Occidental Chartering Inc v Progress Bulk Carriers Ltd

Contractual and arbitration wording must be construed as a single exercise, considering the language, the relevant background and, where appropriate, commercial common sense. The expression used in an award may include related entities where the award and surrounding circumstances show that they were treated as one for the relevant purpose.

A party may recover as damages costs incurred further up a contractual chain where liability for the underlying breach flows through back-to-back contracts. An arbitration award establishing the intermediate liability is unnecessary where the liability is already clear from the contracts. The recoverability of such costs is subject to ordinary requirements such as causation, remoteness and reasonable quantum, where those matters remain in issue.

Occidental Chartering Inc, the disponent owners, appealed under sections 67, 68 and 69 of the Arbitration Act 1996 against three arbitration awards concerning liability arising from damage to the vessel Chada Naree.

The arbitration tribunal had found liability for breach of a safe port warranty to flow down the charter chain, but dismissed claims for arbitration costs incurred in the head arbitration. It also construed a reservation of jurisdiction in the Amending Award as insufficient to permit recovery by Occidental Chartering Inc of liabilities incurred through its related company, Occidental Services Corporation.

The appeal raised the construction of that reservation and whether costs incurred up the charter chain could be recovered as damages without a separate arbitration establishing liability between the related companies.

1. The appeal under section 69 succeeded. The court varied the Second Award rather than setting it aside and remitting it. The challenge to the tribunal’s reversal of its earlier costs order was conceded by the defendant.

2. The reservation in paragraph D of the Amending Award was construed in its contractual and arbitral context. The expression “Disponent Owners” had been used in the First Award to treat Occidental Chartering Inc and Occidental Services Corporation as one for the purpose of passing liability down the chain. Paragraph D therefore reserved jurisdiction to determine claims for costs payable through that chain. A narrow reading which treated the expression as referring only to Occidental Chartering Inc gave the provision no sensible operation.

3. The construction exercise was a unitary one, requiring consideration of the words used and the background reasonably available to the parties. The court applied the principles discussed in ICS v West Bromwich Building Society [1998] 1 WLR 896, Chartbrook v Persimmon [2009] 1 AC 1101, Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and The Starsin [2003] 1 LLR 571.

4. The tribunal’s “gap in the chain” reasoning was erroneous. The claim was for damages arising from breach of the safe port warranty. The same breach supported recovery of repair costs and associated expenses and also supported recovery of the reasonable costs of resisting the registered owners’ claims. The back-to-back charter terms established the necessary chain of contractual liability. No further arbitration award was required, particularly since remoteness, foreseeability and causation were not pursued as objections.

5. Occidental Chartering Inc was entitled to recover US$164,352.04, £5,500 and £10,509.89 in respect of costs incurred in the head arbitration, together with £23,371.63 as its costs in the arbitration against Progress Bulk Carriers Ltd, subject to any agreed adjustment and interest.

• Arbitration tribunal: The First Award, Amending Award and Second Award determined disputes arising from the charter chain. The tribunal dismissed the relevant claims for arbitration costs and later purported to reverse an earlier costs order.
• High Court (Commercial Court): On the section 69 appeal, the court varied the Second Award and awarded the specified damages and arbitration costs.