Hawk Shipping Ltd v Cron Navigation Ltd

In a contractual damages claim, the ordinary market-difference measure applies where an available market for substitute goods, vessels or services exists. But there is no legal presumption that such a market exists. Its existence is a question of fact.

Under Arbitration Act 1996, s.68, disagreement with an arbitrator’s factual assessment, or with a legal conclusion, does not amount to serious irregularity unless the conduct approaches the statutory threshold. In a small-claims arbitration, an expert arbitrator may use specialist commercial knowledge where the parties have provided no evidence on an issue. The arbitrator is not generally required to warn parties in advance of deficiencies in their evidence.

Hawk Shipping Limited, owners of the vessel Sea Hawk II, applied under s.68 of the Arbitration Act 1996 to challenge an award made under the L.M.A.A. Small Claims Procedure. The arbitrator had found that the owners wrongfully withdrew the vessel and awarded Cron Navigation Limited damages, including loss of earnings.

The owners argued that the arbitrator had overlooked their case that damages should be measured by the difference between the charter rate and the cost of a substitute vessel. They also alleged that he had reversed the burden of proof, decided the issue by surprise and committed serious irregularity. The central issue was whether the arbitrator’s approach and assessment met the threshold for intervention under s.68.

1. The application under s.68 of the Arbitration Act 1996 was dismissed. The arbitrator’s assessment of loss and his conclusion that no suitable replacement vessel had been shown to be available did not constitute serious irregularity.

2. The court rejected the inference that the arbitrator had ignored the owners’ pleaded case merely because it was not expressly addressed in the original award. The arbitrator had determined the basis on which the loss claim was to be assessed. Nor was there a proper basis for alleging that his later explanation was a disingenuous attempt to conceal an error.

3. The ordinary measure of damages for breach of contract is the loss naturally and directly resulting from the breach. Where an available market exists, the normal measure is the difference between the contract rate and the market rate for obtaining a substitute. Section 50 of the Sale of Goods Act illustrates that principle, but there is no legal presumption that an available market exists. Whether such a market exists is a question of fact.

4. The owners had asserted that substitute tonnage was available but supplied no evidence enabling the arbitrator to make that finding. It was therefore a non sequitur to contend that the arbitrator had to find an available market because the charterers had not proved its absence.

5. The arbitrator was entitled, under the specialist small-claims procedure, to use his commercial knowledge in assessing the evidence and facts. He was not obliged to warn the parties before issuing the award that he regarded their evidence on an issue as deficient. The correction power in s.57(3)(a) of the 1996 Act did not provide a proper route for reopening the substantive damages assessment.