QCR Spring 2019: What constitutes a serious irregularity in salvage arbitration — Appeal arbitrator increasing award in reliance on hypothetical scenario not featuring in grounds of appeal nor in appeal hearing

QCR Spring 2019: What constitutes a serious irregularity in salvage arbitration — Appeal arbitrator increasing award in reliance on hypothetical scenario not featuring in grounds of appeal nor in appeal hearing

Navigator Spirit SA v Five Oceans Salvage SA (The “Flag Mette”)

Facts

In December 2016, the ‘Flag Mette’ (a bulk carrier) was on a laden voyage from Kamsar in Guinea to Stade in Germany. On 20 December, her main engine spontaneously shut down whilst in the Bay of Biscay and the vessel engaged  salvors, Five Oceans Salvage, on Lloyd’s Open Form (LOF).

On 26 December, the vessel  was able to continue her voyage without further assistance, and the services under the LOF were terminated.

The salvors claimed for salvage remuneration and this was referred to arbitration. The salvors contended for two dangers:1. That the vessel was temporarily immobilised and in need of assistance from professional salvors,  and 2. That she was subject to a risk of collision had she attempted to transit the Channel unassisted.

The arbitrator rejected the salvors’ submission that there was a risk of collision on the basis that the vessel would not have contemplated a Channel transit in the absence of assistance, and awarded the salvors  only US$825,000 in addition to an agreed currency uplift of 3.76%.

The salvors appealed the award submitting that the first instance arbitrator had wrongly rejected the risk of collision. Had he properly considered the absence of any alternative assistance, he would have had to conclude that it was probable that the vessel would have had to contemplate a Channel transit, however dangerous.

The appeal arbitrator agreed that the first instance arbitrator had failed to ask himself what would have happened in the absence of salvage assistance. However, he rejected the salvors’ submission that the vessel would have had no option but to proceed through the English Channel. Instead, he put to both counsels an alternative scenario, i.e. that of the authorities not permitting the vessel to enter the bay unassisted and the vessel proceeding off the coast to seaward of the Traffic Separation Scheme (TSS) and waiting for assistance, or the service engineer being put on board and carrying out repairs whilst awaiting the arrival of a tug.

The appeal arbitrator held that had the situation been analysed in that way, the dangers to which the vessel was exposed would have been found to be a little higher than those found by the arbitrator. He therefore allowed the appeal.

The owners contended that in the absence of assistance the vessel would go to anchor without assistance and put an engineer on board. The owners applied to the High Court alleging serious irregularity in the conduct of the appeal arbitrator under section 68 of the Arbitration Act 1996. The serious irregularity alleged was that the appeal arbitrator allowed the salvors’ appeal on grounds which were not part of the grounds of appeal and which had never been mentioned, let alone argued. The owners alleged that the appeal arbitrator failed to comply with the duty to act fairly in section 33 of the Arbitration Act 1996. 

Judgment

The High Court dismissed the owners’ application on the following grounds:

  1. Terna Bahrain Holding Company WLL v Al Shamsi [2013] 1 Lloyd’s Rep 86, where the court decided there would be a breach of section 33 of the Arbitration Act 1996 if the tribunal decided the case on the basis of a point which one party had not had a fair opportunity to deal with. Section 33 had to be approached by reference to how matters appeared to the appeal arbitrator. 
  2. The appeal arbitrator had put forward a hypothetical scenario to both counsels, namely that the vessel would have moved off the coast seaward of vessels approaching and departing the TSS. He did not expressly put to counsels that there was a risk of collision in such a position. However, the fact that the appeal arbitrator did not check with the owners’ counsel that he was aware of that risk, did not mean that he had acted unfairly. There was no obligation on him to check with counsel that counsel was aware of that risk. 
  3. Furthermore, proof of an irregularity was not sufficient. There had to be proof of a serious irregularity. Moreover, relief under section 68 would only be appropriate where the tribunal had gone so wrong in its conduct of the arbitration that justice called out for the award to be corrected.
  4. Finally, even if there was a serious irregularity, it had not caused substantial injustice.

Comments

Referring to Terna Bahrain Holding Company WLL v Al Shamsi [2013] 1 Lloyd’s Rep 86, the court drew a distinction between a party having no opportunity to address a point or his opponent’s case and a party failing to recognise or take an existing opportunity. The latter will not breach section 33. 

The following comments of the High Court are also noteworthy as they show that the court will bear in mind the knowledge and experience of the salvage tribunal when considering any appeal; In the context of a salvage arbitration under LOF the court took into account [the tribunal’s] 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 had, for many decades, been members of the Admiralty Bar with experience of salvage arbitrations. Such arbitrations always had a degree of informality. Taking account of those characteristics of LOF arbitration it was 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 called out for it to be corrected.”  

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