'Obvious Accounting Mistake' Sees High Court Sink Arbitrator's Award In Rare Duty Of Fairness Challenge

• Published date: 20 June 2022
• Subject Matter: Accounting and Audit, Litigation, Mediation & Arbitration, Transport, Accounting Standards, Marine/ Shipping, Arbitration & Dispute Resolution
• Law Firm: Herbert Smith Freehills
• Author: Mr Craig Tevendale and Jake Savile-Tucker

Court rules arbitrator inflated award by over $9,000 after mistakenly including unsuccessful counterclaim

In Ducat Maritime Ltd v Lavender Shipmanagement Inc [2022] EWHC 766 (Comm), the English High Court set aside part of an award under section 68(2)(a) of the Arbitration Act on grounds an "obvious accounting mistake" by an arbitrator breached duty of fairness. Contrary to common ground between the parties and without providing an opportunity to comment on a departure from that common ground, the arbitrator had mistakenly included the value of an unsuccessful counterclaim in the award, inflating its value by about 33%, or $9,553.92

The ruling - a rare instance of the High Court intervening on an arbitration award - will give comfort to parties whose arbitration award contains obvious errors but which the arbitrator fails to correct.

BACKGROUND

The owners and charterers of a vessel entered a charterparty which contained a London Maritime Arbitrators Association arbitration clause. The owners brought an arbitration against the charterers claiming $37,831.83 in respect of an unpaid hire. The charterers denied the claim and sought to set-off and counterclaim $15,070.00 due to the vessel's underperformance. The set-off and counterclaim were unsuccessful.

Based on the arbitrator's findings on liability, the owners should have been awarded $28,277.91. However, the arbitrator mistakenly added the value of the charterers' unsuccessful counterclaim to the value of the owners' total claim. As a result, the value of the owners' total claim was held to be $53,692.66. The arbitrator determined they could not award the owners a sum which exceeded the amount claimed and accordingly awarded $37,831.83.

The charterers applied to correct the award under section 57(3) of the Arbitration Act 1996 on two separate occasions. The arbitrator declined to do so both times, on the basis there was "no error or mistake in the calculations". Against this background, the charterers brought an application before the High Court to set aside part of the award under the Arbitration Act 1996.

DECISION

Mr Justice Butcher reiterated the charterers had to show an irregularity falling within the list of categories set out in section 68(2) of the Arbitration Act and that the irregularity has caused or will cause substantial injustice to the applicant. Butcher emphasised the "high hurdle" and "heavy burden", as outlined in Bandwidth Shipping Corporation v Intaari (The 'Magdalena Oldendorff')...