Vrinera Marine Company Ltd. v Eastern Rich Operations Inc

On an appeal on a question of law from an arbitration award, causation requires the court or tribunal to identify whether the breach was the effective or dominant cause of the claimed loss. It is insufficient merely to ask whether the claimant’s conduct broke the chain of causation. Remoteness is a separate inquiry. The parties need foresee the type of loss, not the precise mechanism or legal route by which it occurs. Where the correct legal tests could only produce one result, remission to the arbitral tribunal may be futile and the court may determine the matter itself.

The claimant, owners of the vessel Vakis T, appealed under section 69 of the Arbitration Act 1996 from an award concerning the recoverability of arbitration costs. The defendant charterers had incurred costs in pursuing a sub-arbitration against sub-charterers after defending the owners’ claim alleging breach of the safe port or berth obligation.

The tribunal treated the costs as caused by the owners’ breach of seaworthiness and foreseeable because the charterers reasonably pursued the sub-arbitration. It did not apply the correct causation or remoteness tests. The central issue was whether the award should be remitted or whether the court should decide that the claimed costs were not recoverable.

1. The appeal succeeded in substance. The tribunal’s reasoning could not sustain the award. Its approach to causation, based only on whether pursuing the sub-arbitration broke the chain of causation, did not address whether the alleged breach was the effective or dominant cause of the costs.
2. In applying that test, the real cause of the costs was the owners’ spurious safe port or berth allegation and the charterers’ decision to repeat that allegation in their claim against the sub-charterers. The claimed costs therefore could not be linked, as a matter of commonsense causation, to the owners’ breach of the seaworthiness obligation.
3. Foreseeability alone was inadequate for remoteness. The proper inquiry concerned whether the type of loss would have been within the parties’ contemplation at the time of contracting as a not unlikely result of the breach. The precise mechanism by which the loss arose, including the legal basis of the sub-claim, need not have been contemplated. A test requiring contemplation of that mechanism would conflate causation and remoteness.
4. Section 69(7) of the Arbitration Act 1996 discloses a bias in favour of remission, reflecting the parties’ choice of tribunal and the court’s limited jurisdiction on questions of law. Nevertheless, remission is discretionary. It is inappropriate where application of the correct tests makes the outcome inevitable and a further reference would be futile.
5. The court concluded that the necessary causal link could not be established. The parties were directed to draft an order reflecting the judgment, with unresolved ancillary matters to be dealt with at hand-down.

• Arbitration tribunal: Award dated 29 September 2003, finding the claimed sub-arbitration costs recoverable.
• High Court (Commercial Court): The appeal under section 69 of the Arbitration Act 1996 succeeded in substance. The award could not stand because the tribunal applied incorrect tests, and remission was futile.