Navigator Spirit SA v Five Oceans Salvage SA

An arbitral tribunal generally acts fairly under section 33 of the Arbitration Act 1996 where it puts its own counterfactual analysis to both parties and gives them a reasonable opportunity to address it. A party’s failure to appreciate or take an opportunity that exists does not ordinarily establish procedural unfairness. In an informal LOF arbitration, an appeal arbitrator may use maritime knowledge and experience and may assess dangers under a realistic scenario different from those advanced by counsel, provided the scenario is fairly raised. Relief under section 68 also requires a serious irregularity and substantial injustice.

The owners of FLAG METTE applied under section 68 of the Arbitration Act 1996 to set aside an LOF appeal award. The salvage claim arose after repeated main-engine failures during the vessel’s voyage through the Bay of Biscay and English Channel. The first-instance arbitrator awarded $825,000.

On appeal, the appeal arbitrator reconsidered the hypothetical dangers in the absence of salvage assistance. He concluded that the vessel might have been required to wait offshore for an acceptable tug or for an engineer, creating additional risks of collision and prolonged immobilisation, and increased the award to $1.2 million. The owners alleged that those dangers had not been fairly raised and that the appeal arbitrator had exceeded his powers and departed from the agreed procedure.

1. Application dismissed. The owners failed to establish a serious irregularity under section 68(2)(a), (b) or (c) of the Arbitration Act 1996.

2. Section 33 requires an arbitral tribunal to act fairly. There will generally be a breach where the tribunal decides the case on a point which a party had no fair opportunity to address. The relevant question concerns the tribunal’s conduct and perception, not merely a losing party’s misunderstanding. The Magdalena Oldendorff required the court to assess the matter from the arbitrator’s perspective. Terna Bahrain stated the same distinction between absence of an opportunity and failure to recognise or use an opportunity that existed.

3. The appeal arbitrator rejected both parties’ proposed hypothetical scenarios and put his own realistic scenario to both counsel. Although he did not expressly identify the offshore collision risk to the owners’ counsel, he raised the offshore scenario and referred to delay, weather and further breakdown risks. In the circumstances of an informal LOF arbitration, this gave the owners a fair opportunity to deal with the relevant dangers.

4. LOF arbitrations are deliberately informal and cost-effective. Written grounds of appeal are expected to be economical while giving adequate notice. An appeal arbitrator may draw on his own knowledge and experience and may posit a counterfactual scenario which is differently nuanced from the parties’ cases. Counsel must be prepared to address points arising from that analysis.

5. Even if there had been an irregularity, it was not serious. Section 68 relief requires conduct so far removed from what could reasonably be expected of the arbitral process that justice calls out for correction. The owners also failed to show substantial injustice: there was no realistic basis for concluding that fuller submissions would probably have produced a significantly different award.

6. The offshore collision risk was a conclusion about the location in which the pleaded type of danger might arise, rather than a new type of danger outside the grounds of appeal. The alleged breaches of sections 68(2)(b) and (c) therefore failed independently.

The judgment describes the following arbitral history:

• LOF appeal arbitration: Jeremy Russell QC allowed the salvors’ appeal and increased the salvage award to $1.2 million plus the agreed currency uplift.
• High Court (Commercial Court): The owners’ application to set aside the appeal award under section 68 of the Arbitration Act 1996 was dismissed.