This case note is based on an Article in the November 2004 Edition of the ‘Bulletin’, published by the Marine and Insurance teams at the international firm of lawyers, DLA. DLA is an International Contributor to this website.

Background
The dispute concerned an agreement for the sale and purchase of a vessel. The memorandum of agreement provided that, prior to delivery, the buyer would have the option to arrange for an underwater inspection and, if defects were found that did not require dry-docking, the seller and buyer would obtain two quotations for repair. The seller would then have the option to repair the vessel itself or deliver it and accept a reduction in price.

The buyer exercised its option for an inspection, which revealed a rudder that might need repair, although the surveyor recommended further examination. The seller indicated it wished to proceed on the basis of a reduction in price and provided a quotation for the repair. The buyer did not think the clause applied because the surveyor had not yet decided if dry-docking was required and so did not provide a quotation. The parties agreed to refer the question to arbitration under the small claims procedure of the London Maritime Arbitrators' Association.

In February 2004, the sole arbitrator published his award. He found that the seller was liable in damages but that, because the buyer had not provided a quotation, damages would be assessed with reference to the quotation obtained by the seller. He awarded the buyer US$6,094.

The award did not contain the arbitrator's reasons. These were published separately in a document headed "These reasons are issued subsequently to and separately from the award and do not form part of the award. They are given for the information of the parties only and on the understanding that no use whatsoever is made of them on or in connection with any proceedings on or related to the award".

The buyer wanted to have the award remitted to the arbitrator for reconsideration under section 68 on the grounds that it had had no notice of the argument put forward or any proper chance to respond and that, in assessing damages, the arbitrator wrongly disregarded an important item of evidence, namely a quotation for repairs it had obtained from another shipyard. But the only evidence of the way in which the arbitrator had reached his decision was in the reasons published separately.

Could the buyer refer to those reasons? In agreeing to adopt the LMAA small claims procedure, the parties had expressly agreed to waive all rights of appeal, thereby making reasons redundant as far as questions of law were concerned. Parties who choose to refer disputes to arbitration under this procedure agree to receive an unreasoned award with "privileged" reasons published separately.

Judgment
The problem, the judge explained, was balancing party autonomy and the finality of arbitration awards against possible injustice. If the arbitrator's reasons were published separately and confidentially, and a party alleged a serious irregularity had taken place causing substantial injustice, the only way the court could see if the claim was substantiated was to look at the confidential reasons. A number of cases under the 1979 Arbitration Act found that, in such circumstances, the parties could not make use of the reasons without the court's permission, but the court itself was entitled to look at them to decide whether there had been any misconduct (Mutual Shipping Corp v Bayshore Shipping Co (The Montan) [1985] 1 Lloyd's Rep 198).

In the judge's view, this did not go quite far enough. Section 68 applications should not be made lightly. The court could only remit or set aside an award if there had been a serious irregularity capable of giving rise to substantial injustice. If the only supporting evidence lay in the confidential reasons, the court had no choice but to look at them unless there was evidence from other sources that made it unnecessary to do so, or it could see that the allegation was groundless or there was some other exceptional reason for refusing.

But in cases where the confidential reasons provided the only evidence, the right course was to allow the party making the application to rely on those reasons, notwithstanding the agreement to the contrary, because this enabled the court to look at them and parties to make submissions in relation to them. Failure to do so would risk allowing a substantial injustice.

On examining the arbitrator's reasons in this case, however, he was satisfied that there had been no irregularity and the application was dismissed.