'Obvious Accounting Mistake' Sinks LMAA Arbitrator's Award In Rare Successful S.68 Challenge By Charterer

• Published date: 11 May 2022
• Subject Matter: Accounting and Audit, Litigation, Mediation & Arbitration, Accounting Standards, Arbitration & Dispute Resolution
• Law Firm: Herbert Smith Freehills
• Author: Mr Craig Tevendale and Jake Savile-Tucker

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 1996 on the grounds that an 'obvious accounting mistake' by an arbitrator had breached the duty of fairness under section 33 of the Arbitration Act 1996. Contrary to common ground between the parties and without giving them 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, thereby inflating the amount awarded by approximately 33%.

This High Court authority 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 into a charterparty which contained an LMAA 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 ultimately 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 that they could not award the owners a sum which exceeded the amount actually claimed and accordingly awarded the owners $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 on both occasions on the basis that there was "no error or mistake in the calculations". Against this background, the charterers brought an application before the English High Court to set aside part of the award under section 68(2)(a) of the Arbitration Act 1996.

Decision

The Judge, Butcher J, began by reiterating that the charterers had to show an irregularity that falls within the exhaustive list of categories set out in section 68(2) of the Arbitration Act, and that that irregularity has caused or will cause substantial injustice to the applicant. In so doing, Butcher J emphasised the "high hurdle" and "heavy burden", as was said in Bandwidth Shipping Corporation v Intaari (The 'Magdalena...