Lorand Shipping Ltd v Davof Trading (Africa) BV MV "Ocean Glory"

Under Arbitration Act 1996, a tribunal must give the parties a fair opportunity to address a course of action which it proposes to adopt but which neither party has advocated. A tribunal which adopts such a course without notice may commit a serious irregularity under section 68. Substantial injustice is established where the tribunal might realistically have reached a different conclusion; it is unnecessary to show that it would necessarily have done so. The section 68 threshold remains very high and operates as a longstop for extreme failures in the arbitral process. The court set aside the relevant parts of the award and remitted the matter.

The owners of the bulk carrier Ocean Glory applied under section 68 of the Arbitration Act 1996 in relation to an award arising from disputes under a voyage charterparty. The tribunal awarded demurrage but refused the owners’ request concerning possible future indemnity claims relating to cargo claims, while stating that fresh arbitration proceedings might be possible. The parties accepted that the award exhausted the tribunal’s jurisdiction, with the result that the contractual time bar could prevent a fresh reference. The issue was whether the tribunal had adopted an unauthorised course, without giving the parties an opportunity to address it, causing serious irregularity and substantial injustice.

1. Application allowed. Paragraphs 30–31 of the arbitral award were set aside and declared to be of no effect. The matter was remitted to the tribunal, and the charterers were ordered to pay the owners’ costs summarily assessed at £12,500.
2. The indemnity claims had been referred to the tribunal, or the parties had proceeded on that basis. The absence of quantified claims was not fatal.
3. Where a tribunal wishes to adopt a course not advocated by either party, it is generally incumbent on it to give the parties an opportunity to address that possible course before adopting it. The tribunal could potentially have finally determined the claims on their merits or reserved them. Instead, it adopted a half-way course: it neither reserved its jurisdiction nor determined the claims.
4. The tribunal’s approach was adopted without proper notice. The owners had no opportunity to explain the effect of the contractual time bar or otherwise address the consequences of exhausting the tribunal’s jurisdiction. That failure constituted a serious irregularity within section 68.
5. The substantial-injustice requirement was satisfied. The court did not need to conclude that the tribunal would necessarily have acted differently. It was sufficient that it might realistically have reached a different conclusion. Although the strength and evidential basis of the possible claims could be relevant, the material did not show that the owners’ claims were bound to fail or extremely weak.
6. The judge expressed a tentative view that, absent agreement, a tribunal may have no power simply to decline to act on a submitted claim. No final decision was made on that issue because it had not been argued.