The English High Court (the Court) in Eleni Shipping Limited v Transgrain Shipping B.V. [2019] EWHC 910 (Comm) has reviewed an arbitral award, following an appeal on a point of law brought under s69 Arbitration Act 1996 (s69 AA 1996), and determined that the tribunal made an error of law. While the Court ultimately refused to overturn the award, as it upheld the tribunal’s interpretation of the second point of law in question, this case is nevertheless significant as a rare example of the Court ruling that the tribunal had erred under s69.

Background

This was a challenge to an arbitral award (Award) rendered in a maritime arbitration.  The owners of a ship (Owners) brought arbitral proceedings against the ship’s sub-charterers (Charterers) for losses in excess of US$5.6 million arising from the vessel’s hijack by pirates. The charterparty provided for re-delivery by the Charterers between June 2010 and August 2010.  The vessel, having passed through the Suez Canal and the Gulf of Aden, was attacked by pirates in the Arabian Sea in May 2010 and only released from capture in December 2010.  After various emergency repairs, bunkering, supplies, crew changes and hull cleaning, the ship was ultimately redelivered in January 2011. The Owners claimed for US$4.5 million of unpaid hire in relation to the period from the hijack until the vessel was again equidistant to the point of her capture.

The majority of the tribunal rejected the Owners’ claim for hire during this period on the grounds that two charterparty clauses (Clause 49 and Clause 101) both excluded charterers from liability to pay.

The Owners applied to the English Court under s69 AA 1996 to challenge the tribunal’s interpretation of Clauses 49 and 101, on the grounds that this was a question of law arising during the proceedings.

The Court’s decision on Clause 49

Clause 49 provided that hire would not be payable in circumstances in which “[…] the vessel [is] captures [sic] or seized or detained or arrested by any authority or by any legal process during the currency of the [charterparty]”.

The Owners argued that each of the words “capture[d]”, “seized“, “detained” and “arrested” were qualified by the subsequent words “by an authority or by any legal process“, and that, consequently, only a capture in these limited circumstances would operate to excuse the Charterers from payment of hire. The tribunal, however, agreed with the Charterers’ construction of the clause that the phrase “by an authority or by any legal process” did not govern or qualify the word “capture[d]” and that instead “capture[d]” was freestanding and applicable to capture by any cause or protagonist, including capture by pirates.  On this basis, the tribunal concluded that the hire was not due to the Owners and thus rejected the Owners’ claim.

The Court disagreed with the tribunal’s interpretation.  The Court considered the clear meaning of the language of the clause, how the clause fitted with the rest of the contract, and the “surprising and uncommercial results” produced by the Charterers’ construction.  It concluded that the qualifying phrase did indeed apply to captures, and thus, since the capture in these circumstances had not been by an authority or a legal process, the Charterers would have been required to pay the hire.

The Court’s decision on Clause 101

The Court then went on to consider the operation of the other cause that potentially excused the Charterers from payment of hire. Clause 101 permitted the Charterers to transit the Gulf of Aden. It also stipulated that if the vessel were threatened or kidnapped by piracy, payment of hire would be suspended.  The Owners contended that, in order for Clause 101 to be engaged and the vessel to be put off-hire, the piracy would have to have taken place during the vessel’s transit of the Gulf of Aden.  The Charterers, however, argued that the threat or kidnap must take place either within the Gulf of Aden, or as an immediate consequence of the ship being required to transit the Gulf of Aden. The tribunal agreed with the Charterers’ construction, which meant that the Owners’ claim failed.

The Court dismissed the Owners’ challenge under Clause 101.  As part of its reasoning, the Court noted that the tribunal had found, as a finding of fact, that the expression “Gulf of Aden” has no geographical definition in the context of a time charter of this kind.  The Court emphasised that such a finding of fact is not susceptible to challenge on an appeal under s69, which in itself was “fatal” to the Owners’ construction.  Additionally, the Court held that the “principal and critical purpose” of Clause 101 as a whole was to enable the Charterers to trade the ship through the Suez canal.  Therefore, Clause 101 was commercially advantageous to the Owners. Consequently, the clause’s purpose was to allocate to the Owners the risk of delay from detention by pirates as a consequence of such transit. On that basis, the Court held that the appeal on Clause 101 failed and consequently the US$4.5 million hire was not due. The Owners’ appeal was dismissed.

Comment

One of the key features, and frequently cited advantages, of arbitration is the finality of the award. The absence of a system for time-consuming and costly merits appeals, and the narrow, limited grounds upon which awards can be challenged, provide certainty for arbitrating parties. While parties can challenge awards under s69 AA 1996 on the basis that there has been an error of law and this ground is the most commonly relied upon in appeals to the English Court, in practice it is the least successful.  The Court is statistically more likely to look favourably upon challenges brought under s67 AA 1996 (that the tribunal lacked substantive jurisdiction to render the award) or s68 AA 1996 (that there was a serious irregularity that the court considers has caused or will cause substantial injustice to the applicant).  That is not to say, by any means, that either route is comparatively straightforward – on the contrary, it remains very difficult to succeed on either ground, as there is a high threshold for success. This is notwithstanding the fact that, contrary to the mandatory s67 and s68 grounds, parties can ‘opt-out’ of the s69 ground under s4(1) AA 1996.

This case shows the important supervisory role of the English courts in ensuring that tribunals are properly applying English law to which the parties have chosen to subject their relationship – although it must be borne in mind that in many cases (for example, those subject to the ICC or LCIA Rules), the parties will have waived their right to challenge the award on the basis of non-mandatory grounds such as s69 AA 1996. Given that the s69 route of challenge is (on the statistical evidence) the toughest course of all, it is significant that the s69 appeal in this case successfully challenged the tribunal’s reasoning in part. While the overall challenge still failed as the Court upheld the tribunal’s interpretation of the other clause in question, this case provides a rare example in which the Court concluded that the tribunal had indeed erred on a point of law by incorrectly interpreting a clause.

For further information, please contact Craig Tevendale, Partner, Natalie Yarrow, Associate, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445
Natalie Yarrow
Natalie Yarrow
Associate
+44 20 7466 2409

Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418