Sun United Maritime Ltd v Kasteli Marine Inc [2014] EWHC 1476 (Comm)

[2014] EWHC 1476 (Comm)Case No 2013-1657
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 14/05/2014
Before
MR JUSTICE HAMBLEN
Between
Sun United Maritime LtdClaimantKasteli Marine IncDefendant
James Watthey (instructed by Jackson Parton) for ClaimantNicholas Vineall QC (instructed by Thomas Cooper International) for DefendantHearing Hearing dates: 2 May 2014
JudgmentMr Justice Hamblen :Introduction
[1]This is an application by the Claimant (“Sun United”) challenging an award on costs (the “Costs Award”) issued by an arbitration tribunal (“the Tribunal”) on 19 November 2013.[2]The primary challenge made is an application under section 67 of the Arbitration Act 1996 (“the Act”) on the grounds that the Tribunal had no jurisdiction to make the Costs Award. Alternatively, if the court considers that the Tribunal did have jurisdiction, the Claimant seeks permission to appeal under section 69 on the basis of an alleged error of law.

Background

[3]The underlying arbitration is an LMAA charterparty dispute arbitration between Sun United as charterer and the Defendant (“Kasteli”) as owner of the vessel “IMME”. Kasteli’s claims had been secured by money paid into an escrow account which was in the name of Sun United’s solicitors, Jackson Parton. In the underlying arbitration there were claims and cross claims but the charterer Sun United ended up as the paying party. The sums payable under the first award were eventually paid out of the escrow account to Kasteli’s solicitors, but some money (enough to meet Kasteli’s costs) remains in the account.[4]After the award was rendered the parties’ solicitors sensibly tried to reach an agreement as to the costs of the arbitration and how they were to be met. Over the telephone on 29 May 2013 they reached some sort of an agreement, but the exact terms of that agreement are in dispute.[5]Kasteli’s position is that agreement was reached orally, that Sun United would pay costs of €50,000, subject to drawing up a written agreement, and the reason a written agreement was needed was that it was only with a written agreement that monies could be released from the escrow account.[6]Sun United’s position is that there was a binding and enforceable agreement on costs which was entered into orally, and nothing was agreed about a subsequent written agreement being required.[7]In the event no written agreement on costs was ever agreed.[8]Since the parties could not reach a written agreement about costs (and therefore there was no agreement that would allow the costs to be paid out of escrow), Kasteli referred the matter back to the arbitrators.[9]Sun United contended that the arbitrators had no jurisdiction to deal with costs. They said that there was an agreement about costs and that the arbitrators were therefore functus officio.[10]The arbitrators held as follows:
“H. On 18th March 2013 we were informed that the parties were unable to agree on costs and we received submissions from both parties. Those submissions closed on 30th April 2013 and we proceeded to prepare our award as to costs. However before we were able to publish our award, we were informed on 29th May 2013 that, subject to written terms being drawn up and approved, the outstanding issues had been resolved amicably and we were asked to refrain from any further work. On 15th July 2013 however we were informed that while the parties had concurred on a figure for costs, final agreement was subject to a written agreement on terms being approved and signed but that no such written document had been produced. The Owners considered that as a consequence, the dispute between the parties remained and we retained jurisdiction and should thus proceed to our award on costs. However the Charterers considered that as an agreement on costs had been reached, the tribunal was functus officio and the dispute between the parties was over the terms of the written agreement which was a dispute under an escrow agreement for which the jurisdiction was the English High Court. I. It is clear from the correspondence that we have received from both parties that the written agreement has not been produced. We note that interpleader proceedings have been issued but the lawyers involved are not a party to this arbitration and the escrow account, which is the subject of the High Court proceedings, is also not part of these arbitration proceedings. We therefore consider that we retain jurisdiction over costs as this was specifically reserved in our award.”
However before we were able to publish our award, we were informed on 29th May 2013 that, subject to written terms being drawn up and approved, the outstanding issues had been resolved amicably and we were asked to refrain from any further work. On 15th July 2013 however we were informed that while the parties had concurred on a figure for costs, final agreement was subject to a written agreement on terms being approved and signed but that no such written document had been produced. The Owners considered that as a consequence, the dispute between the parties remained and we retained jurisdiction and should thus proceed to our award on costs. However the Charterers considered that as an agreement on costs had been reached, the tribunal was functus officio and the dispute between the parties was over the terms of the written agreement which was a dispute under an escrow agreement for which the jurisdiction was the English High Court.[11]The Tribunal went on to assess costs at €55,661.11. The s.67 application The threshold question

The s.67 application

[12]Kasteli takes a threshold point that the application does not fall within s. 67.[13]S.67 is in terms limited to challenges to an award by a tribunal as to its “substantive jurisdiction” (section 67(1)).[14]“Substantive jurisdiction” is defined (see section 82(1) read with section 30(1)) as meaning:
“(a) whether there is a valid arbitration agreement (b) whether the tribunal is properly constituted (c) whether matters have been submitted to arbitration in accordance with the arbitration agreement.”
[15]Kasteli submits that the Tribunal was not being asked any of those questions. It was being asked to resolve a different question, which was whether or not the parties had already bindingly settled all questions of costs. The parties having agreed that the Tribunal should resolve that question, they are stuck with the Tribunal’s answer unless there is a challenge under section 68 or section 69.[16]Sun United submits that where there is an issue as to whether there remains any dispute in the arbitration reference that is a dispute about “whether matters have been submitted to arbitration in accordance with the arbitration agreement”. If there is no dispute then the Tribunal is functus officio and can have no jurisdiction to decide anything, although it may, unless the parties have otherwise agreed, record the settlement in an agreed award pursuant to s.51.[17]Neither party was able to refer me to any authority or textbook discussion which directly addresses this question.[18]In my judgment, where there is a dispute as to whether the claim (or a claim) which has been referred to arbitration has been settled that will generally fall within the reference made to the arbitral tribunal. The alleged fact of settlement will be a defence to the continuing claim and, like any other defence, a matter for the arbitral tribunal to determine. The same applies where the only remaining claim in the arbitration is one for costs. The alleged settlement is a defence to the claim for a costs order and within the reference made. An arbitration reference generally includes the power to make an award on costs, as the Act makes clear (see sections 59 to 65). Even where there is an agreed settlement that does not generally of itself bring the reference to an end (see section 51).[19]The issue between the parties in a case such as the present is not as to “whether matters have been submitted to arbitration in accordance with the arbitration agreement”, but whether matters which have been so submitted have been resolved by agreement.[20]I therefore agree with Kasteli that the application does not fall within s.67. In case that conclusion is wrong I shall nevertheless consider whether there was a binding agreement.

Whether there was a binding agreement on costs

[21]Sun United contends that a final and binding agreement was made during oral discussions between Mr Patrinos of Jackson Parton and Mr Lambrou of Thomas Cooper on 29 May 2013. There were witness statements from Mr Patrinos and Mr Lambrou but neither party suggested that oral examination was required.[22]Mr Patrinos’ evidence was:
“10. Costs were agreed in the sum of €50,000 (as per the attached correspondence at “ARP1” pages 25-29). In light of the dispute that has since arisen, I must emphasise the following matters: (1) My email of 13:56 on 29 May 2013 (“ARP1” page 29) was sent very soon after an oral agreement was reached on the telephone (as per the attendance note at “ARP1” page 28). (2) As can be seen, both the note of the oral agreement and the follow-up email record an absolute and unconditional agreement. (3) Everything thereafter was post-contractual and irrelevant to the question of whether or not the parties had reached agreement on the quantum of recoverable costs. (4) It was only subsequent to that agreement that there was an assertion that a written instrument was required as a condition of the agreement – see Mr Lambrou’s email of 16:28 on 29 May 2013 (page 30 of “ARP1”). (5) It was never suggested in my telephone conversation with Mr Lambrou on 29 May 2013 that the agreement on the quantum of costs was “conditional” upon drawing up a written agreement; the reason that the parties decided that it had to be done was that the Escrow Agreement required this firm only to release the Escrow sums in accordance with a “written settlement agreement” (or a final and unappealable judgment or award).” (1) My email of 13:56 on 29 May 2013 (“ARP1” page 29) was sent very soon after an oral agreement was reached on the telephone (as per the attendance note at “ARP1” page 28). (2) As can be seen, both the note of the oral agreement and the follow-up email record an absolute and unconditional agreement. (3) Everything thereafter was post-contractual and irrelevant to the question of whether or not the parties had reached agreement on the quantum of recoverable costs. (4) It was only subsequent to that agreement that there was an assertion that a written instrument was required as a condition of the agreement – see Mr Lambrou’s email of 16:28 on 29 May 2013 (page 30 of “ARP1”). (5) It was never suggested in my telephone conversation with Mr Lambrou on 29 May 2013 that the agreement on the quantum of costs was “conditional” upon drawing up a written agreement; the reason that the parties decided that it had to be done was that the Escrow Agreement required this firm only to release the Escrow sums in accordance with a “written settlement agreement” (or a final and unappealable judgment or award).”
[23]The attendance note referred to by Mr Patrinos stated as follows:
“Agree to €50k plus share arbs fees. I agree. Not sure how long to pay. He advises that there is an escrow account and so pay out of that. I am not aware of that. DAH [Mr Hughes] back on Friday I think. I will confirm in writing and he will acknowledge. Need to inform the arbitrators as well.”
[24]The email which Mr Patrinos refers to was sent at 1556 Greek time (“the 1556 email”) and stated as follows:
“Further to our telephone conversation a few minutes ago, we write to confirm that our clients have agreed to pay €50,000 in full and final settlement of the costs (and any interest) due to your clients. In addition it is agreed that the parties will each pay 50% of the arbitrators’ outstanding charges. Please confirm that the above is an accurate recitation of the agreement reached.”
Please confirm that the above is an accurate recitation of the agreement reached.”[25]Mr Lambrou’s evidence was:
“17. On 29 May 2013, I had several telephone exchanges with Mr. Patrinos which culminated in an agreement on a figure of EUR 50,000 which Sun United would agree to pay and our clients would agree to accept subject to written terms being agreed. In light of Jackson Parton’s continued attempts to deduct their own fees from our clients’ recoverable costs, and the delays encountered in obtaining payment under the First Final Arbitration Award, the timing of when Sun United would become liable to pay those costs and the mechanism by which they would be paid, was a very important issue in dispute and would form an important part of any written agreement on costs. I told Mr Patrinos that any agreement would need to comply with the formalities required under the Escrow Agreement. Unfortunately, Mr Patrinos was unable to discuss either the timing or mechanism of any payment on costs and he was wholly unaware of the existence of any Escrow Account or that Jackson Parton were holding security for Kasteli’s costs. The fact that, during our conversation, I referred to the timing of payment and the Escrow Account and that Mr. Patrinos was unable to discuss these things, is recorded in Mr. Patrinos’ telephone note (ARP1, p.28). 18. I did not keep a separate attendance note of these conversations: given that we agreed on the phone that we would confirm the position between us in writing it did not seem to me to be necessary to do so. After the exchange of emails was complete (and Mr. Patrinos had written to the Tribunal, copying me in) I thought that we are in complete agreement and the emails spoke for themselves – I did not think there was any need for an attendance note. 19. I have been asked if I can recollect the precise words used in my last telephone conversation with Mr Patrinos. I am afraid that I cannot. But I am quite clear in mind as to how things were left: (a) we were agreed that costs could be agreed in the sum of €50,000; (b) I had explained that my clients needed (and wanted) the money paid out of the escrow account and that was a necessary part of the deal; and (c) our agreement as to costs was subject to the requirements of the Escrow Agreement so that my clients could be sure they would get money out of escrow.” (a) we were agreed that costs could be agreed in the sum of €50,000; (b) I had explained that my clients needed (and wanted) the money paid out of the escrow account and that was a necessary part of the deal; and (c) our agreement as to costs was subject to the requirements of the Escrow Agreement so that my clients could be sure they would get money out of escrow.”
[26]The Escrow Agreement to which he refers provided that any payment be made: “only in accordance with(i) a written settlement agreement signed by the solicitors of each party for and on their behalf in respect of the claims arising in respect of the claims arising in respect of the Disputes including any claims for interest and costs arising thereon or(ii) upon the presentation of and in accordance with a final and unappealable judgment(s) or arbitration award(s) or order of a competent Court or Tribunal in London, relating to the Disputes including any claims for interest and costs arising thereon…Jackson Parton undertake that they shall not deal withthe Escrow Funds other than strictly in accordance with this Agreement”.[27]Shortly after the 1556 email the following further emails were sent: Mr. Lambrou to Mr. Patrinos at 1628 (“the 1628 email”) “Thank you for your [above] message in this matter. 1. Any funds agreed to be paid to our clients, in settlement of their awarded costs and interest thereon, shall be released from the Escrow Funds your firm is holding as security for our clients’ claims in this matter, in accordance with the terms of the Escrow Agreement dated 15 October 2008. 2. Under Paragraph 7 of the Escrow Agreement, you, being the Escrow Account Holders, have undertaken to “release all or part of the Escrow Funds only in accordance with (i) a written settlement agreement signed by the solicitors of each party for and on their behalf in respect of the claims arising in respect of the Disputes including any claims for interest and costs arising thereon..” 3. In light of the above, our clients are prepared to accept Charterers’ offer in the terms set out below, on the condition that they have a settlement agreement which has been signed by Jackson Parton on those terms, as prescribed in Paragraph 7 of the Escrow Agreement. We trust this is reasonable and we look forward to receiving the signed settlement agreement. A copy of the Escrow Agreement is attached for your ease of reference.” Mr. Patrinos to the Tribunal, copied to Mr. Lambrou at 1712 (“the 1712 email”) “… We are pleased to inform the Tribunal that, subject to written terms being drawn up and approved (which we hope will be concluded tomorrow), the outstanding issues have been resolved amicably and in those circumstances please can you refrain from undertaking any further work in this reference until otherwise advised by either party. We will confirm when the settlement has been formally concluded.”[28]The 1712 email had an internal email header stating “Email to Tribunal cc TC asking not to undertake any further work as in throws of concluding settlement”.[29]I agree with Kasteli that insofar as there is a difference between the accounts of Mr Patrinos and Mr Lambrou the court should adopt the following approach:(1) Both witnesses are solicitors and therefore officers of the court.(2) It should be assumed that both are doing their best to recollect the conversation they had in May 2013.(3) In order to resolve such differences that there are the court should have particular regard to (i) the intrinsic likelihood of the two accounts and (ii) the closely contemporaneous documents.

Intrinsic likelihood

[30]I accept that the Escrow Agreement is an important background matter and that it is inherently probable that Mr Lambrou would seek to ensure that any costs agreed could and would be paid out of the escrow account. In particular:(1) There was money in the escrow account which; (a) Mr. Lambrou saw as the obvious source of payment. (b) Jackson Parton had been angling to be permitted to take some costs of their own out of (as set out in Mr. Lambrou’s Witness Statement at paragraphs 11 and 14).(2) A written agreement was needed before money could be paid out of the escrow account.(3) Mr. Lambrou knew all this – so it was unlikely he would overlook the need for written agreement.(4) Mr. Patrinos was new to the file and might not have appreciated the significance (to Mr. Lambrou) of a written agreement.[31]I agree with Kasteli that it is intrinsically unlikely that Mr. Lambrou would have reached an agreement that would have meant he could not get his clients’ costs from the escrow account, which would be the position if it was merely an oral agreement and not required to be in writing.

The contemporaneous documents

[32]The following points may be made about the attendance note:(1) It shows that the issue of the escrow account was raised.(2) It suggests that Mr. Patrinos realised he did not know about the escrow account and could not agree terms in relation to it.(3) It shows that Mr. Lambrou wanted the money paid out of escrow.(4) It indicates that it was agreed that there would be confirmation in writing.[33]The 1556 email does not refer either to the escrow account or the need for any written agreement.[34]The 1628 email clearly sets out the need for a written agreement in compliance with the Escrow Agreement as a condition of any settlement. Mr. Patrinos did not question this or otherwise revert.[35]The 1712 email states that the parties’ agreement is “subject to written terms being drawn up and approved”. It also contemplated that further work might need to be carried out by the Tribunal and asked them to refrain from further work “until otherwise advised by either party”. Its internal header also records that the parties were in the “throws” of concluding a settlement, rather than that a settlement has been concluded.[36]I accept that the contemporaneous documents generally provide support for Kasteli’s case for the reasons outlined above. It was Sun United’s case that documents subsequent to the agreement cannot affect an agreement already made. That is correct, but they may nevertheless provide valuable evidence as to whether an agreement was made.

Conclusion

[37]Having regard to the witness evidence, the documents, the parties’ submissions and the inherent probabilities I find that during the crucial telephone conversation the costs figures were agreed. However, it was also stated by Mr Lambrou and agreed by Mr Patrinos that the costs would need to be paid out of the escrow account. That necessarily meant that a written agreement would have to be entered into as required by the Escrow Agreement. Since he was not familiar with the terms of the Escrow Agreement Mr Patrinos may not have appreciated this and therefore the significance of agreeing that the costs be paid out of the escrow account. That may explain why he has no specific recollection of that aspect of the conversation, although it is clear from the attendance note that there was a discussion of the escrow account and of the fact that the costs were to be paid out of it.[38]I accordingly find that it was an essential condition of the agreement reached that the costs be paid out of the escrow account and therefore that a written agreement be entered into in order to enable that to be done. Unless and until that was done there was no final and binding agreement. That written agreement was required not to record what had already been agreed but to make that agreement effective. Objectively there was no intention to be legally bound until the requisite written agreement was made, which it never was.[39]The agreement reached in relation to costs was therefore that costs would be agreed at €50,000 but there was to be a written agreement so that the monies could be taken from the escrow account. That condition subsequent was never achieved, so there was no binding enforceable agreement on costs.[40]Even if the application falls within s.67 it follows that the Tribunal had jurisdiction. The s.67 application must accordingly be dismissed.

The s.69 challenge

[41]Whether or not a final and binding agreement was concluded in the oral conversation between Mr Patrinos and Mr Lambrou on 29 May 2013 is an issue of fact. It does not raise any question of law and the court accordingly has no jurisdiction to grant permission to appeal.[42]If that is wrong and some question of law arises it is one which depends on the particular facts of the case and does not raise any question of general importance. It would therefore be necessary to show that the Tribunal’s decision was obviously wrong. Sun United cannot show that the decision is obviously wrong or even open to serious doubt. On the contrary the decision was correct for the reasons given in addressing the s.67 application.[43]Sun United raised a further point that in assessing the costs of the disputed costs hearing, the Tribunal did not consider the “agreement” (i.e. ex hypothesi, the agreement-subject-to-written-terms) that had been reached between the parties. However:(1) Costs are discretionary and no error of law has been shown.(2) Sun United did not ask the Tribunal to take into account the fact that the parties had been prepared to agree costs at €50,000.(3) It would have been irrelevant anyway because (ex hypothesi) there was no agreement, and Kasteli had to have either an award or a written agreement signed by Jackson Parton if they were to be able to enforce.[44]In any event, the question raised at most goes to the small amount of costs relating to the costs assessment and does not substantially affect the rights of either of the parties. Further or alternatively, in the light of the amount at issue and the fact that the argument was not put forward before the Tribunal it would not be just and proper in all the circumstances for the court to determine the question.[45]For all these reasons the s.69 application must be dismissed.

Conclusion

[46]Both the s.67 and the s.69 applications are dismissed.