England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR JUSTICE EDER)

		Royal Courts of Justice Strand London WC2A 2LL
		12 February 2016

1. LORD JUSTICE MOORE-BICK: This is a renewed application for permission to appeal following refusal on paper by the single Lord Justice.
2. The dispute between the parties arises out of the termination by the Government of the Union of Comoros of an agreement which it had entered into with Union Marine Classification Services in February 2007 for, among other things, the creation and administration of an open registry for sea-going vessels. It was a term of the agreement that Union Marine would pay the government 50 per cent of the fees charged on each vessel entered on the register, with a guaranteed minimum of $11,000 a month.
3. On 17 April 2012, the government terminated the agreement on the grounds that Union Marine had repudiated it. Various breaches were relied on, but the only one which is relevant for present purposes is an alleged failure to pay substantial sums which were said to have become due under it, and which were said to have been paid to other persons or government departments fraudulently and by way of bribes. Union Marine maintain that the termination was wrongful and itself constituted a repudiation of the agreement by the government.
4. In due course, the dispute was referred to arbitration and on 22 July 2014, the arbitrator published an award in which he held that the government had not been entitled to terminate the agreement and had itself repudiated it. Following publication of that award, both parties applied to the arbitrator to have corrections made. In particular, the government asked the arbitrator to deal with a matter which it said he had failed to determine, namely, a claim to recover a shortfall in payments said to have fallen due before the termination of the agreement, and in that connection for relief by way of an account.
5. As a result, on 31 August 2014, the arbitrator published what he described as a "Correction and Addition to the Award dated 22 July 2014", in which he held that the government was entitled to an account of the fees charged on vessels entered on the register before the date of termination and of the payments made by Union Marine, and damages in respect of any shortfall in the amount of payments that had been made. In his reasons, the arbitrator frankly admitted that he had overlooked the government's claim for sums due under the agreement which remained outstanding at the date of termination. In publishing his second award, he said that he was doing so under the provisions of section 57 of the Arbitration Act 1996 or paragraph 25 of the LMAA terms, each of which gives the arbitrator power to correct his award.
6. Union Marine decided to challenge the second award, and on 26 September 2014 it issued an arbitration claim form under section 67 of the Arbitration Act, seeking to have the second award set aside on the grounds that the arbitrator had had no substantive jurisdiction to make it. The central point in issue was whether the arbitrator had become functus officio on the publication of his first award because he had finally dealt with all the matters that had been referred to him. Union Marine said that he had, and that in publishing his second award he had acted without jurisdiction. The government said that he had not and that he was entitled to exercise the jurisdiction given by section 57(3) of the Arbitration Act to make an additional award in respect of any claim that had been presented to him that had not been dealt with in the first award.
7. The application was heard by Eder J on 25 February 2015. At that hearing, the government argued that the application must fail in any event because section 67 was concerned with the existence of substantive jurisdiction as defined in sections 82(1) and 30(1) of the Arbitration Act 1996. In section 30(1), "substantive jurisdiction" is defined in such a way that it concerns only the questions whether there is a valid arbitration agreement, whether the tribunal is properly constituted, and what matters have been submitted to arbitration in accordance with the agreement. The expression is not, so it was submitted, apt to include acts in excess of jurisdiction on the part of an arbitrator who has been validly appointed.
8. Eder J accepted that argument and held that a complaint of the kind being made by Union Marine did not fall within the scope of section 67. He dismissed the application on that ground alone. He also refused an application by Union Marine for an extension of time in which to make an alternative application under section 68 of the Act to set aside the award on the ground that the arbitrator had exceeded his powers otherwise than by exceeding his substantive jurisdiction and had thereby committed a serious procedural irregularity. Finally, the judge made it clear that in his view the application should in any event be rejected on its merits because the arbitrator had plainly not become functus officio by publishing his first award.
9. Union Marine now seeks permission to appeal on the grounds that the judge was wrong both to dismiss its application under section 67 and to refuse an extension of time for making an application under section 68. Refusing the application for permission to appeal on paper, the single Lord Justice observed that the judge below had dismissed the application on two independent grounds; both on the grounds that it did not fall within section 67 at all, and on the grounds that it failed on the merits.
10. When this matter last came before me in January on the hearing of the renewed application for permission to appeal, attention was focussed primarily on the question of the court's jurisdiction to entertain an appeal from the judge in the light of the terms of section 67(4) of the Arbitration Act, by which the leave of the court below is required for an appeal from a decision of the court under that section. Mr Dye for Union Marine argued that the primary, if not sole, ground on which the judge had dismissed the application was that it did not fall within 67; his decision on the merits, it was said, was obiter. On that basis, Mr Dye drew my attention to a number of authorities which he said supported the proposition that a distinction is to be drawn between a decision on the merits under section 67 and a decision whether section 67 has any application to a situation of the kind that exists in this case.
11. Since Union Marine's application below had been expressly made under section 67, and had simply been dismissed on the grounds that the facts did not support a claim for relief under that section, I expressed some scepticism about the proposition which Mr Dye was putting forward, but since in the light of the authorities I was left with some lurking doubt, I directed that the application be adjourned to be heard by two Lords Justices, on notice to the government.
12. Thus it is that the matter comes on today before my Lord and myself. We have had the benefit of full skeleton arguments and, importantly, more time for reflection. In retrospect, I now think that I allowed too much attention to be directed to the interesting and potentially important question of jurisdiction and insufficient attention to be directed to other aspects of the case, in particular the merits. The fact is that even if this court has jurisdiction to hear an appeal against the judge's order, about which I remain sceptical, there is no point in granting permission to appeal unless there is a real prospect that the appeal itself will succeed at the end of the day. It does not matter for this purpose whether the judge's views on the merits were obiter or not, although I am inclined to think they were not. What matters is whether there is a real prospect that on an appeal -- assuming, as I am willing to do for this purpose, that the court has jurisdiction to entertain one -- this court would come to a conclusion different from that reached by the judge. Rather than focus on the question of jurisdiction, therefore, we asked Mr Dye to address the merits of the appeal first.
13. As I have already pointed out, the case turns on whether the arbitrator became functus officio when he published his first award, save of course in respect of costs, which he expressly reserved. That in turn depends on whether he had determined the whole of the issue submitted to him. The arbitrator himself thought that he had not done so, and in the reasons he gave for his second award he apologised to the parties for what he acknowledged had been an oversight on his part.
14. Union Marine, however, says that the views expressed by the arbitrator are nothing to the point; what matters is the true effect of the first award. It is submitted that in that first award the arbitrator had disposed of all the claims before him. In support of that argument, Mr Dye relies principally on paragraph 72 of the award, though on other paragraphs as well, in which the arbitrator said this:

"I am unable to find that Union Marine did not meet their payment obligations under the agreement. I would have had to be persuaded that it was more likely than not that Union Marine were in breach, and the evidence is not sufficiently weighty to enable me to come to that conclusion."

In the operative part of the award, he said:

"The government's counterclaims referred to me all fail."

15. I can well see that if one were to read those passages in isolation, they could be taken to mean that the arbitrator was not satisfied that Union Marine had failed to make any payment due to the government and that for that reason he dismissed the entirety of the government's claims. However, it is common ground that the award has to be read as a whole, and those passages therefore have to be read in the context of the remainder of the award.
16. As the judge himself pointed out, paragraph 72 appears in a section headed "Was termination justified?", in which the arbitrator directed his attention to the allegation that Union Marine had repudiated the agreement. Although he accepted that the language used was infelicitous, he thought it "plain" -- that was the word he used -- that the arbitrator was dealing only with the question of repudiation and not with the government's residual claim for outstanding fees.
17. In that context, it is worth remembering that at a previous stage in the arbitration, directions had been given for the question of liability to be tried first. The hearing before him was therefore directed to liability, and the main issue between the parties was of course that of repudiation. The judge also thought that the dispositive part of the award should be read and understood in the context of the award and the reasons as a whole. Again, it is common ground that that is the correct approach.
18. Mr Dye has sought to persuade us that it is at least arguable that on its true construction, the first award did finally dispose of all the government's claims and thus rendered the arbitrator functus officio. He says that the judge went wrong because he adopted what he described as a piecemeal textual analysis.
19. I have to say that I am not able to agree with him. When I read through the award as a whole, I think it is impossible to get away from the fact that it is entirely directed to the main issue between the parties, namely, whether the government or Union Marine had repudiated the agreement. I accept that, taken in isolation, some parts of it, particularly those passages in paragraphs 72 and the dispositive part of the award to which I have referred, could bear the meaning for which Mr Dye argues, but in my view that is to fall into the very trap of piecemeal construction which he accuses the judge of having fallen into. I do not think that any commercial man, or any judge with experience of reading arbitration awards, would have any doubt about what had happened in this case. In his first award, the arbitrator dealt with the big issue and simply overlooked what was on any view a minor claim that might properly have been regarded as essentially a matter of quantum.
20. In my view, therefore, an appeal in this case would have no real prospect of success on the merits, and if that is right it would be wrong to grant permission to appeal, even if this court has jurisdiction to hear one, or to direct that there be a further hearing to determine the scope of the court's jurisdiction, since to do either of those would simply cause the parties to incur further costs to no good purpose.
21. For those reasons, I would refuse permission to appeal.
22. LORD JUSTICE TOMLINSON: I agree. It would be a serious affront to our law of arbitration if the court or the arbitrator lacked power to correct an obvious error of this sort.
23. On reading the award of the arbitrator, it is plain to my mind that when he came to write paragraph 72, he lost sight of the circumstance that he also had before him for what I might call the government's accounting claim, to the effect that Union Marine had failed to account for all of the relevant fees, irrespective of whether the manner in which they did so gave rise to an entitlement to the government to terminate the agreement. Plainly, as I say, the arbitrator lost sight of that. This was an obvious oversight. It is just such an oversight that section 57(3)(b) of the Arbitration Act 1996 is directed towards.
24. For those reasons, therefore, I agree with my Lord.