REUTERS | Dominic Ebenbichler

Appeals on a point of law in arbitration and adjudication

One of the recurring themes on this blog is looking at what happens in arbitration and drawing parallels with what happens in adjudication. It is something that really interests me as I act as both adjudicator and arbitrator.

This week is no different and I am looking at the judgment in Fehn Schiffahrts GmbH & Co KG v Romani SPA, where the Commercial Court allowed an appeal on a point of law under section 69 of the Arbitration Act 1996 and remitted the award back to the three-person tribunal.

Fehn Schiffahrts GmbH & Co KG v Romani SPA

Although I don’t think we need to go into the facts in any detail (because it is the section 69 point that is of real interest), it is probably worth mentioning that the parties’ dispute was over a charterparty, whereby “the vessel” (the MV Fehn Heaven) was to sail from Reni in the Ukraine to Rotterdam in the Netherlands. The cargo was made up of organic sunflower seeds and organic wheat. At some point along the way, the cargo was fumigated, which meant it could no longer be sold as organic. Cue a dispute over who was liable for the fumigation and the difference in price between an organic cargo and a non-organic one.

I don’t know about you, but although I can (just about) sail a dinghy, my knowledge of charterparty contracts and the like is relatively limited. Thankfully that is not a bar to writing about this case. (It isn’t the first time I’ve looked at shipping arbitration either, as my post of 29 May concerned the “superyacht”, The Palladium.)

The tribunal’s award

In the arbitration, the tribunal concluded that the vessel’s owners were liable for the damages caused by the fumigation while the cargo was in their care and custody. The tribunal awarded damages of €171,353 for the wheat and €153,400 for the sunflower seeds.

A dispute then followed over whether the tribunal had dealt with a question of law correctly (this was to do with an assignment and whether the vessel’s charterers had title to sue). The matter was referred to the court.

Section 69, Arbitration Act 1996

Section 69(1) provides that:

“Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings.”

Section 69(1) is one of the non-mandatory sections that the parties to an arbitration agreement can agree to exclude (such an agreement is (unsurprisingly) known as an “exclusion agreement”). Even if the parties don’t agree to exclude their section 69 rights, an appeal can only be brought if either all the parties agree or with the court’s leave (section 69(2)). The court will only grant leave if it is satisfied of all the matters set out in section 69(3), namely that:

  • The determination of the question will substantially affect the rights of one or more of the parties.
  • The question is one which the tribunal was asked to determine.
  • On the basis of the findings of fact in the award:
    • (i) the decision of the tribunal on the question is obviously wrong; or
    • (ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt.
  • It is just and proper in all the circumstances for the court to determine the question.

Permission to appeal had already been granted in this case.

On the facts, the Commercial Court held that it was not possible, on the face of the award, to determine whether the tribunal had answered the question of law correctly. Also, this meant that it wasn’t entirely clear whether the tribunal had applied the law correctly. Therefore, the award was remitted to the tribunal for further consideration.

Errors of law in adjudication

In contrast to section 69, as we all know, in adjudication there is no right of appeal on a point of law. As Coulson J (as he was when he wrote his book) says (at paragraph 8.05 of Coulson on Construction Adjudication):

“It can, therefore, be said with some confidence that errors of law that do not affect the adjudicator’s jurisdiction and do not give rise to some argument as to impartiality or natural justice, will not prevent the enforcement of an adjudicator’s decision.”

These principles are derived from a number of early cases, such as Macob Civil Engineering v Morrison ConstructionBouygues v Dahl-Jensen and Carillion Construction Ltd v Devonport Royal Dockyard.

In Bouygues, Dyson J (as he then was) cited a passage from a rent review case (Nikko Hotels (UK) Ltd), where the judge had said of the expert:

“If he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity.”

In Bouygues, the Court of Appeal endorsed Dyson J’s approach, and followed it a year or so later in C&B Scene Concept Design Ltd v Isobars Ltd, and one of the key adjudication enforcement principles was established.

Mistakes are made, occasionally

I think it would be naïve of me to say that adjudicators don’t make errors of law. They are only human and, on occasion, they do make mistakes. I’m sure this causes parties on the receiving end of these errors some frustration. However, the principle that there is no redress for errors of law is consistent with the “pay now, argue later” approach the courts have applied to adjudication, and section 108 of the Construction Act 1996, which expressly provides that adjudicators’ decisions will be binding until the dispute is finally determined by legal proceedings, by arbitration or by agreement.

If appeals on a point of law were permitted, the process of adjudication would simply breakdown and cash flow would not be preserved.

That said, there is a limited way around this where contracts provide that disputes are to be finally resolved by legal proceedings, rather than arbitration. Some disgruntled parties seek declarations under CPR 8 on a point of law when the adjudicator is said to have got something wrong, and on occasion parties have been successful.

Matt and I have looked at Part 8 applications on a number of occasions, but one thing is clear to me from recent cases. The TCC is seeking to prevent Part 8 applications, particularly those not properly submitted, from defeating those adjudicators’ decisions that have been made within jurisdiction and without breaching the rules of natural justice. You only have to look at the judgments in Hutton Construction Ltd v Wilson Properties (London) Ltd (which Helena White considered) and Structure Consulting Ltd v Maroush Food Production Ltd (which I discussed).

MCMS Ltd Jonathan Cope

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