Fehn Schiffahrts GmbH & Co KG v Romani SPA

On an appeal under section 69 of the Arbitration Act 1996, the court examines whether an error of law has been established, rather than whether the award is obviously wrong or seriously doubtful. An award must be read reasonably and commercially. Where an award appears to base title to sue on an assignment, the tribunal must address separately whether the assignor suffered recoverable loss. An assignee cannot recover more than the assignor could have recovered. If the award does not reveal whether that essential issue was determined correctly, the court may remit the award to the tribunal. The court cannot uphold the award on an alternative contractual basis absent a sufficient foundation in the award.

The owners of the MV Fehn Heaven appealed under section 69 of the Arbitration Act 1996 against an arbitral award requiring them to pay the charterers damages for cargo allegedly downgraded after unauthorised fumigation. The tribunal found that the charterers had title to sue, relying on an assignment from the bill of lading holder, and awarded substantial damages.

The owners argued that the tribunal had failed to determine whether the assignor had suffered loss, since an assignee could not recover more than the assignor. The charterers relied alternatively on their own loss under the charterparty and on authorities concerning recovery where loss might otherwise fall into a legal black hole. The central issue was whether the award disclosed a correct determination of the assignor’s loss and the basis of the charterers’ title to sue.

1. Appeal allowed and award remitted. The question on a section 69 appeal was whether an error of law had been established. The permission-stage test of whether the decision was obviously wrong or open to serious doubt was not the test at the hearing of the appeal ([2018] EWHC 1606 (Comm), [15]).
2. The court adopted the three-stage analysis of an arbitrator’s reasoning: ascertain the facts; ascertain the law, including the contract and the facts legally relevant to the decision; and apply the law to the facts. Only the second stage is the proper subject of an appeal, although an error may be inferred where a correct application of the facts and law could lead inevitably to only one answer ([13]–[14]).
3. An award should be read in a reasonable and commercial way. The approach in Polaris Shipping Co Ltd v Sinoriches Enterprises Co Ltd was noted as the applicable general approach ([16]).
4. The award naturally indicated that the tribunal treated the assignment as the basis of the charterers’ title to sue. But it did not determine whether Justorganic, the assignor, had suffered substantial recoverable loss. That issue was distinct from title to sue. Since an assignee could not recover more than the assignor, failure to determine it correctly would constitute an error of law ([28], [34], [36]).
5. The court could not uphold the award on the alternative basis that the charterers had suffered loss and could sue under the charterparty. The award provided no sufficient basis for that alternative conclusion ([37]). The matter was remitted to the tribunal for reconsideration. It was unnecessary to decide the further “legal black hole” argument ([25], [38] and Addendum).

• Arbitration tribunal: The tribunal awarded the charterers damages and found that they had title to sue.
• High Court (Commercial Court): Permission to appeal was granted on 9 March 2018. The appeal succeeded and the matter was remitted to the tribunal.