The English High Court has remitted an arbitral award with ambiguous reasoning back to the tribunal under section 69 of the Arbitration Act 1996 where the ambiguity gave rise to a risk that an error of law had occurred. In doing so, the court declined to infer from the tribunal’s findings of fact what its legal reasoning might have been and outlined the approach courts should take when considering whether or not there has been an error of law.
Fehn Schiffahrts GmbH & Co KG v Romani SPA  EWHC 1606 (Comm), concerned a charterparty for a voyage from Ukraine to the Netherlands with a cargo described as organic sunflower seeds and organic wheat. At some point during the voyage, the cargo was fumigated without the authorisation of either the consignee or the charterer. As a result, it was alleged that the cargo could no longer be sold as organic, but instead had to be sold on at a discount. The owner suspected that the cargo had not been organic in the first place and commenced a fraud investigation.
It appears that some confusion then arose as to whether the proprietary interest in the cargo at the time of the sale had been vested in the consignee or the charterer. In what was later said to be “a belt and braces exercise to avoid any title to sue point being taken”, the consignee eventually assigned any interest it might have in the cargo to the charterer, which went on to bring an arbitration seeking to recover the amount of the discount.
Predictably, the assignment was not successful in its aim. In the arbitration, in addition to referring to the ongoing fraud investigation, the owner argued that even if the cargo had originally been organic, any loss had been suffered by the charterer and not the consignee. The consignee therefore had no right of recovery against the owner and, consequently, could not pass any such right on to the charterer by means of the assignment.
The tribunal found that the value of the goods had been downgraded by the fumigation and that the charterers had title to sue. It awarded the charterer damages in excess of €324,000. In its reasoning, the tribunal referred to documents evidencing credits issued to the onward buyers by the charterer as supporting the reduction in value, and to the assignment as supporting title to sue. However, the award made no express statement as to the ownership of the cargo at the time of sale or as to which party had suffered the loss.
The owner appealed to the English High Court on a point of law under section 69 of the Arbitration Act 1996. It argued that the references to credits issued by the charterer implied that it was the charterer which had suffered the loss. This would mean that the tribunal had allowed a claim by the charterer as an assignee in respect of a loss which the consignee as assignor had not actually suffered, which amounted to an error of law.
In response, the charterer relied on two alternative arguments:
- There was no finding in the arbitral award as to who had suffered the loss, and therefore there could be no question of an error of law in that regard.
- Even if the consignee did not suffer any loss, the charterer had title to sue in its own right as a party to the charterparty, independently of the assignment.
Moulder J decided that the award should be remitted back to the tribunal for reconsideration, as there had been no finding as to whether the consignee had or had not suffered a loss. The court could not draw inferences from the facts which the tribunal had found as to what conclusion it must have reached on points that the award did not address. In circumstances where the court could not determine whether or not the tribunal had erred in law, remitting the award for reconsideration was the appropriate course of action, as previously decided in The Johnny K  EWHC 134 Comm.
The judge also rejected the argument that the award could be upheld on the alternative basis that the charterer could sue in its own right. There was no basis for such a decision in circumstances where the tribunal’s decision on the question of title to sue had expressly referred to the assignment. In these circumstances, there was a “natural inference” that the decision was based upon the assignment.
In reaching the above decision, Moulder J outlined the following principles as to how the court should approach an alleged error of law:
- The court should divide the arbitrator’s reasoning into three stages:
- Ascertaining of facts;
- Ascertaining the law;
- Reaching a decision on the basis of the facts and law as ascertained in the earlier stages.
- On an application under section 69, the court should only consider the second stage, that of ascertaining the law. There were two methods of demonstrating that the tribunal had made an error in this regard:
- By examining the way in which the law is outlined in the award;
- By showing that the correct application of the law to the facts would “inevitably” lead to one answer, whereas the tribunal had arrived at another.
- The question for the court is whether or not an error of law has been established. This is not the same as the test of whether the decision is “obviously wrong or at least open to serious doubt”, which applies on an application for permission to appeal.
- As stated in Polaris Shipping Co Ltd v Sinoriches Enterprises Co Ltd  EWHC 3405 (Comm), the court should read arbitral awards in “a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault with it”, and not approaching it “with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults… and with the objective of frustrating the approach of arbitration.”
This judgment offers a useful insight into the approach a court will take to an ambiguous award. In particular, the court will not draw inferences from the tribunal’s findings of fact as to what conclusions the tribunal must have reached on a point of law where those conclusions are not themselves stated. Where the tribunal does state its conclusions, however, the court is likely to infer that those conclusions are based on the matters which it refers to in its reasoning, and will not uphold the award on a basis that is not consistent with those references.
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