throughout his reports and in his oral evidence. Of course, it was in his oral evidence in cross-examination that Mr Gibson maintained his opinion that the 2011 damage was different from the 2008 damage and there was no common cause. At [80] the arbitrator then states that he rejects the three cases put forward by Damen, which of course include the “common cause” theory.

In the circumstances, it seems to me impossible to maintain the case that the arbitrator has failed to deal with the common cause theory. He clearly has dealt with it, albeit in short order. Mr Vineall QC’s real complaint is that the arbitrator’s reasoning on this issue, if contrary to the view I have expressed above it is an “issue”, is not fuller and better expressed. I do not consider the complaint has any force since it seems to me likely that the arbitrator dealt with the point shortly because it did not merit more discussion. In truth, it was a counsel led point advanced by Mr Vineall QC with no expert evidence from his own expert to support it, which was roundly rejected by TMI’s expert Mr Gibson, whose evidence the arbitrator preferred anyway, as he was entitled to, so that it is scarcely surprising if Mr O’Donovan gave it pretty short shrift.

However, even if it were possible to criticise the arbitrator for not having dealt with the common cause “issue” more fully than he did, that is no basis for a section 68 challenge. Once he has dealt with the issue, which he clearly did, it is not open to Damen on a section 68 application to criticise the quality of the reasoning: see the passage from my judgment in Primera Maritime case cited at [24] above.

Damen also complained that the arbitrator had failed to deal with the late disclosure made by TMI including various meeting note after the 2011 damage had occurred in which Mr Wardle, the Salvage Association surveyor appears to have had second thoughts about the cause of the 2008 damage. The short answer to this complaint is that it is not permissible on a section 68 application to seek to argue that the arbitrator has not dealt with a particular piece of evidence. This was a point which I emphasised in [49-[50] of my judgment in Primera Maritime:

Furthermore, given that Mr Wardle did not give evidence and was not an expert in the case, whereas Mr Gibson was and he was clear in his evidence, despite sustained cross-examination, that the cause of the 2011 damage was different from the 2008 damage, there was nothing in this point. The arbitrator did not have to deal separately with the late disclosure if he accepted Mr Gibson’s evidence, which he did.

The second ground on which Mr Vineall QC submitted that the arbitrator had failed to deal with an issue was that he had failed to deal with the FEA evidence. What this amounted to was a complaint that the arbitrator had not recorded and accepted Mr Vineall QC’s criticisms of the FEA which Mr Gibson had commissioned. This point is hopeless. Even if this was an “issue” which it was not, let alone an essential issue, the arbitrator did deal with it when he found at [79] that Mr Gibson’s expert evidence, which he accepted, was backed up by the FEA and that criticism of the FEA by Damen was overstated. Accordingly, the point made at [24] and [40] above would be equally applicable here.

In any event, even if the arbitrator had not dealt with the criticisms of the FEA evidence, this is territory which is expressly forbidden by the authorities. The statement in [50] of my judgment in Primera Maritime could not be more apposite in the present context. This is a classic example of a disappointed party saying it has been treated unfairly because its criticism of some piece of evidence has not been accepted and fully dealt with. This is indeed precisely the situation where the Court should not intervene and there is simply no basis for subverting that fundamental restriction on the scope of section 68 challenges in the case of delay.

Even if, contrary to the findings I have made, Mr Vineall QC could demonstrate that the arbitrator had failed to deal with an issue as he suggests, Damen still has to show that this has caused or will cause it substantial injustice. Applying the Vee Networks test set out at [33] above, Damen cannot show that the result might have been different, since the arbitrator has held that he accepted and preferred Mr Gibson’s evidence. It is quite clear that, even if he were ordered by the Court to provide further Reasons and to deal with what Mr Vineall QC contends were “issues” with which he has not dealt, he would reach the same ultimate conclusion.

Although the delay in producing the award in this case was extremely regrettable, there is no basis for any suggestion that the arbitrator has failed to deal with the issues put before him or that the delay has caused or will cause serious injustice to Damen. This section 68 application is no more than an impermissible attempt to criticise the arbitrator’s evaluation and analysis of the evidence and must be dismissed.