In the recent decision of CVLC Three Carrier Corp and another company v Arab Maritime Petroleum Transport Co  EWHC 551 (Comm) (available here), the English High Court allowed an appeal on a point of law under s69 of the Arbitration Act 1996 (the “Act”).
The Court provided guidance on two significant issues: (i) whether the permission to appeal an award under s69, can be revisited after it has been granted and, (ii) how the Court should identify the relevant question of law when granting permission under s69.
CVLC Three Carrier Corp and CVLC Four Carrier Corp (together, the “Owners”) chartered two vessels to Al-Iraqia Shipping Services and Oil Trading (the “Charterer”). Arab Maritime Transport Company (“AMPTC”) guaranteed the performance of the Charterer’s obligations in respect of both charterparties (the “Guarantees”). These Guarantees were given as consideration by AMPTC to the Owners for entering into the charterparties with the Charterer. AMPTC stood as primary obligor under the Guarantees and not merely as surety for the Charterer.
The Owners subsequently terminated the charterparties on the grounds of an alleged breach by the Charterer. The Owners commenced ad hoc arbitration under the London Maritime Arbitrators Association (LMAA) Terms against AMPTC, invoking the Guarantees to recover the losses they had allegedly suffered as a result of the Charterer’s breach. The Owners also arrested a vessel owned by the AMPTC in Angola, as security for their claims under the Guarantees.
AMPTC sought a declaration that it was an implied term of the Guarantees that the Owners would not seek additional security in respect of the matters covered by the Guarantees. The arbitrator issued an award in AMPTC’s favour (as later clarified and supplemented by a second supplementary award), and found the Owners in breach of the implied term proposed by AMPTC and liable for damages to AMPTC (the “Awards”).
Section 69 permission to appeal
In September 2020, the Owners sought permission from the Court to appeal the Awards under s69 of the Act on the basis that there had been an error of law. Detailed skeleton arguments were submitted by both sides and in November 2020 permission to appeal was granted by the Court. AMPTC opposed this application on several grounds including a submission that the arbitrator had not been asked to decide the question of law as framed by the Owners. The Court reformulated the question raised by the Owners to correctly reflect the question of law addressed in the Awards.
Section 69 substantive appeal
The substantive appeal was subsequently heard by the High Court and AMPTC contended that the appeal “concerns a question the arbitrator was never asked to determine” and accordingly, that there were no grounds for the Court to hear the appeal under s69. AMPTC also raised a number of alternative arguments, including that the arbitrator had arrived at the correct decision in the Award.
Can permission to appeal under s69, once granted, be revisited?
The Court rejected AMPTC’s submissions and confirmed that the permission stage is intended to be a qualifying hurdle, which is not to be revisited at the substantive hearing. While it may not be impossible to revisit the various component parts of the permission decision, Cockerill J. noted that there would have to be “highly unusual circumstances justifying this course”. The key reason for this was that if AMPTC’s submission was accepted, appeals would become longer and more expensive, with all or most of the questions being re-litigated in written and oral argument. This would be inconsistent with the policy and overriding objective of the Act.
Although the Court held that there were no “highly unusual circumstances” in this case, for completeness, it also considered and dismissed AMPTC’s submission that the relevant question of law on appeal was one which the arbitrator had not been asked to determine.
Was the question on appeal one that the arbitrator had been asked to determine?
The Court noted that consistent with s69(3)(b) of the Act, the question on appeal has to be one arising out of the Awards and one which the arbitrator had been asked to determine. The question, however, is not required to be asked in exactly the same form in which it is posed at the substantive stage because “were that the case almost no applications for permission would succeed”.
The Court set out a useful test noting that “what is necessary is that the question of law is inherent in the issues for decision by the tribunal. It is often necessary to strip away the accretions of case specific drafting to arrive at the real issue of law”. Thus, the Court would consider the essence of the question, or, in other words, the “macro question” at issue when applying s69(3)(b) of the Act.
Applying this test to the facts, the Court held that the essence of the issue before the arbitrator was whether a term should be implied in a guarantee (i) in the absence of express wording providing for further security and (ii) which is given in consideration of entering into charterparties. These issues were reflected in the questions as reformulated by the Court and were relevant questions of law for the purposes of s69.
Was the decision of the arbitrator correct?
The Court also dismissed AMPTC’s submissions on the substantive point and concluded that the Awards had been decided incorrectly. As a starting point, Cockerill J noted that the legal hurdle for the implication of a term in a contract was a high one, which had not been discharged in this case. Further, a party entering into a contract was not typically restricted as to the steps it can take to secure its claim in the event of a default. AMPTC’s proposed implied term was, therefore, equivalent to an exclusion clause, which would require clear words before it could be concluded that the parties agreed to such a term. Express or clear wording to this effect was absent in the Guarantees.
The Court also distinguished between the Owners’ rights against the Charterer under the charterparties and the independent contractual relationship created by the Guarantees between AMPTC and the Owners. It would be contrary to commercial sense that in the absence of the Guarantees, the Owners would be able to seek security for the Charterer’s breach, for example, by arresting their vessel, but not be able to seek similar security for AMPTC’s breach of their primary obligation under the Guarantees.
Further, the Court noted that the fact that the Guarantees had been made in consideration for the charterparties did not have any significant impact on the case. If anything, the parties may have considered the Guarantees adequate security for the Charterer’s obligations under the charterparties, not for AMPTC’s separate obligations under the Guarantees.
For all the above reasons, the Court held that the Owners had a right of additional security against AMPTC, and thereby allowed the appeal under s69.
This case is a rare example of the English court allowing an appeal on a point of law under s69 of the Act. As we reported earlier this year (see here), only a relatively small number of cases obtain permission to appeal, and then only a fraction of those cases succeed on appeal.
This decision further makes clear that courts will look unfavourably at a party’s attempt to re-open the grounds for permission to appeal under s69 of the Act once such permission has been granted. Any attempt to re-litigate such matters, in the absence of highly unusual circumstances, is likely to be considered contrary to the streamlined two-stage process envisaged by s69.
The findings of the Court will be of particular interest to those arbitrating in the shipping sector. In terms of the substance of the appeal, the decision underlines that English law will not readily imply a term into the parties’ contract unless it is necessary to make the contract work.
As a practical point, it is advisable that in the context of guarantees, parties intending to exclude the right to seek additional security should expressly provide for this in the terms of the guarantee.
For more information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.