Navigator Spirit SA v Five Oceans Salvage SA

This is an application by Navigator Spirit SA, the owners of the vessel FLAG METTE, to set aside an award of Jeremy Russell QC, the arbitrator appointed by the Council of Lloyd’s to hear appeals under the Lloyd’s Open Form of Salvage Agreement (“LOF”). The grounds of the application are that there was a serious irregularity in the conduct of the appeal arbitration within the meaning of section 68 of the Arbitration Act 1996. The defendant to this arbitration application is Five Oceans Salvage SA, a salvage company, which was the claimant in the arbitration. I shall refer to Navigator Spirit SA as the Owners and to Five Oceans Salvage SA as the Salvors.

It is alleged by the Owners that the appeal arbitrator took into account dangers which had neither featured in the “Grounds of Appeal” nor in the appeal hearing. In the law of salvage the dangers facing a casualty have always been an important factor to take into account when assessing salvage remuneration. The assessment of salvage remuneration is now governed by Article 13 of the Salvage Convention 1989 and “the nature and degree of the danger” is one of the criteria there listed to be taken into consideration. As a matter of analysis dangers are assessed by considering what would or might have happened to the casualty in the absence of assistance. That is a necessarily hypothetical exercise. Once the dangers are assessed on that basis (leading to the conclusion that there was, for example, a risk of grounding of a high or a low order) it is customary to consider the question of alternative assistance, that is; was there available assistance from those other than the actual salvor who might have salved the casualty from the dangers facing her? Consideration of both dangers and alternative assistance enables the tribunal to reach a realistic view of the casualty’s predicament. Before addressing the alleged serious irregularity in the present case it is necessary to summarise the events giving rise to the salvage claim and the course of the first instance arbitration and arbitration on appeal.

In December 2016 FLAG METTE, a newly built Kamsarmax bulk carrier of 229m in length and 80,784 dwt, was in the course of her second laden voyage from Kamsar in Guinea to Stade in Germany, laden with a cargo of standard metallurgical bauxite.

At 0518 on 20 December the vessel’s automated systems shut down the main engine when the vessel was in the northern sector of the Bay of Biscay about 30 miles south west of the Ushant Traffic Separation Scheme (“the TSS”). She broadcast a Pan Pan message in which she advised that her main engine was stopped and she requested other vessels to keep clear. The casualty’s AIS status was changed to Not Under Command and Not Under Command lights were displayed. Contact was established with the Salvors who mobilised their salvage tug RED SEA FOS from her salvage station in Madeira but also made enquiries as to the availability of the salvage tug ABEILLE BOURBON which might have been able to assist the casualty more speedily than the Salvors’ own tug. At 1030 those on board the casualty were able to restart the main engine and the casualty resumed her voyage. RED SEA was instructed to return to Madeira.

At 1333 the main engine was again shut down. At this time the casualty was in the north east lane of the TSS. Another Pan Pan call was made, her AIS status was changed to Not Under Command and Not Under Command shapes were displayed. But at 1437 the main engines were restarted and the voyage resumed. At 1530 the Owners advised the casualty to proceed to Brest so that the problem with the main engines could be investigated. Shortly afterwards the casualty left the north east going lane of the TSS in order to join the south west going lane. At about 1630 LOF was agreed with the Contractors. At 1650 “Ushant traffic” informed the managers that tug assistance would be required for the casualty to “reach Brest”. At 1720 the main engines again shut down as the casualty was about to enter the south west going lane. All vessels in the vicinity were advised that the casualty was Not Under Command. But at 1826 the engines were restarted. At 1830 the authorities required the casualty to anchor in Douarnenez Bay, about 70 km from Brest by road. At 1922 the main engines again shut down but were restarted at 1945. In the meantime, at 1730, the Salvors had sub-contracted the assistance of ABEILLE BOURBON. The casualty could only proceed at slow ahead and entered the south west lane of the TSS. At 2030 ABEILLE BOURBON left Brest for the casualty.

At 0210 on 21 December the tug came up with the casualty and made fast and the tow to Douarnenez Bay commenced. At 1448 the casualty dropped anchor in the bay, the tow line was cast off and the tug departed for Brest.

On 22 December the arrival of a MAN service engineer was awaited. Another tug, BREMEN FIGHTER, was sub-contracted to assist the casualty to Stade.

On 23 December the MAN service engineer arrived. After making investigation he attributed the main engine problems to poor assembly and loose wiring. Repairs were completed.

On 24 December BREMEN FIGHTER arrived and escorted the casualty during sea trials. At 1830 the casualty was cleared for departure and she got underway at full speed, escorted by BREMEN FIGHTER. Further engine problems were experienced on 25 December but on 26 December the casualty was able to continue her voyage without further assistance and the services under LOF were terminated at 1200. On 28 December the casualty was safely alongside at Stade.

Salvage was claimed and the assessment of the sum due was referred to arbitration, Lionel Persey QC being appointed arbitrator by the Council of Lloyd’s. At this first instance arbitration the Salvors contended for two dangers. The first was that the casualty was temporarily immobilised and in need of assistance from professional salvors. The second was that the casualty was subject to a low order risk of collision had she attempted to transit the English Channel unassisted. The arbitrator held that the casualty was intermittently immobilised but at risk of becoming temporarily immobilised. She was in need of tug assistance which would inevitably be provided on salvage terms. He held that the casualty would have required tug assistance to be permitted to enter Brest or to anchor. With regard to the suggested risk of collision the arbitrator rejected such danger. He said:

“It is plain from the contemporaneous correspondence that the managers had very prudently decided that the vessel should proceed to Brest and that the assistance of a MAN service engineer was required before the vessel could proceed to destination. The instruction to make for Brest was given before LOF was concluded. There is no evidence to suggest that either the master or the managers would have been foolhardy enough to contemplate a Channel transit in the absence of assistance.”

Having considered alternative assistance (which would have been the tugs which in fact performed the services on a sub-contracted basis), the services (well-performed but relatively straightforward), the out of pocket expenses (over $265,000), the status of the salvors (“first rank of international professional salvors”, “four substantial tugs on salvage station”, “deserving of considerable encouragement, particularly in the present market”), the salved fund (over $22m.), the guidance of Steel J. in The Voutakos [2008] 2 Lloyd’s Reports 516 and the provisions of Article 13 of the Salvage Convention 1989 the arbitrator considered that a fair and encouraging award was $825,000 together with an agreed currency uplift of 3.76%.

The Salvors were not content with that award and appealed pursuant to the provisions of LOF. Jeremy Russell QC was appointed by the Council of Lloyd’s to act as the appeal arbitrator.

The LOF procedural rules provide at paragraph 8 for grounds of appeal to be given. That rule was commented upon by a previous appeal arbitrator as recorded in the LOF Digest Update of 11 June 2007. It was said that they should not amount to a full and detailed written argument. Those settling them should be “as economical as possible in stating their challenges to an arbitrator’s award, consistent always with giving adequate notice of the points to be taken”.

In the present case the Salvors’ grounds of appeal alleged that the arbitrator had erred in two respects, the first of which was as follows:

“He wrongly rejected the second danger put forward by the Contractors on the basis that the Managers had decided to order the vessel to Brest and had given that instruction prior to conclusion of the LOF. In doing so he failed to consider the consequences of his findings that the casualty would have required tug assistance to be permitted to enter Brest or to anchor and that the ABEILLE BOURBON was the only tug available to provide rapid assistance to the casualty. Had he given proper consideration to the absence of any alternative assistance he would have had to conclude that it was probable that the casualty would have had to contemplate a Channel transit, however dangerous, because she had no alternative.”

It is unnecessary to set out the second alleged mistake. It was rejected by the appeal arbitrator and no point turns upon it.

The grounds of appeal further alleged that the award was unjustly low because it was not sufficiently encouraging; the “quantum” appeal.

At the hearing of the appeal the parties were represented by counsel and solicitors as they had been at the first instance arbitration. Mr. Montgomery attended on behalf of the Owners’ solicitors, Holman Fenwick Willan LLP. Notwithstanding that his right and dominant arm was in a plaster cast he took a note of the proceedings but because his right arm was in a plaster cast he instructed his trainee solicitor Mr. Rainer also to take as detailed a note as possible. Mr. Montgomery recorded that when Mr. Kverndal submitted that in the absence of assistance the casualty would have had no option but to head into the English Channel the appeal arbitrator said that he could think of “alternative scenarios”. An alternative would have been “to wait offshore”. Mr. Rainier had a similar note. Mr. Bailey, a senior marine manager at Clyde & Co. LLP who acted for the Salvors, also recorded the appeal arbitrator’s observation that if the authorities would not allow the casualty to enter Brest without assistance she would “wait offshore”.

Mr. Montgomery recorded that Mr. Davey submitted that in the absence of assistance the casualty would “simply go to anchor without assistance and put an engineer on board”. Mr. Rainer noted that Mr. Davey submitted that there was “an available anchorage”. Mr. Bailey also noted his counsel having submitted that there was “an available anchorage”. Mr. Montgomery noted that the appeal arbitrator did not accept this submission and Mr. Rainer and Mr. Bailey record the appeal arbitrator putting to Mr. Davey the alternative scenario that if the authorities would not permit the casualty to enter the Bay unassisted she would proceed offshore. It will be necessary to return to these notes in more detail.

When Mr. Kverndal made his submissions in reply Mr. Mongomery noted him as maintaining his case that in the absence of assistance there was a low order risk that the vessel would go “up Channel” and so there was a low order risk of a collision. Similarly, Mr. Rainer noted that Mr. Kverndal had submitted in reply that there was “at least a good chance that the casualty would have pressed on” up the Channel. Mr. Bailey had a similar note; “as good a chance would have pressed on”.

In his Reasons on Appeal the appeal arbitrator found that there was force in Mr. Kverndal’s submission that the arbitrator had, when assessing dangers, failed to ask himself what would have happened in the absence of salvage assistance. It was therefore necessary for the appeal arbitrator to reconsider the question of dangers, apart that is from the unchallenged danger of immobilisation (see paragraph 34 of the Reasons on Appeal). He recorded Mr. Kverndal’s submission that in the absence of assistance the casualty’s only option would have been to press on through the Channel (see paragraph 35 of the Reasons on Appeal). He recorded Mr. Davey’s submission that the casualty’s managers had decided that the casualty should make for Brest (see paragraph 36 of the Reasons on Appeal). The appeal arbitrator held that in the absence of assistance the casualty did indeed have the option of heading for Brest (see paragraph 38 of the Reasons on Appeal). But the appeal arbitrator then noted, as Mr. Kverndal had done, that that begged the question of what would have happened next, if there had been no assistance. Although Mr. Davey accepted that the French authorities would not allow the casualty to enter Brest without tug assistance, he submitted that it was likely that the authorities would have permitted the casualty to approach the anchorage at Dounarnenez Bay and to anchor, though perhaps with the assistance of port tugs (see paragraphs 39 and 40 of the Reasons on Appeal). The appeal arbitrator noted Mr. Kverndal’s response that the arbitrator had found that (large) tug assistance would have been required to enter Brest or to anchor and that there was no evidence that the authorities would be cooperative in the absence of assistance from a large tug (see paragraph 41 of the Reasons on Appeal). The appeal arbitrator accepted that the “picture painted” by Mr. Davey was possible but he, the appeal arbitrator, was by no means certain that the authorities would have been as sanguine about the casualty approaching close to the French coast as he submitted. He said this, in paragraph 42 of the Reasons on Appeal:

“I have knowledge of previous cases where vessels in difficulty have been ordered away from the French coast. When considering dangers, an arbitrator is concerned with risks, not certainties. In the absence of a large tug, there was a sufficiently significant risk for me to take into account that the French authorities would not have permitted the Vessel to close the coast and come to anchor.”

The appeal arbitrator then noted that it was in those circumstances that Mr. Kverndal submitted that the casualty “had no option but to proceed with the voyage through the English Channel, no matter how foolhardy that might appear.” The appeal arbitrator disagreed with that submission. He said, at paragraph 43 of Reasons on Appeal:

“Had the French authorities refused to permit the Vessel to close the coast unassisted, I find that one of two things would have happened. Either:

(a)

the Vessel would have moved off the coast to seaward of vessels approaching and departing the TSS and waited until assistance from a tug acceptable to the authorities became available, after which she would have been towed into Douarnenez Bay and repairs would have been carried out or alternatively

(b)

the MAN service engineer would have been put on board offshore, either by boat or more probably by helicopter, where the repairs would have been carried out whilst the Vessel waited for the arrival of an escort tug.”

The appeal arbitrator then said, in paragraph 44 of the Reasons on Appeal, that those alternatives gave rise to dangers which had not been taken into account. In a footnote he said that that was because “the case does not appear to have been argued in quite that way below”. He described those dangers as being a prolongation of the possible period of immobilisation and a risk of collision over and above that which is always present when a vessel is at sea, given the propensity of the engine to shut down automatically;

“That risk would have been present both whilst the Vessel manoeuvred to a position further off the coast and whilst she waited there, either for an alternative tug to arrive or for the service engineer to analyse and resolve the problem. Although that risk is of a low order, it is not of such a low order that I should refuse to take into account.”

The appeal arbitrator concluded on this aspect of the case as follows:

“Thus although I reject Mr. Kverndal’s first ground of appeal as originally formulated I find that had the Vessel’s situation been analysed in the way set out above, the dangers to which the Vessel was exposed would have been found to be a little higher than those found by the arbitrator. Accordingly it is open to me to review the level of the award.”

The appeal arbitrator then rejected the second alleged error and proceeded to assess the appropriate level of award afresh. In those circumstances there was no need for him to address the quantum appeal, the second ground of appeal, which raised the question whether, on the dangers as found by the arbitrator, the award was unjustly low.

In considering the appropriate salvage award the appeal arbitrator made reference to the dangers, the possibility of alternative assistance, the services, the out of pocket expenses, the status of the salvors, the size of the salved fund and need to make an encouraging award. In considering the appropriate level of encouragement the appeal arbitrator noted, in particular, the recommendation by Lord Donaldson in his report “Safer Ships, Cleaner Seas” issued in 1994 that tribunals should, when assessing an award take particular account of the decline of the salvage industry and ensure that they give sufficient encouragement to dedicated professional salvors. The appeal arbitrator noted that that recommendation was “even more apposite today than when first written.” Finally, by way of balance the appeal arbitrator had expressly in mind the well-known principle of The Amerique (1874) LR 6 PC 468 that the award must not be out of proportion to either the services rendered or to the salved values.

Having considered these matters and the provisions of Article 13 of the salvage Convention 1989 he concluded that a fair and encouraging award was $1,200,000 to which should be added the agreed currency uplift of 3.76%. Thus the appeal was allowed.

Mr. Davey, on behalf of the Owners (and in reality their hull underwriters) submitted that the award on appeal was affected by a serious irregularity in that it was allowed on grounds which were not part of the Grounds of Appeal and which had never been mentioned, let alone argued. He submitted that the appeal arbitrator failed to comply with the duty to act fairly in section 33 of the Arbitration Act 1996, that he exceeded his powers and that he failed to conduct the proceedings in accordance with the procedure agreed by the parties. These were serious irregularities falling within, respectively, section 68(2) (a), (b) and (c) of the Arbitration Act 1996.

In developing these submissions Mr. Davey said that the appeal arbitrator, having rejected both of the alleged errors of the first instance arbitrator (in particular that he had been wrong to find that there was no risk of collision arising from the casualty proceeding to transit the Channel in the absence of assistance) ought therefore to have proceeded to consider the “quantum” appeal on the basis of the dangers as found by the first instance arbitrator. Mr. Davey submitted that the award on appeal should now be set aside and the matter remitted to the appeal arbitrator to enable him to consider the quantum appeal on the basis that the arbitrator at first instance had made neither of the alleged errors.

The essence of Mr. Davey’s submission is that whilst it is accepted that the arbitrator raised with Mr. Kverndal the alternative scenario that in the absence of alternative assistance the casualty may have proceeded to seaward of the TSS that was in the context of debating with Mr. Kverndal whether there was a real possibility that in the absence of assistance the casualty would have proceeded along the Channel. It was not in the context of raising a new danger, namely a low order risk of collision whilst the casualty proceeded offshore to seaward of the TSS and awaited assistance. Mr. Davey said that no such danger was raised with him. Similarly, no new danger in the form of an appreciably longer period of immobilisation whilst the casualty awaited assistance to seaward of the TSS was raised with him.

Whether these dangers were raised with Mr. Davey has been the subject of much evidence from the solicitors who attended the appeal arbitration, in terms of statements and contemporaneous notes of the hearing, and also, unusually in a section 68 application but helpfully, from the appeal arbitrator himself.

The appeal arbitrator has a clear recollection that the basis upon which he made his finding in paragraph 43 of his Reasons on Appeal (that the casualty would have moved off the coast to seaward of vessels approaching and departing the TSS) was put to Mr. Kverndal. He accepts that that is not reflected in his notes but there is no dispute that he did so. That he did so is apparent from the notes of Mr. Mongomery, Mr. Rainer and Mr. Bailey. The appeal arbitrator goes on to say that he does not have a clear recollection of putting “the point” expressly to Mr. Davey. He states however that he has no doubt that Mr. Davey understood “the point” and argued against it.

He relies upon two matters in that regard. First, he noted a passage in his notes where he records Mr. Davey as saying: “Must be careful not to add dangers together – can’t say in danger off Brest, dealing with situation and @ risk in Channel.”. A similar passage is to be found in the notes of Mr. Rainer. Second, he noted that the matters argued by Mr. Davey and recorded in paragraphs 39-40 of the reasons on Appeal (that in the absence of assistance the French authorities would have permitted the casualty to approach the anchorage and anchor, perhaps with the assistance of port tugs) were arguments against the point which he had put to Mr. Kverndal.

Mr. Davey, in his submissions to this court, said that the first point referred to a danger of immobilisation off Brest and a collision risk in the channel and the second point referred to his submissions as to why there was no risk of collision in the Channel.

It seems to me that the two matters referred to by the appeal arbitrator as supporting his belief that Mr. Davey understood that there was being advanced by the appeal arbitrator a risk of collision offshore to seaward of the TSS and that he argued against such risk do not in fact establish that Mr. Davey had that understanding or argued against the suggested danger. Whilst they are consistent with the arbitrator’s belief they are also consistent with Mr. Davey dealing with the argument advanced by Mr. Kverndal that there was a risk of collision in the Channel. With regard to the first point Mr. Davey said that he was pointing to the dangers advanced (first, immobilisation and second, risk of collision in the Channel) being alternatives. The casualty could not be both immobilised off Brest and at risk of collision whilst proceeding up the channel. With regard to the second point Mr. Davey said that anchoring would avoid the risk of collision in the Channel, though he accepted that it would also avoid a risk of collision offshore to seaward of the TSS.

Mr. Kverndal relied upon the recorded reply of the arbitrator on appeal to Mr. Davey’s point that one must be careful not to add the dangers together, namely, “They are at best either/or scenarios”. But this comment is also explicable as a reference to the risk of immobilisation off Brest and the risk of collision in the Channel.

Mr. Kverndal also relied upon the statement by the appeal arbitrator in his witness statement that the risk of collision whilst waiting off Brest was one which “I had put to Mr. Kverndal”. He says that there is no reason not to accept that statement. I have no doubt whatsoever that the appeal arbitrator believed that the risk of collision whilst waiting offshore had been raised by him in the appeal hearing. In his Reasons on Appeal at paragraph 44 and footnote 2 he noted that the case was argued differently from the way it had been argued below. But having considered the various notes of the hearing, none of which clearly articulate a risk of collision offshore to seaward of the TSS, I have concluded that, if the appeal arbitrator is to be taken as saying in his statement that he recalled putting to Mr. Kverndal expressly that there was such a risk of collision, he is mistaken in his recollection. What he did put to Mr. Kverndal, as the appeal arbitrator correctly recalls and as recorded in the notes of Mr. Montgomery, Mr. Rainer and Mr. Bailey, is that in circumstances where the French authorities might have refused to permit the casualty to close the coast unassisted the casualty would have moved off the coast to seaward of vessels approaching and departing the TSS and so there would have been no risk of a collision in the Channel because the casualty would not have been in the Channel. But none of the notes suggests that in that context the risk of a collision whilst proceeding offshore and waiting at a position to seaward of the TSS was expressly put as an alternative to a risk of collision in the Channel. However, when the appeal arbitrator put his scenario to Mr. Kverndal the latter replied that that “cuts both ways”. That comment is only recorded by Mr. Bailey. The notes of Mr. Montgomery and Mr. Rainer do not mention it. But there is no reason to doubt Mr. Bailey’s note. What did Mr. Kverndal’s reply mean? Since Mr. Kverndal and the appeal arbitrator were debating the risk of collision the obvious meaning of the remark was that, if the appeal arbitrator’s scenario were correct, whilst there was no risk of collision in the Channel there was a risk of collision offshore. It seems to me that that is why the appeal arbitrator said that he had put the risk of collision offshore to Mr. Kverndal. He had not expressly mentioned it but since the casualty would, on the appeal arbitrator’s scenario, still be at sea in circumstances where her engines might fail there remained a risk of collision. Mr. Kverndal understood this and the appeal arbitrator appreciated that. There was no need to mention the matter expressly. (This understanding of the appeal arbitrator’s evidence that he had put the risk of collision offshore to Mr. Kverndal was advanced by Mr. Kverndal in his supplementary skeleton argument at paragraph 9 (1) and fn. 4, though he put the matter rather differently in his oral submissions when he said that the appeal arbitrator’s statement was irrefutable evidence that the risk of collision offshore had been put to him in terms.)

The notes also show that when Mr. Davey submitted, in the context of the appeal against the finding that there was no danger of collision in the Channel, that the French authorities would permit her to anchor in the bay without assistance the appeal arbitrator said, “No”, according to the notes of Mr. Montgomery. The notes of Mr. Rainer and Mr. Bailey are more extensive. Each records the appeal arbitrator putting to Mr. Davey the point that the French authorities would not allow the casualty to enter the bay without assistance and if that were so then she would be off the coast waiting for assistance. Each records the appeal arbitrator as saying that in that event she would be (in Mr. Rainer’s notes) “waiting for assistance, manoeuvring against wind and tide risking further breakdowns” and (in Mr. Bailey’s notes) “waiting for assist = delay, would have to manoeuvre o/wise at peril of weather + risk of further breakdowns which could leave her anywhere.” If the appeal arbitrator had also said in terms that there was a risk of collision in that location it seems likely that Mr. Rainer and Mr. Bailey would have noted such risk, in addition to the risks they in fact noted.

Mr. Kverndal also relied upon Mr. Rainer’s note of his reply submissions which he said recorded his submission that, if there was no risk of collision in the Channel, there was a risk of collision offshore. I have considered these notes, and the similar notes of Mr. Bailey. While they are open to the interpretation Mr. Kverndal puts upon them I am not persuaded that they in fact bear that meaning. They may only record a submission that whilst there was a chance that the casualty might remain offshore there was at least as good a chance that the casualty would have pressed on up the channel.

Thus, in summary, there was a debate with both counsel concerning the appeal arbitrator’s alternative scenario. When Mr. Kverndal put his scenario of the casualty having no alternative but to proceed down the Channel the appeal arbitrator put to him an alternative scenario that the casualty would proceed offshore and when Mr. Davey put his scenario of the casualty being permitted to anchor in the bay unassisted the appeal arbitrator, consistently with what he had put to Mr. Kverndal, put to Mr. Davey the alternative scenario that the casualty might not be so permitted and so would proceed offshore. Although the alternative scenario was fairly put to both counsel, and although certain dangers facing the casualty in that scenario were put to Mr. Davey, the danger of collision does not appear to have been expressly mentioned. However, Mr. Kverndal recognised, by his “cuts both ways” comment, that such a risk was a necessary consequence of the appeal arbitrator’s scenario. The appeal arbitrator did so too; hence this recollection that he had put the risk of collision offshore to Mr. Kverndal.

Section 33 of the Arbitration Act 1996 requires the tribunal to act fairly. In Terna Bahrain Holding Company WLL v Al Shamsi [2013] 1 Lloyd’s Reports 86 at paragraph 85 (iv) Popplewell J., who had noted many of the relevant authorities, said that there will generally be a breach of section 33 where the tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. At paragraph 85 (v) Popplewell J. said that there was an important distinction between, on the one hand, a party having no opportunity to address a point, or his opponent’s case, and, on the other hand, a party failing to recognise or take the opportunity which exists. The latter will not involve a breach of section 33.

It is also necessary to bear in mind what was said by the Court of Appeal in The Magdalena Oldendorff [2009] 1 Lloyd’s Reports 7 which concerned an alleged breach of section 33 and was one of the authorities on which Popplewell J based his summary of the law in Terna and, in particular (as I think likely) the proposition in paragraph 85(v) which I have just quoted. I mentioned this case to counsel but no submissions were made on it.

Waller LJ in paragraph 35 said:

“The difficulty with making good that submission [that the tribunal had failed to give counsel a reasonable opportunity to deal with a particular point] is that section 33 has to be approached by reference to the conduct of the arbitrators. For an irregularity to be established in a case of this kind it must be established that the tribunal have acted unfairly …by failing to give a party a reasonable opportunity of putting his case or dealing with that of his opponent.”

At paragraph 39 Waller LJ expressly concentrated on “the conduct of the tribunal and their perception” and concluded that so far as the tribunal was concerned it had no reason to appreciate that counsel, who had been making many points, had missed some additional point. In paragraph 40 Waller LJ asked whether it could be said that the tribunal had acted unfairly in not saying something to counsel about the way opposing counsel was putting his case. He said:

“In my view it would be placing an unfair burden on any tribunal where (I stress) they do not appreciate that a point is being missed, to check whether leading counsel understands what is being said.”

In paragraph 42 he said:

“If an arbitrator appreciates that a party has missed a point then fairness requires the arbitrator to raise it so that the party can deal with it. But where there is no such appreciation it is not unfair to leave it to counsel , particularly highly experienced counsel, who shows a detailed knowledge of the case to take such points as he wishes.”

In the present case the Owners complain that the appeal was decided on the basis of two dangers with which their counsel did not have a fair opportunity to deal. As was made clear by the Court of Appeal in The Magdalena Oldendorff it is necessary to approach this question by reference to how matters appeared to the appeal arbitrator. (I note that in a very recent decision given on 3 May 2018 after the hearing in this matter, SCM Financial Overseas Limited v Raga Establishment Limited [2018] EWHC 1008 (Comm), Males J. said that “what must be shown is unfairness by the arbitrators and not merely a mistake or misunderstanding by the losing party or its lawyers. That is the ratio of The Magdalena Oldendorff…..” That is also my understanding of The Magdalena Oldendorff.)

The appeal arbitrator did not consider that either party had correctly identified the hypothetical scenario in which the dangers facing the casualty were to be assessed. The Salvors’ scenario was one in which the casualty, having been refused permission to anchor without the assistance of a large tug, decided to proceed along the English Channel. That gave rise to a danger of collision in the Channel. The Owners’ scenario was one in which the casualty was permitted to anchor in the bay and did so, perhaps with the assistance of port tugs. That meant that there was no risk of collision in the Channel. The appeal arbitrator considered that if the French authorities had refused permission for the casualty to anchor in the bay without tug assistance (as the first instance arbitrator had found and which was consistent with the appeal arbitrator’s knowledge in previous cases where vessels in difficulty had been ordered away from the French coast) the Owners would not have been so foolhardy as to require the casualty to proceed down the Channel. The likely scenario in his view was one in which the casualty would have moved off the coast to seaward of vessels approaching and departing the TSS. The appeal arbitrator fairly put that scenario to both counsel. He did not put expressly to either counsel that there was a risk of collision in such a position but Mr. Kverndal appreciated that there was; hence his remark that the point “cuts both ways”. When the scenario was put to Mr. Davey there was, again, no mention of a collision risk but there was mention of other risks, namely “delay”, “peril of the weather” and a “risk of further breakdowns which could leave her anywhere”.

Mr. Davey has told me (see paragraph 23 of his Skeleton Argument) that he did not have in mind, as the appeal arbitrator thought he had, a risk of collision whilst waiting offshore. I naturally accept that; but it is necessary, as The Magdalena Oldendorrf makes clear, to view the matter from the appeal arbitrator’s perspective and not from Mr. Davey’s perspective. From the appeal arbitrator’s view there is, it seems to me, no reason to suppose that he was aware that Mr. Davey did not appreciate that on the appeal arbitrator’s scenario there was a risk of collision offshore. When that scenario was put to Mr. Kverndal the latter appreciated that there was such a risk; hence his comment “cuts both ways”. The appeal arbitrator obviously heard and understood that remark; hence his statement in evidence that he had put that risk of collision to Mr. Kverndal. The appeal arbitrator would have assumed that Mr. Davey had listened to the exchange between the appeal arbitrator and Mr. Kverndal and that he also would have appreciated that the appeal arbitrator’s scenario involved a risk of collision offshore. It is true that when, later, he put the alternative scenario to Mr. Davey he did not mention the risk of collision whilst mentioning delay and the risk of further engine breakdowns. But it is those matters which give rise to the risk of collision whilst the casualty was at sea offshore of Brest, as Mr. Kverndal had recognised. In his Reasons on Appeal the appeal arbitrator expressly noted (fn.2) that his findings on dangers came about because the case had not been argued below by reference to the scenario he had set out in paragraph 43 of his Reasons on Appeal. He was obviously of the view that despite that circumstance it was fair and just to assess the dangers on the basis of that scenario. It was reasonable for him to have that view because he had put his alternative scenario to each counsel. In circumstances where the appeal arbitrator did not appreciate that Mr. Davey had missed the point that proceeding offshore and waiting there exposed the casualty to a risk of collision there was no obligation upon him to check with Mr. Davey that he was aware of that risk. It follows that the fact that he did not make that check does not mean that he acted unfairly.

Mr. Davey also complained about the appeal arbitrator relying upon his conclusion that if the casualty waited offshore the period of immobilisation may have been longer than it would have been had the casualty waited in the bay. But the notes of Mr. Bailey record that when the appeal arbitrator put to Mr. Davey the alternative scenario of the casualty proceeding offshore and waiting there he expressly referred to the risk of “delay”. That being so he had a clear opportunity to address the arbitrator on that topic.

I therefore do not consider that the Owners are able to establish a breach by the appeal arbitrator of his duty to act fairly.

There is a further matter to consider. Proof of an irregularity is not sufficient. There must be proof of a serious irregularity. In that context it is well established that relief under section 68 of the Arbitration Act 1996 will only be appropriate where the tribunal has gone so wrong in its conduct of the arbitration, and where its conduct is so far removed from what could reasonably be expected from the arbitral process, that justice calls out for it to be corrected; see Terna Bahrain Holding Company WLL v Al Shamsi [2013] 1 Lloyd’s Reports 86 at paragraph 85 (iii) per Popplewell J.

In considering that principle in the context of a salvage arbitration under LOF I have borne in mind my knowledge and experience of salvage arbitrations under LOF. The persons appointed by Lloyd’s to act as first instance arbitrator or as the appeal arbitrator have, for many decades, been members of the Admiralty Bar with experience of salvage arbitrations. Such arbitrations always had, and retain to this day, a degree of informality. That is no doubt because in the typical case the issue is the assessment of salvage remuneration where the factors to be considered are well known. Thus, save in exceptional cases (where for example there may be an allegation of negligence), there are no pleadings, though today counsel for the salvors will provide, in advance of the hearing, to the first instance arbitrator and to counsel for the respondent owners of the salved property a reading list and a draft “Report to Lloyd’s” which will set out the dangers, services and so forth for which he or she will contend at the hearing. On appeal there was, for many years, no requirement for written grounds of appeal. They are now required by the LOF Procedural Rules but as I have already remarked those drafting them are expected to be “as economical as possible……consistent always with giving adequate notice of the points to be taken”. Consistent with this relative lack of formality is a recognition or understanding that the arbitrator or appeal arbitrator may use his or her own knowledge, experience and understanding of salvage and matters relating thereto when assessing the level of salvage remuneration. Thus in the present case the appeal arbitrator had regard to his own knowledge of previous cases where vessels in difficulty off the French coast have been ordered away by the French authorities. Expert evidence is not required in the typical case. These characteristics of LOF arbitrations are intended to ensure that the process of LOF arbitration remains as cost effective as possible, keeping delay to a minimum. As a result of the relative lack of formality and the expectation that the arbitrator or arbitrator on appeal will form his or her own views of the matters in issue based upon his or her own experience, knowledge and understanding of maritime matters counsel have to be prepared to deal with points raised by the arbitrator or appeal arbitrator which may not have been raised by his opposing counsel. Thus the appeal arbitrator has stated in the present case in his statement that “whilst acting as counsel I have both lost and won points on appeal which were not specifically foreshadowed in the grounds of appeal, but which were brought out during the course of argument.” My experience was the same. Mr. Kverndal submitted, on the basis of his experience, that “it sometimes happens that the arbitrator (or appeal arbitrator) posits at the hearing a counterfactual scenario which is different or differently nuanced to that advanced by either counsel; it is then up to counsel to address the arbitrator on the analysis and assessment of dangers in that alternative scenario.” That was also my experience.

Taking account of those characteristics of LOF arbitration it is impossible to say that the conduct of the appeal arbitrator was so far removed from what could reasonably be expected of the arbitral process that justice calls out for it to be corrected. The appeal arbitrator carefully considered the first ground of appeal and considered that there was force in Mr. Kverndal’s submission that the first instance arbitrator had failed to consider the question of dangers in the absence of salvage assistance. He then considered what would or might be the correct hypothetical scenario against which to assess dangers and put that scenario to Mr. Kverndal (because he did not accept Mr. Kverndal’s hypothetical scenario that the casualty would proceed down the Channel). He also put the same scenario to Mr. Davey (because he did not accept Mr. Davey’s hypothetical scenario that the casualty would have been allowed to anchor in the bay without (large) tug assistance). Thus the appeal arbitrator had sought to put the manner in which he viewed the case to both parties in order that they each had an opportunity to comment upon it. He plainly endeavoured to act fairly. If, contrary to my view, he failed to give Owners’ counsel a fair opportunity to address the dangers arising from his alternative scenario he did not go so wrong in his conduct of the arbitration that justice calls out for that failure to be corrected.

The final matter to consider in case I am wrong so far is whether the suggested serious irregularity has caused substantial injustice. I am unable to accept the submission made by Mr. Davey that the award should be remitted to the appeal arbitrator to consider the quantum appeal on the basis that the dangers were as found by the first instance arbitrator. The appeal arbitrator had upheld the complaint that the first instance arbitrator had failed to ask himself what would have happened in the absence of salvage assistance. He then identified a different hypothetical scenario against which to assess dangers from those put forward by the parties. It would make no sense to require the appeal arbitrator to consider the quantum appeal without having regard to the hypothetical scenario which he, using his knowledge and experience, considered to be the realistic scenario. Rather, the question of substantial injustice depends upon whether, had the Owners’ counsel addressed the dangers which the appeal arbitrator had in mind, the appeal arbitrator might well have reached a different view and produced a significantly different outcome; see Terna at paragraph 85 (vii) per Popplewell J.

Mr. Kverndal has, since the outset of this application, submitted that this test cannot be satisfied. In his first Skeleton Argument in this matter dated January 2018 he submitted there was no realistic chance that the outcome would be different. Since then no particular reasons have been advanced by Mr. Davey in support of the proposition that the appeal arbitrator might well have reached a different view had Mr. Davey addressed him on the dangers arising out of the appeal arbitrator’s scenario. He has said that with regard to the collision risk he would need to seek advice from a master mariner and with regard to the immobilisation being longer he would wish to submit that it might have been shorter.

As to the risk of collision the appeal arbitrator considered that there was a risk of collision, over and above that which is always present when a vessel is at sea, given the propensity of the main engine to shut down automatically. He described that risk as being of a low order but not so low that he should refuse to take it into account. The propensity of the main engines to shut down automatically cannot be denied and it is that which gives rise to the risk of collision over and above that which is always present when a vessel is at sea. It is reflected in the circumstance that when the engines were shut down vessels in the vicinity were informed that the casualty was Not Under Command. In circumstances where the Owners have had since January 2018 to identify some reason why the appeal arbitrator might well have concluded, had he been addressed on the matter by Mr. Davey, that there was no risk of collision worthy of being taken into account I am unpersuaded that the appeal arbitrator might well have reached a different view as to the risk of collision. As to the risk of immobilisation the appeal arbitrator considered that the casualty’s motion in a seaway off the coast, as opposed to her motion whilst at anchor in the shelter of the bay, may have prolonged the period of repair. Again, whilst this is not certain, I am unpersuaded that the appeal arbitrator, had he been addressed on the matter by Mr. Davey, might well have concluded that there was no risk that the period of immobilisation might have been longer.

It is therefore my conclusion that the Owners cannot establish the necessary “substantial injustice”.

For all these reasons the application to set aside the award on the grounds of a serious irregularity within section 68(2)(a), namely, a breach of the section 33 duty to act fairly, must be dismissed.

It was also alleged that there was a serious irregularity within section 68(2)(b) in that the appeal arbitrator exceeded his powers and within section 68(2)(c) in that the appeal arbitrator failed to conduct the proceedings in accordance with the procedure agreed by the parties. I am not sure that these further allegations raised any different issues from those arising under section 68(2)(a). Both allegations relate, I think, to the circumstance that the risk of collision offshore was not mentioned in the Salvors’ Grounds of Appeal. That is true. What was mentioned in the Grounds of Appeal was a risk of collision in the Channel. The appeal arbitrator accepted the initial part of Mr. Kverndal’s criticism of the first instance arbitrator’s approach to dangers but not his conclusion that there was a risk of collision in the Channel. That was because he did not think that the casualty would have pressed on up the Channel in the absence of assistance. Rather, he thought that she would have proceeded offshore and waited there. The appeal arbitrator’s conclusion that there was a risk of collision offshore arose out of his consideration of the Ground of Appeal which had been advanced (as did his conclusion that the immobilisation may have been longer). It was not a conclusion that there was a danger of a different type from that which had been mentioned in the Grounds of Appeal. It was a conclusion that there was a risk of collision, as had been contended by the Salvors, but in a different location from that contended for by the Salvors. I do not consider this an irregularity within section 68(2((b) or (c). If it is, contrary to my view, such an irregularity it is not a serious irregularity and cannot be shown to have caused substantial injustice for the reasons already given with regard to section 68(2)(a).

It follows that the Owners’ application must be dismissed.