England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		08/10/2004

Mr Justice Colman:

1. This is an application by shipowners under section 68 of the arbitration Act 1996 for the remission of a final award made on 14^th January 2004. By that award the arbitrators, Mr. William Packard (appointed by the shipowners) and Mr. Edward Mocatta (appointed by the charterers) substantially dismissed the shipowners' claim for demurrage in the amount of US$56,526.00 and awarded the shipowners only US$4,505.20.
2. The shipowners applied for leave to appeal under section 69 of the 1996 Act. Tomlinson J. directed that the application for such leave should be heard at the same time as the hearing of the application for remission under section 68 or otherwise as the judge considering the section 68 application should direct. Applications under section 69 are normally conducted by means of written submissions and without oral argument, whereas applications under section 68 are made orally. I decided that in this case it was appropriate that I should first hear very brief oral submissions in relation to the section 69 application and that, having given my decision on that application, I should then go on to hear the oral submissions in respect of the section 68 application.
3. Having heard the application for leave to appeal, I refused leave on the basis that even if the relevant threshold test were no higher than that the court entertained a serious doubt whether the arbitrators had made an error of law on their findings of fact stated in the award, no such doubt existed. A fortiori leave had to be refused if the test were whether the arbitrators' decision was obviously wrong.
4. Since the giving of my decision refusing the application for leave to appeal before I went on to hear the argument on the application for remission under section 68 gave rise to some dismay on the part of those representing the shipowners because the brief reasons which I gave explaining the arbitrators' process of reasoning had to some extent anticipated their submissions as to what had to be determined under this section 68 application, it is right that I should include a comment as to the relationship between applications under the two sections of the 1996 Act.
5. The philosophy and purpose underlying the section 69 procedure requires the achievement of finality of awards consistently with the on-going judicial development of English commercial law. The section 69 (3) tests are designed to reflect this philosophy and purpose. Section 69 (3) (c) therefore distinguishes between cases where the material question of law is one of general public interest and cases where it is not. A different threshold test is to be applied in the former case (the serious doubt test) from the latter (the obviously wrong test), but in both cases the test is to be applied to the question of law strictly "on the basis of the findings of facts in the award". In other words the court takes the findings of fact as an immutable basis for testing the correctness of the arbitrators' decision on the question of law unless the court takes the view that the award does not contain reasons or "does not set out the tribunal's reasons in sufficient detail to enable the court properly to consider the application or appeal", in which case it can order the arbitrators to give reasons in sufficient detail under section 70 (3).
6. The court's function under section 69 is thus to look exclusively at the award for the purpose of ascertaining whether the threshold tests under section 69(3) have been satisfied. Above all, it does not go behind what appears on the face of the award and it is not concerned with the circumstances in which the award came to be made and in particular with whether those circumstances were such as to amount to serious irregularity which has caused or will cause substantial injustice to either of the parties. The Act provides, by section 68, an entirely self-contained procedural regime for dealing with such circumstances.
7. Consequently, the combination in one hearing of applications under both sections involves two quite distinct processes of judicial analysis. In many cases determination of the section 69 application for leave to appeal before that of the section 68 application may be logically preferable. This is because the determination by the court of the question whether there has obviously been an error of law on such facts as have been found or whether there is serious doubt as to that, will often have a direct bearing on the question whether if there has been the serious irregularity complained of for the purposes of the section 68 application such irregularity has given rise to substantial injustice. In each case, however, it is a matter for the court whether the application for leave to appeal should be tried first. There may be cases where the procedural irregularity complained of is of such a kind that it would be logically preferable for the section 68 application to be determined first so that, if it succeeds, the award can be set aside or remitted to the arbitrators before leave to appeal is considered. After all, following remission, the issue of law in question might not eventually arise.
8. The facts can be briefly stated.
9. The defendants chartered from the shipowners the AGIOS DIMITRIOS under a voyage charter on the GENCON form (1984 revision) dated 6^th May 2003 to load at Eilat a cargo of phosphate (two grades), potash and salt for carriage to Amsterdam. There were express terms in the following form:

Clause 23 (b)

"At loading port(s) when tendering notice of readiness, Vessels' cargo holds and hatch covers shall be clean, dry of loose rust and otherwise ready and suitable to receive the intended cargo."

Clause 23 (c)

"If the vessel is found not ready in all respects to load/discharge and/or fails to pass inspection, the actual time lost from the discovery thereof until the Vessel is in fact ready to load/discharge shall not count as lay time. In case the Vessel is in berth the Charterers may order the Vessel to vacate the loading or discharging berth and all time thereby lost and any expense thereby incurred shall be for Owner's account. All the above is without prejudice to Charterers' rights to exercise their option to cancel the Charter Party as per clause 9"

Clause 25 (Twelve)

"Crew and mechanical failure – time lost at loading and/or discharging port(s) which can be reasonably attributed to crew and/or ship's mechanical failure, shall not be counted as laytime or time on demurrage. Any extra expenses incurred thereof to be borne by the Owners."

10. The vessel arrived at Eilat at 05.12 on 8 May 2003 and the surveyor appointed by the shippers/charterers then conducted what the arbitrators described as "a superficial visual examination of each of the vessel's seven cargo holds from the main deck." He then indicated that the holds were acceptable and notice of readiness was accepted. Time began to run from 0800 on 8 May 2003 and the shippers/charterers started to load the vessel with potash on 12 May. At 1635 on 21^st May 2003 the master informed the stevedores that some of the phosphate cargo had got into the salt cargo. The shippers' inspector, while investigating this problem then noticed that a large quantity of Barley was lying on top of the cargoes. Loading was then suspended and early on the following day the vessel was shifted off her berth to a nearby pier for inspection. It was then found that all the cargo holds were contaminated by barley. The vessel's previous cargo had been barley. Before any more cargo could be loaded at Eilat it was necessary for the crew to clean the barley off the surface of the cargo that had already been loaded and also to clean barley from the hatch covers, beams, air vents and top areas in No. 5 hold, as well as from hatch covers and the top areas in all other holds. The vessel was not ready to re-commence loading until 1200 on 28^th May. She was shifted back to the loading berth at 0836 on 29^th May whereupon loading re-commenced. Loading was completed at 2130 on 3^rd June.
11. The shipowners claimed that, given that time began to run when notice of readiness was accepted by the charterers, laytime expired at 1801 on 20^th May. This was the day before the discovery of barley in the cargo. They claimed demurrage calculated on the basis of the well-known principle of once on demurrage always on demurrage and therefore gave no allowance for the time from 21^st to 29^th May while loading was suspended to clean the holds and cargo. The basis of this claim was that the vessel did not need further cleaning and that when notice of readiness was given on 8^th May the vessel was as clean as was necessary to load and carry the contractual cargo. That was, unquestionably, the main issue of fact before the arbitrators. The charterers asserted that contamination by barley damaged or would damage the contractual cargo and that the vessel was, at no material time before suspension of loading, ready to load. When settling the demurrage account they therefore deducted US$56,526 in respect of demurrage which would have accrued or an equivalent amount of damages in relation to the period of suspension of loading. They relied on the fact that the time lost should not count as time on demurrage because within the meaning of clause 25 the time loss could reasonably be attributed to "crew failure", that is to the omission of the crew to clean the holds properly before giving notice of readiness to load. Alternatively charterers submitted that there had been a breach of clause 23 (b) and they were entitled to damages equivalent to demurrage due to the time lost.
12. The primary issues were therefore whether the shipowners were in breach of their duty to present the vessel with clean holds under clause 23(b) of the charterparty or whether there had been a failure to exercise due diligence under Article III Rule 1 of the Hague Rules to make the holds fit and safe for the reception of the cargo. However, the shipowners also relied on an alternative submission in case it be held that they were in breach of contract in either respect. This alternative case was based on an estoppel or waiver of such breach by reason of the charterers' acceptance of the notice of readiness and the shipowners' reliance on that acceptance, thereby permitting the commencement of loading and the consequent contamination of the cargo with the barley residues. The charterers were therefore said to be estopped from asserting either breach by the shipowners or failure by the crew.
13. The arbitrators concluded that the holds had been inadequately cleaned and that consequently demurrage was interrupted. They rejected the shipowners' argument that acceptance of the notice of readiness gave rise to waiver or an estoppel. They further concluded that all the time from the suspension of loading until completion of cleaning of the holds and the cargo surfaces should be treated as time lost which "should not count as demurrage, either under the application of a counter-claim for damages (as per The HELLE SKOU [1976] 2 Lloyd's Rep. 205) or under the express provisions of clause 25 (Twelve)."

The Shipowners' submissions

14. It is first submitted by Mr. Dominic Happé, on behalf of the shipowners, that there was serious irregularity in as much as the arbitrators did not consider in their reasons the shipowners' submission that the charterers were precluded from arguing that demurrage should be reduced by operation of clause 25 or should be entitled to reduction by way of set off by the operation of an estoppel based on charterers' acceptance of the notice of readiness to load. In this connection it was further argued that the arbitrators had made no finding in relation to the issue raised by the shipowners that it would be unjust for the charterers to resile from their acceptance of notice of readiness because the shipowners had relied on it in as much as they had started to load and had then encountered greater difficulty in cleaning partially loaded holds than would have been the case if the holds had been empty. A report by the shipowners' expert, Mr. Anderson, which was adduced in evidence, but not challenged by the charterers' evidence, was to the effect that the presence of cargo already loaded in the holds inhibited the use by the shippers of cherry pickers to do the high level hold cleaning, which would have been the most obvious means of cleaning, and caused the use of long ladders. The arbitrators had made no findings as to whether this had the effect of increasing the time taken to carry out the cleaning – a matter directly relevant to whether it was open to the shipowners to rely on the estoppel point.
15. Secondly, the shipowners submitted to the arbitrators that the charterers obtained a benefit from the need to take the vessel off her berth to carry out hold cleaning which should go to reduce the amount of damages for breach of clause 23 (b) or otherwise. Specifically, the charterers were also charterers of another vessel – the VANA – for the loading of another cargo at Eilat. As soon as the AGIOS DIMITRIOS was shifted from the berth the VANA went into the same berth and started to load, completing loading a few hours after the AGIOS DIMITRIOS cleaning operation had been completed. It was argued before the arbitrators that the charterers had thereby saved the demurrage which would otherwise have been payable under the charterparty of the VANA had the latter vessel been kept waiting for a berth while the AGIOS DIMITRIOS loaded.
16. The arbitrators did not accept this submission. At paragraphs 62-63 of their Reasons they said this:

62. With regard to the final- the second – point, there was no doubt that the "VANA" took advantage of the problems aboard the "AGIOS DIMITRIOS" to slip alongside and to use the vacant loading facilities. The owners contended that the "VANA" was chartered by the same charterers and invited disclosure to that effect. This was not denied by the charterers although we had in mind that two charterers were involved in the "AGIOS DIMITRIOS" shipment - Rotem Amfert and Dead Sea Works, and there was no confirmation that both charterers were involved in the fixture of the "VANA". However, no doubt the charterers incurred costs associated with the cleaning operation, stevedores, etcetera in relation to the "AGIOS DIMITRIOS". These have not been claimed as damages. Neither have the owners faced any expenses associated with the somewhat complicated discharge of Hold # 5 in Amsterdam.

63. Moreover, the owners appeared to overlook that had the "VANA" not taken advantage of the available, vacant loading berth, they (the owners) may very well have faced an additional claim for damages by way of the extra cost of laytime and/or demurrage paid by the charterers to the owners of the delayed "VANA" during the cleaning period of the "AGIOS DIMITRIOS". We were not, therefore, persuaded that the owners merited a credit by way of the "VANA".

17. It is submitted by the shipowners that the point taken in paragraph 63 was the arbitrators' own point and one of which the shipowners had no notice and to which they had no chance to respond. Further, the arbitrators' view was pure speculation unsupported by any evidence. The shipowners further submitted that, although they had requested the charterers to disclose the charterparty of the VANA, and had by their written submissions invited the arbitrators not to make an award until such disclosure was provided, the arbitrators had ignored this request no disclosure ever having been given. In this connection Mr Happé relied on Annie Fox v. Wellfair [1981] 2 Lloyd's Rep. 514 a decision of the Court of Appeal and in particular on a passage from the judgment of Dunn L.J. at page 521-522:

"There are some arbitrations in which the arbitrator is expected to form his own opinion and act on his own knowledge without recourse to evidence given by witnesses on either side: such as an arbitrator who is to decide as to whether goods are up to sample, see Mediterranean & Eastern Export Ltd. v. Fortress Fabrics (Manchester) Ltd., (1948) 81 Lloyd's Law Rep. 401; (1948) T.L.R. 337. But there are other arbitrations in which the arbitrator is expected to receive the evidence of witnesses and the submissions of advocates and to be guided by them in reaching his conclusion: such as arbitrations on shipping contracts or on building contracts. In such cases the arbitrator is often selected because of his knowledge of the trade so that he can follow the evidence in the absence of the other party, and so forth. In the present case if the defendants had been represented I have no doubt that the plaintiff's experts would have been cross-examined so as to throw doubt on their findings and on their opinions: and the defendants would have called experts to support the line of cross-examination. The arbitrator would then have been able to form a judgment based on evidence other than his own.

I cannot think it right that the defendants should be in a better position by failing to turn up. Nor is it right that the arbitrator should do for the defendants what they could and should have done for themselves. His function is not to supply evidence for the defendants but to adjudicate upon the evidence given before him. He can and should use his special knowledge so as to understand the evidence that is given, the letters that have passed, the usage of the trade the dealings of the market and to appreciate the worth of all that he sees upon a view. But he cannot use his special knowledge or at any rate he should not use it so as to provide evidence on behalf of the defendants which they have not chosen to provide for themselves. For then he would be discarding the role of an impartial arbitrator and assuming the role of advocate for the defaulting side. At any rate he should not use his own knowledge to derogate from the evidence of the plaintiffs' experts without putting his own knowledge to them and giving them a chance of answering it and showing that his own view is wrong. Such is the way in which we dealt in the pensions cases when a medical expert was himself a member of the tribunal, see Moxon v. Minister of Pensions, [1945] K.B. 490 and Starr v. Minister of Pensions, [1946] K.B. 345 at pp. 353-354.

I am afraid that the arbitrator fell into error here. He felt that it was his duty to protect the interests of the unrepresented party in much the same way as a Judge protects a litigant in person. But in a case like this I do not think it is the duty of the arbitrator to protect the interests of the unrepresented party. If the defendants do not choose to turn up to protect themselves, it is no part of the arbitrator's duty to do it for them. In particular he must not throw his own evidence into the scale on behalf of the unrepresented party or use his own special knowledge for the benefit of the unrepresented party at any rate he must not do so without giving the plaintiffs' experts a chance of dealing with it for they may be able to persuade him that his own view is erroneous."

The Estoppel Point: Discussion

18. The arbitrators' reasoning leading to the conclusion that time should not count during the period 21^st to 28^th May while the cleaning operation was in progress may be summarised as follows:

a. The omission to clean out the barley residue before the giving of notice of readiness was a breach by the shipowners of clause 23 (b): (paragraph 49)

b. By accepting that notice of readiness; although the vessel was not ready, the charterers waived its invalidity or were estopped from asserting it and lay time thereby commenced to run. In reaching that conclusion the arbitrators relied by way of analogy on The HELLE SKOU, supra, and in particular upon the passage at page 214 in which Donaldson J. accepted as correct that the charterers were precluded from asserting the invalidity of the notice of readiness to load in that case. By allowing loading to commence the charterers necessarily permitted time to start running. (Paragraph 51).

c. By analogy with The HELLE SKOU , supra, waiver of the invalidity of the notice of readiness to load did not necessarily amount to waiver of the right of the charterers to damages for breach of the shipowners' distinct contractual duty to present the vessel in compliance with an express term of the charterparty requiring the holds to be clean and fit for the cargo to be loaded. (Paragraph 52).

d. Just as on the umpires finding of facts in The HELLE SKOU the acceptance of notice of readiness did not operate as a waiver of the right to damages for breach of the duty to clean the holds so in this case on its facts the result was the same. I interpose that this conclusion on the facts was clearly based on the superficial nature of the surveyor's visual inspection , which was known to the shippers. (Paragraphs 39, 40 and 53).

e. Once time had thereby started to run it would continue unless interrupted under clause 25 or the incidence of the claim for damages for breach of clause 23 (b) would by way of set off reduce the claim for demurrage by an amount equivalent to the demurrage that would have accrued had time not been interrupted. (Paragraph 54).

19. In considering the grounds of this application and the arbitrators' reasons it is important to keep very clearly in mind the distinction in the remedies provided by clauses 23 (b) and clause 25. If there has been a breach of clause 23 (b) by omission of the shipowners to provide clean holds ready and suitable to receive the intended cargo and notice of readiness is given and accepted by charterers, the question whether the shipowners have complied with their obligation is not necessarily concluded, for the holds may in truth be unclean and unfit and that condition may not have been reasonably apparent when the notice of readiness was accepted. Time will then begin to run and, in the absence of a provision such as clause 25 which stops it running, it will continue to run until completion of loading. If in the meantime, there is a delay while the holds are cleaned and the shipowners' breach thereby cured, the charterers will be entitled to damages for that breach which may at least in part be quantified by reference to the amount of such demurrage as may have occurred. The demurrage in respect of the delay period will not then be recoverable because the damages due to the charterers would be set off against the demurrage otherwise due to the shipowners. In such a case the charterers would have the burden of proving their damages claim by establishing that the relevant period of demurrage time had been incurred, as a matter of causation, by reason of the shipowners' breach, viz, the need to clean the holds.
20. Where, however, there is a provision, such as clause 25, which has the effect of interrupting or reducing the period of laytime or time on demurrage, the analysis is somewhat different. If the facts provided for in the clause as a ground for the interruption of time are established, time is treated as automatically curtailed to the extent provided for. The effect of clause 25 in the present case is thus that if time is lost by reason of the failure of the crew to perform functions relevant to loading and that causes delay in loading, the period of delay will be deducted from the used laytime or if the vessel is already on demurrage from the time on demurrage. This clause clearly does not depend on the charterers establishing that the shipowners were in breach by reason of such crew failure, but merely on the fact of such crew failure and the consequent delay. Further, the process of quantification of the relevant deduction of time has nothing to do with whether the charterers have suffered a net financial loss due to the crew's failure. The only relevant currency is that of lost time.
21. Against this background it is clear that it was open to the arbitrators to conclude on the evidence before them that acceptance of the notice of readiness following the superficial inspection had no greater effect than to represent to the shipowners that, as far as such inspection disclosed, the vessel's holds were clean and ready for loading to commence. That, however, was a representation neither that there had been no breach of clause 23 (b) nor that there had been no anterior crew failure within clause 25. All that was represented was that, so far as the charterers were aware, the vessel was ready to start loading. That was enough to start laytime running. Consequently when, upon discovery of the true state of the holds, loading was stopped and charterers asserted that the shipowners were in breach of clause 23 (b) and that the facts also fell within clause 25, they were not resiling from any previous representation implicit in their acceptance of notice of readiness.
22. It is thus very clearly demonstrated that the waiver and estoppel submission could never get past the first stage, namely of establishing that there had been a material representation or promise. That, as I understand it, is the reasoning expressed in somewhat different words by the arbitrators that led them to their conclusion that time began to run when notice of readiness was accepted: the charterers would be estopped from asserting that it did not (Paragraph 51). Equally, the shipowners were bound by their own notice of readiness and they could not assert that time had not begun to run and indeed never did so.
23. Accordingly, issues of fact going to whether it would be unconscionable to permit the charterers to resile from a previously asserted representation or promise could simply never become relevant on the facts as found by the arbitrators. By relying on breach of clause 23 (b) and crew failure giving rise to reduction of demurrage under clause 25 the charterers were not changing their position and no question of unconscionability could arise. It follows that it was open to the arbitrators to reach their conclusion without consideration of whether the commencement of loading in reliance on charterers' acceptance of notice of readiness had caused cleaning of the holds to become more time-consuming, because of the use of long ladders, than would otherwise have been the case. They were under duty to consider issues of fact which were not directly relevant to the findings upon which they based their conclusion, even if the parties had adduced evidence on those issues.
24. It follows that no serious irregularity is disclosed on this basis.

The VANA Points: Discussion

25. It is important to recognise at the outset that both points raised in relation to the VANA go to the quantification of damage caused to the charterers by the shipowners' breach of clause 23 (b). Thus the alleged benefit to the charterers by the saving of demurrage on the VANA by being able to load it ahead of the AGIOS DIMITRIOS could, if proved, operate to reduce the damages recoverable for breach of clause 23 (b) and consequently the amount of damages available to set off against demurrage caused by the delay. The arbitrators rejected this submission on the grounds that there was no evidence that both charterers of the vessel - Rotem Amfert and Dead Sea Works – were also both charterers of the VANA. Further the charterers had "no doubt" incurred costs in relation to hold cleaning which they had not claimed as damages. Nor were the shipowners subjected to any expenses caused by the increased difficulty of discharging hold No. 5 at Amsterdam. (Paragraph 62). The arbitrators thus appear to have assumed that the charterers had incurred increased expenses which would have been equivalent to the benefit they derived from the accelerated loading of the VANA. Further, in paragraph 63, the arbitrators raised their own point about the shipowners possibly having faced an additional claim from the charterers for demurrage damages payable by the charterers to the shipowners of the VANA for losses if the VANA was not loaded while the AGIOS DIMITRIOS was being cleaned. On these grounds the arbitrators rejected the shipowners' claim for credit; they in substance concluded that the evidence did not support a reduction in the charterers' damages.
26. The charterers had the burden of proving that their damages for breach of clause 23 (b) were at least equivalent to the demurrage which would have accrued during the cleaning period. By proving the length of the period and the demurrage rate they adduced prima facie evidence of their loss. It was then for the shipowners to adduce evidence displacing that evidence. However, the reasons contain no evidence relied upon by the shipowners in support of their case that charterers' losses had been reduced by the earlier loading of the VANA. There is no evidence whether demurrage was saved or in what amount. The arbitrators' reference to the charterers' probable increased costs in relation to cleaning and discharge and, in paragraph 63, to the possibility of a claim which the VANA owners might have had against the charterers of he AGIOS DIMITRIOS, are thus made as countervailing considerations to the suggestion, unsupported by the shipowners' evidence, that the charterers had derived a benefit from acceleration of the VANA's loading which would reduce their recoverable damages for breach of clause 23 (b). In substance the reasons show that there was no evidence of any such benefit and the countervailing considerations, speculative though they certainly were, therefore add nothing to the charterers' position on quantification. The reasons do not sustain any proven case for reduction which falls to be displaced by those countervailing points raised by the arbitrators. Such points were thus entirely superfluous.
27. It is argued that the arbitrators should not have made an award until the charterers had disclosed the VANA charterparty. However, no formal application for such disclosure was ever made to the arbitrators. Accordingly, the arbitrators were entitled to proceed to their award on the basis that all the evidence which was mutually regarded as material was before them.
28. In the event I am not persuaded that there was any serious irregularity as submitted or that any of the matters relied upon as such an irregularity caused substantial injustice to the shipowners. As to the latter point, it is necessary to keep in mind that, even if there had been a serious irregularity relating to the proof of the amount of damages recoverable for breach of clause 23 (b), that would not have given rise to substantial injustice. The reason for this is that the charterers would have been entitled to succeed in displacing the demurrage claim to the same extent as awarded by the arbitrators by reason of the effect of clause 25. None of the points as to quantum relied upon as giving rise to serious irregularity go to proof of the charterers' entitlement to rely on clause 25, for that clause operates regardless of any set-off by way of a claim for damages for breach of the charterparty, as I have already explained.
29. For these reasons this application under section 68 is dismissed and the award will not be remitted.