Pacol Limited v. Joint Stock Co Rossakhar, (Com Ct), [2000] 1 Lloyd’s Rep 109
Commentary
This case should serve as a salutary warning to arbitrators, in particular in document only commodity arbitrations, not to introduce into their awards matters which have never been, or have ceased to be, matters in issue between the parties or to ignore the definition of the issues referred to them for their decision. It should not come as a surprise that, in circumstances where the arbitrators arrive at a decision by reference to matters upon which the parties have not had an opportunity to make submissions to the tribunal or to adduce further evidence, the tribunal acts in breach of the duties set out in Section 33(1) of the Arbitration Act 1996 and that this may give rise to a serious irregularity and may lead to the award being set aside pursuant to section 68 of the 1996 Act accordingly. Arguably, it would also have been open to Pacol to challenge the award on the basis that the arbitrators lacked jurisdiction to make an award on liability.
Decision
The arbitration was conducted in accordance with the Rules of the Sugar Association and therefore in accordance with English procedural law. The Rules of the Sugar Association provided for the issues to be defined by exchange of statements of case between the parties. By the time the dispute came before the tribunal, Rossakhar had admitted liability and the only issues which remained to be determined related to quantum. The court found that the arbitrators were not entitled to reopen Rossakhar’s admission of liability and that the award was made on a basis in relation to which Pacol was never accorded an opportunity to make submissions or to give evidence. This constituted a serious irregularity within the meaning of Section 68(1) of the 1996 Act. In the circumstances it was inappropriate to remit the award and hence the award was set aside.
Background
The claimant Pacol as seller entered into two contracts for the sale of sugar to the respondent Russian company Rossakhar as buyer. Shortly afterwards, Rossakhar defaulted on its contractual obligations due to the financial constraints caused by the serious economic problems experienced by the Russian economy. Pacol referred the dispute to arbitration under the Rules of the Sugar Association in accordance with the arbitration clauses in the contracts. In the pleadings Rossakhar admitted liability and that it was in breach of the two contracts; when the matter came before the arbitrators, the issues in dispute therefore related to quantum only. The arbitrators dealt with the proceedings as a documents only arbitration. In their award, the arbitrators reopened the question of liability without prior notice to the parties, found that Rossakhar was not in breach contract and dismissed Pacol’s claim in its entirety. Pacol challenged the award in the courts in accordance with Section 68 of the 1996 Act on the ground of serious irregularity.
For further information on this issue or any other arbitration topics please contact Neil Aitken (nca@cms-cmck.com), Charles Spragge (chs@cms-cmck.com) or Gregor Kleinknecht (gk@cms-cmck.com) in the International Arbitration Group
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Walker and Others v. Rowe & Others (Com Ct), [2000] 1 Lloyd’s Rep 116
Commentary
The decision highlights the importance of applying to the arbitral tribunal both for pre-award and post-award interest pursuant to Section 49 of the Arbitration Act 1996 given that a failure to do so cannot be subsequently rectified by the court.
Decision
Under Section 49 of the 1996 Act, it was left to the arbitrators to make an award both in respect of pre-award interest as well as post-award interest. The court had no power upon application for enforcement of the award pursuant to Section 66 of the 1996 Act to make an order for payment of post-award interest pursuant to Section 35A of the Supreme Court Act 1981 where the arbitrators had not made an award for payment of post-award interest. Where an award was entered as a judgment, the 1996 Act required that it was “entered in terms of the award” and where the arbitrators did not award post-award interest, the award had to be entered in those terms. A court order granting post-award interest would amount to an alteration by the court of the arbitrators award and would be contrary to the general principle set out in Section 1(c) of the 1996 Act whereby the court should not intervene in matters governed by Part 1 of the 1996 Act, including Section 49 relating to interest and Section 66 relating to enforcement. If the arbitrators simply omitted to award post-award interest even though this had been applied for, the party must immediately apply for a correction of the award or for a further award under Section 57(3) of the 1996 Act.
Background
By about 1995, a large number of disputes arose between marine underwriters and their excess of loss reinsurers in relation to insurance cover against the risk of default by Eastern European shipyards and cancellation of shipbuilding contracts. All the excess of loss reinsurance contracts contained arbitration clauses and arbitration notices were served in hundreds of cases. A panel of arbitrators was appointed to deal with four lead cases. The arbitration tribunal made an award in favour of reinsurers and subsequently awarded costs against reinsureds. The latter fell into arrears on the payment of costs and the reinsurers sought leave to enforce the costs award in the same manner as a judgment pursuant to Section 66 of the Act. At the same time reinsurers applied for an order for payment of interest pursuant to Section 35A of the 1981 Act at a rate to be determined. The costs award made no reference to payment of interest on any sums not paid by the reinsureds on the due date. The applicant reinsurers subsequently applied for the interest rate to be fixed. The respondent reinsureds applied to have the order awarding interest on the costs set aside.
For further information on this issue or any other arbitration topics please contact Neil Aitken (nca@cms-cmck.com), Charles Spragge (chs@cms-cmck.com) or Gregor Kleinknecht (gk@cms-cmck.com) in the International Arbitration Group
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Wealands v CLC Contractors Ltd and Key Scaffolding Ltd (First Third Party) and Another (Second Third Party) (CA), [1999] 2 Lloyd's Rep 739
Commentary
The decision of the Commercial Court on appeal from the Master was reviewed earlier on this website. The Court of Appeal, in upholding the Commercial Court’s order granting a stay under Section 9 of the Arbitration Act 1996, made the following observations. First, if parties have agreed to arbitrate only certain disputes arising out of their relationship, they must accept the limitations of that agreement and under the 1996 Act the court no longer has discretion to take any resulting inconvenience into account when considering whether to grant a stay. Second, the Court of Appeal confirmed that under the 1996 Act arbitrators retained jurisdiction to award contribution under the Civil Liability (Contribution) Act 1978. Section 46(1) of the 1996 Act conferred on the arbitral tribunal the general authority to decide disputes in accordance with the law chosen by the parties as applicable to the substance of the dispute. Accordingly, arbitrators should be prepared to deal with complex issues of law such as the apportionment of responsibility between several parties each of which is liable for the same damage or loss.
Decision
The Court of Appeal found that the dispute between the parties fell within the scope of the arbitration clause, including the Defendant’s claims against the first third party for contribution under 1978 Act. The fact that the arbitrator appointed pursuant to the arbitration clause lacked power to award contribution under the terms of the agreement was a consequence of the parties submitting their dispute to arbitration; it was neither a reason for granting a stay nor for treating the claim for contribution as falling outside the scope of the arbitration clause. There was nothing in the 1978 Act preventing the parties from foregoing by agreement any right which they might otherwise have to seek contribution. However, the Court of Appeal found that, under the 1996 Act, arbitrators retained the jurisdiction which previously existed to award contribution under the 1978 Act.
Background
The Claimant was the widow of a worker who died after falling from scaffolding while repainting Hammersmith Bridge under the employment of the Defendant. The Claimant sued the Defendant on the basis that the scaffolding was defective. The Defendant resisted the claim but also brought third party proceedings for an indemnity or contribution against the sub-contractor responsible for the scaffolding. The sub-contractor sought a stay of the Defendant's action under Section 9 of the 1996 Act by reference to the arbitration clause in the sub-contract.
For further information on this issue or any other arbitration topics please contact Neil Aitken (nca@cms-cmck.com), Charles Spragge (chs@cms-cmck.com) or Gregor Kleinknecht (gk@cms-cmck.com) in the International Arbitration Group
Tel +44 (0)20 7367 3000 Fax +44 (0)20 7367 2000
