A v B [2018] EWHC 2325 (Comm)

[2018] EWHC 2325 (Comm)Case No Claim No. CL-2017-000617IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTS OF ENGLAND & WALESCOMMERCIAL COURT (QUEEN'S BENCH DIVISION)IN THE MATTER OF AN ARBITRATION CLAIMVenue Royal Courts of Justice, Strand, London, WC2A 2LLDate 07/09/2018
Before
SIR ROSS CRANSTON
Between
AClaimantBDefendantA Claimants (respondents in arbitration)- and -B Defendants (claimants in arbitration)
Vasanti Selvaratnam QC and Ravi Aswani (instructed by Bentleys, Stokes & Lowless) for ClaimantsChristopher Hancock QC & Richard Greenberg (instructed by Thomas Cooper LLP) for DefendantsHearing Hearing dates: 18-19 July 2018
Judgment ApprovedSir Ross Cranston:INTRODUCTION
[1]These are applications by the claimants, A (“the owners”), a subsidiary of G, challenging an award for serious irregularity under section 68 of the Arbitration Act 1996, and for permission to appeal the award on points of law under section 69 of that Act. In the underlying arbitration the owners were the respondents. The defendants to these applications, B (“the charterers”), had time-chartered the claimants’ vessel, the GA, a VLCC, very large crude oil tanker, which they then placed in a pool by way of sub-charter with similar tankers, called the S tankers pool.[2]During the course of the charter the vessel was in breach of its terms. Eventually the charterers placed it off hire and claimed for losses in an arbitration by a tribunal of the London Maritime Arbitrators Association, the LMAA. Following a hearing in early December 2016, the tribunal published its Second Partial Final Arbitration Award on 9 May 2017 in favour of the charterers. The tribunal issued a memorandum of clarification on 24 August 2017. (The award, the accompanying reasons and the memorandum are referred to as “the award” in this judgment.) The owners issued their arbitration claim form in this court on 6 October 2017. BACKGROUND Contractual context[3]The relevant contracts for the purposes of these applications are threefold: first, the time charterparty between the parties to these applications, the owners and the charterers; secondly, the sub-charter between charterers and S Tankers Inc (“the S pool”); and thirdly, the contract governing the S Pool (“the S pool agreement”).[4]The time charterparty between the owners and charterers regarding the GA (“the vessel”) was dated 4 July 2011. It was an amended Shelltime 4 form. Clause 7 provided that the charterers should provide and pay for all fuel. Under clause 8 the charterers were to pay hire of a minimum of US$15,000 per day. It was also agreed under that clause that the vessel would be sub-chartered to the S pool and that, where the pool distribution payable by the latter, the sub-charterers, to the defendant charterers exceeded US$30,000 per day, further sums were payable to the owners. (It was common ground that the pool distributions payable would not have exceeded US$30,000 per day so that the issue of the payment of further sums to the owners did not in practice arise.) The master of the vessel was under the orders of the charterers (clause 13). Despite any sub-charter the charterers always remained responsible to the owners for the due fulfilment of the charterparty (clause 18).[5]Among the rider clauses, which were deemed to be part of the charterparty, was clause 50, the “oil major eligibility” clause. Oil majors for the purposes of the clause were BP, Chevron, ExxonMobil, Statoil, Shell, Total and Conoco. Under clause 50(i) the owners guaranteed that at all times during the currency of the charterparty, a valid report would be registered on the Sire system (the database of the Ship Inspection Report Programme). Clause 50(ii)(a) provided that on delivery the vessel should be eligible for the business of at least three oil majors at all time. Subsequent to delivery, the owners warranted that they would maintain the minimum level of vetting approvals as per the S pool agreement.[6]The second contract, the sub-charter of the GA by the charterers to the S pool, was also dated 4 July 2011. It too was an amended Shelltime 4 form. Clause 7 provided that the S pool should provide and pay for all fuel. Clause 8 stated that, subject to what was provided, the S pool should pay for the use and hire of the vessel “at the rate of (see Article X of Pool Agreement) per day...” The “Pool Agreement” referred to in that clause was the S pool agreement, examined shortly. Clause 50(i) of the rider clauses, the oil major eligibility clause, provided that no oil major should have rejected the vessel since the inspection leading to a valid Sire report registered on the Sire system, and that the Sire report must be no more than 6 months old. Clause 50(ii) provided that after delivery the charterers, B, should use best endeavours to obtain as soon as possible eligibility to all remaining oil majors, apart from the three for which the vessel had to be eligible on delivery. The S pool agreement was deemed to be an integral part of the sub-charterparty.[7]The third contract, the S pool agreement, was entered by the charterers, the S pool (described as the pool company) and H (described as the agent). It was dated 7 November 2011. The recitals recorded that the pool company facilitated the pool, that the agent managed its business, that the charterers desired to enter the GA into the pool, and that there was a charterparty between the charterers and the S pool. Article X stated that the vessel was to earn hire in accordance with the “Pool Point Formula” contained in Article XIII. The vetting clause, Article XIV of the agreement, provided that the charterers should at all times use best endeavours to ensure that the vessel was eligible for charter to as many oil majors as possible. The charterers should also make all necessary arrangements so that a good Sire report was no more than six months old. If the period exceeded six months, the vessel’s technical rating lost points, although there was a grace period for compliance. At all times the vessel had to be eligible for charter by a minimum of four oil majors. Background to the dispute[8]The background facts, as found by the tribunal, are as follows.[9]The GA was delivered into service to the charterers on 4 July 2011, with the sub-charter to the S pool on the same day. There were five other G tankers in the S pool at the relevant time.[10]While discharging at Yingkou in China on the 10 March 2012 the GA was inspected by Statoil, and a critical Sire report produced. There was no other Sire report for the vessel before it was put off hire on 26 October 2013.[11]On 4 May 2012 the vessel was fixed to Valero, for a cargo from the Basra oil terminal to the west coast of the United States. BP indicated that the vessel would not be acceptable for discharge at its Long Beach terminal because of the Sire report. The vessel performed the Valero fixture and discharged offshore at the Pacific Area Lightering, off San Diego, instead of BP’s Long Beach terminal. On 22 July it proceeded to Cape Horn for orders, and then on 26 September to a position in the Atlantic 1981 miles off Bonny, Nigeria. Meanwhile, on 10 September 2012 its Sire report had become six months old.[12]On 13 September 2012 one of the other the G vessels,the GZ or substitute, was on subjects to CNOOC, the China National Offshore Oil Corporation, for a cargo at Pazfolr. The vessel was turned down by Total so the GA was proposed as a possible replacement. On 18 September the shipper, ExxonMobil, rejected the GA because of the Sire report.[13]In a witness statement prepared for the tribunal, the chartering manager of the S pool, Mr JH, gave further details of what occurred on this occasion. On 13 September 2012 he had fixed the GZ on subjects to CNOOC for a cargo from ExxonMobil’s terminal at Pazfolr to Total’s terminal at Dalia. The GZ was turned down by Total because its chief officer did not have sufficient sea time, and so he tried to line up the GA as a possible replacement. However, she was turned down about 18 September by ExxonMobil. In the end, Mr JH explained, he was able to change the chief officer of the GZ, whereupon subjects were lifted.[14]In his evidence, Mr JH also explained that he tried to fix the GA to the Indian Oil Corporation with laydays 21/22 October 2012 for loading at Nigeria/Angola (intention Girassol) to the East coast of India (intention Paradip). However the fixture failed, possibly because Girassol is a Total controlled terminal and the vessel, as he learnt later, was unacceptable to them.[15]Attempts to fix the GA following what happened in mid-September were unsuccessful. The vessel was rejected by various oil majors during September and October: Chevron on 27 September, Total on 2 October, Petrobras on 8 and 18 October, and BP on 19 October.[16]On 26 October 2012 the charterers notified the owners that it was putting the vessel off hire through breach of clause 50 of the charterparty. The owners resumed control of the vessel from that date. Bunkers from that date were for the owners’ account. The vessel was formally redelivered to the owners on 14 January 2013. Reference to arbitration[17]The charterers’ claim against the owners in the arbitration was served on 7 March 2014. For present purposes the relevant issue is its claim for loss and damages as a result of breaches of the oil major eligibility clause. Had there been no breach, the charterers submitted, the vessel could most likely have been profitably fixed after her departure from the west coast of the United States from around mid-August, initially in mid-September for loading in west Africa. However losses were conservatively assessed, the charterers said, by reference to two realistic voyage calculations, the first being obtained and commencing about 26 September 2012 for loading on or about 21 October. It was for a laden leg between Dalia, Angola and Jamnagar, India, for Shell (“the Shell fixture”). The second voyage was to follow that. It was for a laded leg between Basrah, Iraq and Long Beach, California for Valero (“the Valero fixture”).[18]The charterers submitted that the damages were equal to the daily tce rate (time charter equivalent rate) the vessel would have earned on the two voyages between 26 September 2012 and 31 January 2013 had there been no breach. (The latter date was when the vessel would have finished discharging at Long Beach.) For the first realistic voyage of 50.4 days, the daily tce rate meant the vessel would have earned US$1,451,177; for the second voyage of 76.2 days, it was US$3,247,791. The charterers accepted that it would need to give credit for the daily hire payable from 26 October 2012 to 31 January 2013, namely, US$1,446,300.[19]The charterers also claimed for bunkers incurred between 26 September and 26 October, because the hypothetical bunkers consumed then had already been taken into account in the voyage calculations. The claimed amounts, the submission added, subsumed both the liability the charterers had to the S pool under the sub-charterparty and/or the S pool agreement, and the charterers’ own losses under the charterparty as a result of a reduction in hire by way of distributions from the pool.[20]The owners’ defence denied that the charterers had suffered loss and damage, refuted the fixtures the charterers advanced, and challenged the calculation at the tce rate in light of the pool agreement. The owners also denied the claim for bunkers from 26 September to 26 October, since the vessel was on hire during that period and available for employment, and since the charterers could have placed it off hire under clause 50. In any event bunkers over that period were properly for the charterers’ account.[21]There then followed the charterers’ reply, which stated that the voyage calculations reflected both the available market rates and the particular fixtures which would have been obtained but were not, by reason of the owners’ breach. In paragraph 8(4)(d) the reply alleged that the owners’ breaches greatly reduced the distributions received by the charterers from the S pool – their own losses – in addition to their liability to the S pool as the sub-charterers. The measure of loss which was claimed subsumed both the charterers’ own losses and their liability to S. Both were conveniently measured by reference to the daily tce rate which the vessel would have earned. That, it added, “does not mean the claim is one for loss of profits by the Charterers…”.[22]The owners’ rejoinder noted that the charterers had failed to plead particulars of the losses in paragraph 8(4)(d) or of any liability to the S pool, and put the charterers to strict proof.[23]The hearing before the tribunal took place over five days, 5th-9th December 2016. In written opening submissions to the tribunal, the owners referred to the compensatory principle in the context of a submission that the charterers could not prove that they would have made a profit (citing The Mamola Challenger [2010] EWHC 2026 (Comm); [2011] Lloyd’s Rep 47). Paragraph 9(j) of the owners’ opening submissions then read: “No doubt cognisant of the difficulties presented by the fact that the market rate at the relevant time was far below US$15.000 per day, the claimants in their reply have disclaimed any attempt to recover ‘loss of profit’: see Reply, para 8(4)(c). What they were seeking to recover instead is the contribution they say they would have received under the pool agreement from the lost fixtures and indemnification in respect of the sums they would have been liable to pay [the S pool] under the pool agreement in respect of lost fixtures: see Reply para 8(4)(d).”.[24]In cross-examination before the Tribunal Mr JH, chartering manager of the S pool, accepted that all S pool vessels excluding the GA averaged US$9749 a day, that the GP and GZ averaged US$7988 a day, that GP and GZ were the vessels most closely comparable to GA, and that if her Sire status had been good the GA would have performed like the others. On that basis, Mr JH acknowledged that at their rates the charterers would have been making a loss.[25]The owners’ written closing submissions of 8 December 2016 reiterated its opening submission at paragraph 9(j), and recalled the charterers’ pleaded case at paragraph 8(4)(d), in other words that the owners’ breaches greatly reduced the distributions the charterers received. It then went on to test that assertion by recreating a pool model.[26]During oral closing submissions on 9 December 2016 there was discussion of the entitlement of members of the pool if the charterers made recovery. Since the income and expenditure for each were pooled and then redistributed, the owners were concerned that other G vessels in the pool should benefit. Counsel for both parties accepted the suggestion of the tribunal: it would make a declaratory award in relation to loss (as counsel for the charterers put it, “what went into the pool”), with the proportion going to each pool participant being determined later.[27]In a supplement to the charterers’ written closing submissions dated 8 December, provided to the tribunal during its oral closing, there was reference to what was characterised as the actual position of the charterers, namely that from 22 July to 26 October 2012 they had paid wasted expenditure on hire and bunkers without any return.[28]On 19 December 2016 the owners made supplementary closing submissions, in writing, which were described as being “intended specifically to respond to the [charterers’] closing submissions provided on 9 December 2016 during the course of oral closings.” These asserted that, as a matter of principle, that the S pool average earnings over the period for vessels directly comparable to the GA should form the basis of any assessment of loss.[29]Further, the owners added, the charterers was advancing for the first time a claim for all the hire and cost of bunkers in the 66 day period from 22 July until 26 October 2013, totalling US$2,559,132. The attempt to claw back that sum, a sub-heading read, was contrary to the charterers’ pleaded case and the owners objected. The charterers had claimed the cost of bunkers consumed from 26 September-26 October, and had identified 26 September 2012 as the beginning of the period when the owners’ breach adversely affected the vessel’s trading. Reference was made to parts The Mamola Challenger [2010] EWHC 2026 (Comm); [2011] Lloyd’s Rep 47 in support of the argument that the charterers’ claim was for impermissible double compensation.[30]Following the hearing there was correspondence between the tribunal and the parties about the clarification of various figures and several assurances by the tribunal that the award was imminent. THE AWARD The award[31]The tribunal made its second partial final arbitration award on 9 May 2017. After introductory material, the award stated that the charterers claimed, inter alia, a net loss of earnings of approximately US$3.5 million, or alternatively lesser sums as damages, arising out of the owners’ failure to comply with the oil major eligibility clause in the charterparty: para. 5. At paragraph 7 the award recorded that the parties agreed that it “should simply make a declaration of the sums that were due to the Charterers under the charterparty, leaving the parties to agree what payments should actually be made given their membership of the [S] Pool…” The award then found and declared that the charterers’ claim for damages succeeded in the sum of US$3,278,169.[32]In setting out in its reasons the history of the GA under the charterparty, the tribunal recalled its slow steaming to Cape Horn for offers after discharging at the Pacific Area Lightering and commented: “This was against the background of an extremely soft market for VLCCs with four of the [S] pool vessels having been unfixed for lengthy periods”: para. 21.[33]At paragraph 27 of its reasons the tribunal found that the owners breached the oil major eligibility clause because the vessel was not acceptable to at least four of the named oil majors, and also because the Sire report became more than six months old. In the last sentence of paragraph 27 it said that the charterers advanced a claim for loss of earnings, but that the owners raised various arguments against the claim.[34]One argument which the owners raised, the tribunal said, was that it was not appropriate to consider the charterers’ position under the charterparty alone, but to bring into account their position under the pool agreement. However, the tribunal held, the position of the charterers under the pool agreement was irrelevant; at least for this award it had to have regard to the position between the owners and the charterers: para. 29.[35]The owners had notified the tribunal that the five G vessels in the pool had entered a deed of assignment in favour of the owners the effect of which was to require that any monies distributed by the pool to any of those vessels should be paid to owners, if they so directed, or otherwise be held on trust for them: para. 30. The tribunal concluded that the assignments were irrelevant, at least at that stage: para. 31.[36]The tribunal recorded at paragraph 32 that the charterers gave an undertaking “that they would account to the pool for any compensation that they received in these arbitration proceedings which represented their liability to the Pool for the amount that the Pool should have earned if the owners had complied with their charterparty obligations.”[37]Despite that undertaking, the owners continued to express concern that the charterers might not properly account to the pool for sums paid to them, so “33…[t]he parties’ therefore agreed that we should simply make a declaration as to Charterers’ financial entitlement under the charterparty, leaving the parties to agree how that entitlement should be dealt with under the Pool Agreement. We were asked to reserve our jurisdiction to make a further award determining what sums were actually payable to the Charterers. It should, however, be emphasised that the agreement did not detract from our conclusion that the Charterers’ claims under the charterparty were to be calculated solely by reference to the rights and obligations of the Owners and the Charterers under the charterparty and not by reference to what the ultimate position of the parties might end up being under the Pool Agreement.”[38]The tribunal considered and rejected a number of arguments advanced by the owners that any losses the charterers suffered were attributable to their own decisions or that the chain of causation had been broken. It rejected the owners’ argument that the losses were too remote: they were precisely of a type that would be foreseeable as a direct and natural result of the owners’ breaches: para. 39.[39]The tribunal set out the charterers’ claim based on the Shell and Valero fixtures: paras. 45-47.[40]The owners argued on the authority of The “Vicky 1” that the claim should be discounted on the basis of loss of chance because at the time the market was soft. The tribunal rejected the submission “where there was a market and the claim was calculated on the basis of fixtures that could have been performed”: paras. 49-50.[41]The tribunal accepted the owners’ objection to the charterers’ claim for bunkers between 26 September 2012 and 26 October 2012. The vessel remained on hire for that period and bunkers were payable by the charterers while it was on hire: para 51.[42]The tribunal considered it appropriate to assess the charterers’ loss of profits by reference to two possible fixtures, rather than by reference to averages of time charter equivalent rates. The two fixtures were the Shell and Valero fixtures. Shell had put the GA on subjects on 1 October 2012, and the fixture only failed because Total, the operators of the terminal at Dalia in Angola, rejected the vessel: para. 52. As to the Valero charter, the chartering manager for S Tanker pool, Mr JH, gave evidence of the excellent relationship with that company. It was reasonable to assume, said the tribunal, that the charterers would have been able to fix to Valero after the Shell fixture, loading out of Basra to the US west coast after the Shell voyage: para 53.[43]Calculating the charterers’ claims, the tribunal accepted the time charter equivalent rates, recalculated by the charterer’s expert after the evidence showed lower bunker consumption per day than he had been using, multiplied by the number of days. For the Shell fixture the calculation was US$25,791 x 49.04 days = US$1,264,790.64; for the Valero fixture, 81.16 days x US$38,935 = US$3,159.964.60: para. 57. The tribunal was satisfied that the figures of the charterers’ expert brought into account the time and bunkers consumed on the approach voyage to Angola after the vessel was fixed on subjects on 26 September: para. 58.[44]The total income minus cost figure for both voyages was US$4,424,804. To be subtracted from that was the cost of bunkers from when the vessel left the US west coast on 22 July until when it was off Bonny on 26 September 2012, US$850,767. That reduced the profits for the two voyages to US$3,278,169. Hire of US$2,895,000 would have been payable between 22 July 2012 and 31 January 2013, so taking that into account the net voyage profit would have been US$679,037: para. 59.[45]The charterers calculated that they had paid hire of US$1,443,885 for the period of some 96 days between 22 July and 26 October 2012 for no return. During the same period they paid bunkers of US$1,155,247: para.60. (The figure the tribunal gave in the reasons was US$1,555,247, but it later said this was a typographical error.) The net claim was the lost voyage profit of US$679,037 and the wasted expenditure of US$2,599,132. That produced a total net claim of US$3,278,169: para.61. The tribunal said that it was prepared to make a declaration to that effect: para.62. Memorandum of clarification[46]On 1 June 2017 the owners applied under section 57 of the Arbitration Act 1996 for clarification of a number of matters. There followed a considerable number of further submissions by the parties.[47]In its memorandum of clarification dated 24 August 2017, the Tribunal used the six headings A-F in the owners’ section 57 application.[48]The first heading, heading A, concerned “wasted expenditure and loss of profit/the compensatory principle”. The Tribunal stated that it had applied the compensatory principle. Neither party had argued otherwise. Since the principle was axiomatic, there was no need to state it. With the benefit of hindsight, the tribunal said, it might have been better to spell out that it did not think The Mamola Challenger [2010] EWHC 2026 (Comm); [2011] 1 Lloyd’s Rep 47 had any application, although insofar as the case was relied on in support of the compensatory principle that principle was self-evident.[49]The owners had complained that the charterers’ case on quantum was not in accordance with its claim submissions. To this the tribunal responded that it was clear at an early stage, and there was nothing to indicate otherwise, that the charterers’ amended case could not properly and fairly be dealt with during a five day hearing, with additional submissions being served afterwards. “[W]e find it surprising that it could be said that there was any uncertainty about the basis upon which the charterers’ quantum was being calculated. No suggestion was made at the time or subsequently that the owners were not in a position to respond to the charterers’ case insofar as it differed from their original claim submissions.”[50]Finally, under heading A, the tribunal accepted that the evidence showed that the bunkers up to 26 September were paid for by the S pool, not the charterers. The Tribunal said that this was not a clarification permitted under section 57 of the Arbitration Act 1996 or the LMMA rules, and hoped that the parties could agree to an adjustment to the award without an application to the court. The tribunal also expressed the hope that the parties could agree to the consequent adjustments to the award if it should have made a finding that the notional end-day of the Valero voyage was 3 February, rather than 31 January 2013.[51]Under heading B regarding loss of profits as a measure of damages, the tribunal responded that it most certainly did not overlook the issue of whether the position under the pool was relevant, and had set out its conclusions at paragraphs 28 and 29 of its reasons.[52]Thirdly, with heading C, the Shell and Valero fixtures, the tribunal said that it had heard evidence that the market was soft, but there was expert and factual evidence that the charterers “could indeed and probably would have…performed [them].” The Shell fixture was on subjects and the charterers gave unchallenged evidence of their very close relationship with Valero. “Although obviously it was unlikely that the [GA] would have earned more than the average market rate over a long period of time, we accepted the expert evidence that the two profitable fixtures could have been performed.”[53]Next, heading D: the tribunal stated that its alleged failure to consider reduced distributions from the S pool was a repetition of what was advanced under the second heading.[54]Fifthly, regarding heading E, loss of chance, the tribunal stated that it had considered the owners’ argument and, as explained in the award, had concluded that the principle had no role to play in the reference.[55]Finally, under heading F, typographical error, the tribunal noted that the parties agreed that the figure for expenditure on wasted bunkers was US$1,1555,247, not US$1,555,247. SECTION 68 APPLICATIONS[56]In their arbitration claim form, the owners’ application to this court under section 68 of the Arbitration Act 1996 was advanced under six headings, labelled A-E and G. Under all these headings serious irregularity was said to have occurred under sections 68(2)(a), (c), (d), and (h), but under headings A and B a breach of section 68(2)(i) was also alleged.[57]Section 68(2)(a) of the Act concerns failure by the tribunal to comply with the duty to act fairly under section 33 of the Act (including approaching the case consistently with the agreement of the parties); section 68(2)(c), failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties; section 68(2)(d), failure by the tribunal to deal with all the issues that were put to it; section 68(2)(h), failure to comply with the requirements as to the form of the award; and section 68(2)(i), irregularity in the conduct of the proceedings or award admitted by the tribunal.[58]On the owners’ case, each of these serious irregularities caused them substantial injustice and called out for the court’s intervention. But for these irregularities the tribunal might well not have reached the unfavourable conclusion it had concerning the owners’ case: Vee Networks Ltd v Econet Wireless International Ltd [2004] EWHC 2909 (Comm); [2005] 1 Lloyd's Rep. 192, [90], per Colman J. The owners relied as well on section 70(4) of the Act, which enables the court to order reasons for the appeal if it takes the view that those given are inadequate. Heading A: “wasted expenditure” and “loss of profits” together/the compensatory principle[59]The owners’ submissions under this head related to paragraphs 60-62 of tribunal’s reasons, where it accepted the charterers’ claim that they incurred wasted expenditure on hire and bunkers. In the owners’ submission, the tribunal acted unfairly under section 68(2)(a) in allowing the charterers’ new and unpleaded case for wasted expenditure to be raised on the last day of the hearing. The owners contended that the tribunal had accepted that there had been a change of case in its memorandum of clarification, but unfairly took the view that the owners could deal with it.[60]Next, the owners submitted, the agreed position was that the tribunal at this stage of the arbitration would only make a declaration of the sum payable between the parties. Instead, it had in effect awarded damages, unfairly blurring what was supposed to occur at the next stage.[61]In purporting to quantify the charterers’ liability to indemnify the S pool as sub-charterers, the owners contended, the tribunal wrongly assumed firstly, that the charterers had a duty to indemnify the sub-charterers, as to which there was no evidence, and secondly, that indemnification was the same as the damages under the charterparty itself when the charterparty and sub-charterparty differed in their terms. The tribunal overlooked that there was no evidence of a claim for indemnification being made. If the charterers’ case was to be recast as their obligation to indemnify, and not for their own losses, the S pool and expert evidence about it became relevant. Yet the tribunal had wrongly put that evidence to one side, even though it had taken a considerable part of the hearing.[62]The owners submitted that the award could not be saved by the tribunal’s acceptance in its memorandum of clarification of its error as regards payment of bunkers up to 26 September - that they were paid for by the S pool not the charterers. It could not be assumed that the charterers had any liability for bunkers, let alone the same liability of the sub-charterers. The owners highlighted the other errors in the award (the US$1,155,247 figure, and the notional end date of 3 February, not 31 January).[63]In the owners’ submission, these various points also constituted a breach of sections 68(2)(c), 69(2)(d), 68(2)(h), and 68(2)(i). The tribunal failed to conduct the proceedings in accordance with the procedure the parties agreed and to address all the issues raised. In particular the tribunal never grappled with The Mamola Challenger [2010] EWHC 2026 (Comm); [2011] Lloyd’s Rep 47, even when given the further opportunity in the section 57 application for clarification. That had explained that the principle against double recovery prevented the award of both wasted expenditure and loss of profits. Neither the award nor memorandum explained adequately the tribunal’s approach to such matters, nor addressed the owners’ outstanding challenges with proper reasoning.[64]As we have seen, the tribunal in its memorandum of clarification gave short shrift to the owners’ complaint that they did not have a reasonable opportunity of dealing with charterers’ wasted expenditure claim for bunkers between 22 July and 26 October. It stated that the charterers’ case on quantum was evident much earlier. In any event, the tribunal added, the owners did not seek to restrict the charterers’ claim to that advanced previously. In my view, the tribunal was entitled to the view that something more emphatic was necessary objecting to the charterers’ change of case than the sub-heading in the owners’ supplementary closing submissions of 19 December 2016.[65]Even if as the owners submitted the case for bunkers between 22 July and 26 October as wasted expenditure was articulated for the first time at closing, that in my view would not be unfairness amounting to a serious irregularity. Particularly telling is that the owners had the opportunity, which they took ten days after close of the hearing, of making further submissions. There they dealt with the point and did not request the tribunal to exclude this part of the charterers’ claim. Represented as they were by very experienced counsel and leading solicitors, it is difficult to see how they can seriously contend that they were not in a position to respond to the charterers’ case if it did differ from what had been previously advanced.[66]At paragraph 32 of its reasons, quoted earlier in the judgment, the tribunal stated that the compensation the charterers might receive in the arbitration proceedings represented their liability to the pool for the amount that the pool should have earned if the owners had complied with their charterparty obligations. The charterers’ liability to the pool, since the pool as sub-charterers was unable to trade the vessel as a result of the owners’ breach, was there as part of the charterers’ claim.[67]At paragraph 7 of the award the tribunal recorded that agreement between the parties was that it would make a declaration of the sums due to charterers under the charterparty and leave the parties to deal with the distributions under the pool agreement to a subsequent stage. That was spelt out again at paragraph 33 of the reasons. What the tribunal had to determine was what, in the course of the hearing, the charterers’ counsel characterised as “what went into the pool”. So I cannot accept the owners’ submission that the issue of indemnification was not properly before the tribunal.[68]What was to come later were the pool distributions. Although the tribunal may have heard evidence about pool accounting, it is unsurprising that it decided that the pool arrangements had no bearing on its present task. The issue the tribunal addressed, as it stated in paragraph 33, was the loss down the line. Evidence about the pool was at that stage beside the point. This was one of those situations where liability without payment could found a recoverable loss on a claim for breach of contract: Total Liban SA v Vitol Energy SA [2001] Q.B. 643.[69]At the end of their reasons, the tribunal identified a figure for lost voyage profits and wasted expenditure, and stated their preparedness to make a declaration to that effect. There was no monetary award. The owners have not, to my mind, established that there was a breach of section 33 by the tribunal acting contrary to the parties’ agreement given the very high threshold for this type of challenge: Bandwidth Shipping Corp v Intaari (The Magdalena Oldendorff) [2007] EWCA Civ 998; [2008] 1 Lloyd's Rep. 7, [38], per Waller LJ. Cases the owners cited are distinguishable, not least because they concern situations where the tribunal addressed issues not at issue according to the parties’ agreement or understanding: Pacol Ltd v Joint Stock Co Rossakhar [2000] 1 Lloyd’s Rep 109, 115, per Colman J, and Omnibridge Consulting Ltd v Clearsprings (Management) Ltd [2004] EWHC 2276 (Comm), [43].[70]In their written opening submissions before the tribunal the owners referred to the compensatory principle. They returned to it on various occasions by reference to The Mamola Challenger [2010] EWHC 2026 (Comm); [2011] Lloyd’s Rep 47. In its memorandum of clarification the tribunal stated that it applied the principle, which was axiomatic and it did not need to be stated. In other words, this was not the situation as in P v D [2017] EWHC 3273 (Comm), where in dismissing all other claims and counterclaims the tribunal overlooked the claimant's claim for contribution from another party. Thus the issue was dealt with even if, as the tribunal conceded in its memorandum, it could have been better executed. That an issue is dealt with badly or indifferently provides no basis for an application under section 68(2)(d): Secretary of State for the Home Department v Raytheon Systems Ltd [2014] EWHC 4375 (TCC), [33(g)(vi)], per Akenhead J.[71]For reasons already given these various points reformulated do not constitute breaches under the other heads of section 68(2), nor is intervention under section 70(4) justified by any inadequacy in the tribunal’s reasoning. Inadequate reasoning is no basis for the court’s intervention under section 68(2)(d): Primera Maritime (Hellas) Ltd v Jiangsu Eastern Heavy Industry Co Ltd [2013] EWHC 3066 (Comm); [2014] 1 Lloyd's Rep. 255, [42], per Flaux J. The tribunal acknowledged that it proceeded on an erroneous assumption concerning who paid for bunkers, the charterers rather than the S pool. That is an admitted irregularity in the award under section 68(2)(i). However, I accept the charterers’ submission that it makes no difference since they remained liable for payment and so their losses included that liability. As with the other challenges under this head, the owners fail to surmount the high threshold for a section 68 challenge: Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43; [2006] 1 A.C. 221, [26]-[28], per Lord Steyn (with whom the others agreed). Heading B: loss of profits as a measure of damages[72]The owners’ contention under this head was that the tribunal at paragraphs 43-52 analysed damages on the basis of loss of profits, when the charterers had specifically pleaded it was not a claim of that character; it ignored accounting considerations, when these were relevant when quantifying the charterers’ entitlement, which turned on the pool agreement; and it overcompensated the charterers in not applying the compensatory principle. This was in breach of the tribunal’s duty under section 33 of the Arbitration Act 1996 to deal with the case as pleaded and the evidence led. There was a failure to deal with the issues and to explain the tribunal’s approach.[73]In effect the owners’ submissions under this head have already been dealt with under Heading A. The nature of the charterer’s claim was for the S pool’s loss of profits and wasted expenditure on the voyages which could have been undertaken but for the owners’ breach. The charterers remained liable for these. As already explained, accountancy evidence about the pool accounts was irrelevant to determining this aspect of the charterers’ claim. As we have also seen, it was irrelevant because the parties agreed that the tribunal should make a declaration as to charterers’ financial entitlement, and how that would be treated under the pool agreement would come later. The tribunal explained with adequate reasons why the accountancy evidence was irrelevant at paragraphs 28-33, a matter it underlined in its memorandum of clarification. Heading C: Shell and Valero fixtures[74]This head concerns paragraphs 52 and 53 of the award. The owners contended that the tribunal had accepted at paragraph 21 that it was an extremely soft market. Moreover, there was the evidence recorded at paragraph 23 about the CNOOC fixture, where the GA might have substituted for the GZ. The owners also referred to Mr JH’s evidence about the CNOOC and IOC fixtures, the performance of the GA compared with other S pool vessels, and the earnings of closely comparable vessels in the S pool. All this evidence was in the owners’ submission overlooked or misunderstood when the tribunal found that the charterers would have made what they characterised as possible fixtures with Shell and Valero.[75]The simple answer to these submissions is that at paragraphs 52 and 53 the tribunal made findings of fact about the fixtures the GA would probably have performed but for the breach. Section 68 does not provide a backdoor route to appeals on fact. The owners contended that this was one of those exceptional cases identified in by Toulson J in Arduine Holdings BV v Celtic Resources Holdings Plc [2006] EWHC 3155, where the tribunal overlooked evidence that really mattered or that it clearly misunderstood it. However, if there is an exceptional category of cases, it cannot involve the court in assessing the evidence to decide if it has been overlooked: UMS Holdings Ltd v Great Station Properties SA [2017] EWHC 2473 (Comm); [2017] 2 Lloyd's Rep. 448, [31], per Teare J. Here the tribunal explained in the memorandum of clarification why the evidence about the Shell and Valero fixtures was persuasive. This is certainly not an exceptional case. There was no breach under section 68(2) of the tribunal’s general duties, or a failure on its part to act in accordance with agreed procedures, to deal with an issue before it or properly to explain it. Heading D: consideration of reduced distributions from pool[76]The owners’ contention in this regard was the tribunal’s decision not to take account of the position of the charterers under the pool agreement in circumstances where on its pleaded case this was relevant because they were not claiming loss of profits. As the tribunal recognised in its memorandum of clarification this was a repetition of the submissions in Heading B. At the hearing the owners’ submissions cross-referred to the case advanced under that heading. There is no need to repeat what has been said earlier in the judgment in rejecting those submissions. Heading E: Loss of chance principle[77]The owners’ contention is that in finding that loss of chance principles had no role to play, the tribunal failed to address any of the points they had made or the charterer’s own evidence relevant to the speculative nature of what would have happened, absent breach. Further, fixtures turn on third party action, but the tribunal did not explain why the loss of chance principle was inapplicable in the award. Nor did it deal with the issue in the memorandum of clarification, despite extensive submissions in the section 57 application.[78]In my view none of section 68(2)(a), (c), (d), or (h) are engaged under this heading. The fact is that in paragraphs 49 and 50 the tribunal considered the owners’ submissions on loss of chance and rejected them. It found that the charterers’ losses should not be discounted for loss of chance in circumstances where there was a market and the claim was calculated on the basis of fixtures that could and would have been performed. In the memorandum of clarification it considered the owners’ arguments but again rejected them. Heading F: Typographical error[79]This is the typographical error the tribunal accepted in its memorandum of clarification. Heading G: Inordinate delay[80]The owners contended that what it characterised as inordinate delay in issuing the award impacted on all the previous heads as well as constituting a separate basis of challenge. Although it had transcripts, the tribunal as a result of the delay overlooked matters such as the objection to the change in the charterers’ case in its 19 December supplementary submissions and the evidence about the soft market and the possibility of CNOOC and IOC fixtures. Delay contributed to the inadequate reasoning and the errors, including the two major errors the tribunal accepted in its memorandum of clarification (who paid for the bunkers before 26 October and the end date for the Valero fixture used in the assessment of lost profits). Given the complexity of the issues arising, the owners submitted, it was particularly important that the tribunal proceed with alacrity in publishing the award before its memory of the issues and the hearing became unreliable. But for the delay, the tribunal might have reached a different conclusion more favourable to the owners.[81]In The Celtic Explorer [2015] EWHC 1810 (Comm); [2015] 2 Lloyd's Rep. 351, Flaux J said:
“34…If the Award is otherwise unimpeachable and has dealt with all the issues, it makes no difference whether it was produced a month or 12 months after the hearing, since however long the Award has taken to produce, the applicant cannot show that it has caused or will cause substantial injustice. That is why delay on its own does not amount to serious irregularity. Furthermore, since for the reasons I have given, it is never open to an applicant under section 68 to complain about the findings of fact, it avails [the claimant] nothing to criticise the findings of fact, even if there were anything in its criticisms…”
[82]Clause 20 of the LMAA Terms (2012), requires that the award should normally be available within not more than six weeks from the close of proceedings. The delay here was four or five months, depending on when one starts time running. Thus the delay here exceeded what would normally be expected of an LMAA tribunal. However, delay on its own does not amount to serious irregularity. The question is whether the tribunal dealt properly with all the major issues. For the reasons given already in the judgment in my view it did. In this respect I accept the charterers’ submission: the tribunal did not forget the submissions that had been made by the owners, it simply rejected them. There is no basis for a section 68 challenge on grounds of inordinate delay. SECTION 69 APPLICATIONS[83]The owners’ arbitration claim form raised three questions of law. Question 1: loss of profits, wasted expenditure and compensatory principle[84]Question one, which was heading A of the clarification application, was whether it was consistent with the compensatory principle for the tribunal to award both loss of profits and wasted expenditure. If this question had been answered correctly, the owners submitted, the charterers would not be entitled to an award declaring their entitlement to be US$3,278,169, but would be restricted at most to US$679,037. The tribunal said that the compensatory principle was axiomatic, but in the owners’ submission awarding wasted expenditure as well as loss of profits was contrary to that principle. The Mamola Challenger [2010] EWHC 2026 (Comm); [2011] Lloyd’s Rep 47 had been at the heart of their case throughout, but the tribunal had failed to engage with it. Instead, the owners continued, the award had placed the charterers in a better position than they would have been if they had not breached the charterparty. The tribunal fell into legal error in over-compensating the charterers and conferring a windfall.[85]The starting point in considering the owners’ submissions is the basic rule that the charterers must be placed in the same financial position they would have been if the charterparty had been performed: e.g., Robinson v Harman (1848) 1 Exch 850, 855; 154 ER 363, 365, per Parke B; Bunge SA v Nidera BV [2015] UKSC 4; [2015] Bus. L.R. 987, [14], [76]. This is the so-called compensatory principle. Its corollary is that the charterers must not be placed in a better position than they would have been absent breach of contract. Placing them in the same financial position they would have been if the contract had been performed involves comparing their actual position and the one which they would have been in had the charterparty been properly performed.[86]In The Mamola Challenger [2010] EWHC 2026 (Comm); [2011] Lloyd’s Rep 47 the owners incurred expenses in preparing the vessel for time charterers, who repudiated the charterparty at the outset of the five year period. The owners sued the charterers for the expenses, to be met by the argument that they had suffered no net loss since during that period they had entered various fixtures rendering a profit in excess of the level of the expenses. The tribunal awarded the expenses. Teare J allowed the appeal. Given the profit the owners had made from the fixtures, to have awarded them the wasted expenses as well would have placed them in a better position than they would have been if the contract had been performed: [59].[87]Here on the tribunal’s finding the charterers’ actual position was that they had incurred wasted expenditure on hire and bunkers of US$2,599,132 from the time they were on the US west coast on 22 July until the vessel was placed off hire on 26 October. The position the tribunal found the charterers would probably have been in if the owners had performed the charterparty was with profits from the Shell and Valero fixtures of US$679,037 (the way the charterers’ expert had calculated them). It was the loss for which the charterers claimed indemnification against the owners on the basis that they were liable down the line to the sub-charterers, the S Pool. The charterparty and sub-charterparty were not on all fours, but the owners were in breach of the oil major eligibility clauses in two important respects: the SIRE report meant that the vessel was not acceptable to four of the oil majors, and on 10 September it became more than six months old.[88]In Cullinane v British “Rema” Manufacturing Co Ltd [1954] 1 Q.B. 292 it was said that a party must choose in claiming between wasted expenditure and loss of profits. As Lord Denning MR put it in Anglia Television Ltd v Reed [1972] 1 QB 60, a claimant has an election, he can either claim for loss of profits or for his wasted expenditure but cannot claim both: at 63-64. That is the position in what Teare J described in The Mamola Challenger as the typical claim on breach of contract, where the claimant claims a sum equal to the benefit expected to be earned from performance of the contract, less the costs which would have had to be incurred in order to earn that benefit (those costs including sums payable to the party in breach but also expenses which would have had to be incurred in preparation for performance). That places the claimant in the same position had the contract been performed. Teare J added that equally, if those expenses had already been incurred at the date on which the contract was repudiated, “to award those expenses in addition to damages for loss of bargain would put the claimant in a better position than he would have been in had the contract been performed”: [15].[89]However, the leading texts recognise situations where wasted expenses up to contract’s date of termination can be claimed, along with loss of profit, if the latter is calculated net of the expenses incurred: see McGregor on Damages, 20th ed, 2017, para. 4-024; Chitty on Contracts, 32nd ed, 2017, paras. 26-029, 44-423. The claimant is not overcompensated in such cases provided there is no overlap in recovery. The net loss of profits must have been calculated by deducting from the expected gross returns the cost of performance, expenditure to the date of termination and the cost of the further expenditure which would have been incurred if the contract had run its full course. Compensation of a claimant in this type of case requires the award of both the wasted expenditure and the net loss of profits. There is nothing inconsistent in doing this with Cullinane v British “Rema” Manufacturing Co Ltd [1954] 1 Q.B. 292.[90]Here the tribunal took the notional profit figures for the Shell and Valero voyages from the charterers’ expert, as explained in paragraph 57 of its reasons. He had used the time charter equivalent rates for the two voyages, which in outline are the voyage revenues minus bunker and other expenses, divided by the voyage duration in days. As then explained at paragraph 59 of the tribunal’s reasons, in calculating notional voyage profit, the cost of bunkers from 22 July to 26 September 2012, and the cost of hire from 22 July 2012 to 31 January 2013, was subtracted from the total profit figure. In other words, the profit figure of US$679,037 was a net figure. As we have seen, in awarding the charterers’ losses the tribunal at paragraphs 60-61 added to the net lost profit figure for the notional voyages the wasted expenditure for bunkers and hire from 22 July to 26 October.[91]The issue on this section 69 application is whether the tribunal’s decision is obviously wrong within the meaning of that term in section 69(3)(c)(i). (This first question is not of general public importance under section 69(3)(c)(ii) when the compensatory principle is clear, and what the owners take issue with it its application to the facts of this case.) The threshold is stringent, requiring that an error be clear and transparent and demonstrating a major intellectual aberration: Reliance Industries Ltd v Union of India [2018] EWHC 822 (Comm); [2018] 1 Lloyd's Rep. 562, [57], per Popplewell J; Amec Group Limited v Secretary of State for Defence [2013] EWHC 110(TCC), [21]-[23], per Coulson J. In my view the tribunal’s identification and application of the compensatory principle was not obviously wrong. Its award of lost profits and wasted expenditure on hire and bunkers in this way is in line with McGregor and Chitty.[92]That leaves the tribunal’s acceptance, in its memorandum of clarification, that it had wrongly assumed that the charterers had paid for bunkers, whereas the true position was that the S pool had incurred the expenditure. I accept the charterers’ submission that it is immaterial that it was the pool rather than they who paid for the bunkers, since under the charterparty they remained liable for them. Crucially, the tribunal was to decide on and declare the charterers’ losses, but the implications for the pool, to which the vessel was sub-chartered, were for another day. I also accept that some infelicities in expression in the tribunal’s reasons do not cast any shadow over its understanding of its task, namely, to determine the losses flowing from the owners’ breach of the charterparty. Question 2: the S pool[93]This question encompasses headings B and D of the clarification application. Essentially it asks, in light of the background about the pool arrangements and the charterers’ claims, whether it was correct in law for the accounting position under the pool agreement to be ignored.[94]In the owners’ submission, the issue arose because the charterers were not merely trading on their own account, but the vessel had been entered into the S pool. The profits, losses, expenditure and liabilities of any one vessel in the pool could not be isolated from those of the others. In the owners’ submission, the sub-charterparty in this case had to be read with the pool agreement and the pool point reduction regime. Although the parties agreed to declaratory relief, the owners added, the charterers’ claim for damages and indemnification required consideration of the impact of the pool arrangements when they contended they were liable down the line in respect of lost fixtures. As a matter of law the tribunal was wrong when it ignored the accounting position under the pool agreement.[95]Permission under section 69 should not be refused merely because the court struggles to identify precisely how a question of law was put to the tribunal, or precisely what question the tribunal was asked to determine: Merkin & Flannery, Arbitration Act, (5th edition, 2014), 329. In this instance, however, whatever the owners might have said about it at various points during the arbitration, ultimately this was not a question which the tribunal was asked to determine. Whatever form the question might take, as the tribunal explained at paragraphs 32-33 of its reasons what the charterers would receive under the pool agreement was for another day. The charterers were not claiming for pool distributions under the pool agreement but for what the vessel would have earned for the S pool, net of hire and bunkers, if it had been compliant and could have been fixed for voyages. Therefore whether there was any error of law, or whether an error was of general public importance (which it certainly is not when damages were to be determined on ordinary principles, and their subsequent distribution turned on the provisions of a specific pool agreement) does not arise. Question 3: available market[96]The third question is as follows:
“Whether, where there is an available market which is weak and loss making, damages should be assessed by reference to that available market or by reference to lucrative fixtures which charterers contend they would have entered into but for breach discounted by reference to loss of chance principles?”
[97]The owners’ case on loss of chance began with the principle stated by Stuart-Smith LJ in in Allied Maples v Simmonds & Simmonds [1995] 1 WLR 1602, 1611, that where a claimant’s loss depends on the hypothetical action of a third party, success depended on showing a real or substantial chance, rather than a speculative one, of the third person conferring the benefit. The tribunal had cited The Vicky 1, the submission continued, but the registrar’s decision rather than that of the Court of Appeal: [2008] EWCA Civ 101; [2008] 2 Lloyd’s Rep 45. There Sir Anthony Clarke MR had recognised the principle in a case involving a lost fixture as the result of a vessel’s collision.[98]In the owners’ submission quite apart from the uncertainties associated with any fixture, in this case there was the tribunal’s acknowledgment in its reasons at paragraph 21 and the memorandum of clarification that the market was soft. As well there was Mr JH’s evidence about the state of the market and closely comparable vessels in the S pool. There is no rule of law, they submitted, that loss of chance principles cannot apply simply because there is a market, as the tribunal stated at paragraph 50. Moreover, at paragraph 52 and 53 the tribunal stated that it was “reasonable to calculate” and “reasonable to assume” that the charterers would have been able to fix the Shell and Valero voyages, not that it was more likely than not that those two fixtures would have been performed. That was an error of law, and in the circumstances it was wrong in law for the tribunal not to discount in relation to the two fixtures for loss of chance. Only nominal damages should have been awarded.[99]The starting point in considering these submissions is what Sir Anthony Clarke MR said in The Vicky 1 [2008] EWCA Civ 101; [2008] 2 Lloyd’s Rep 45. “[72] There are many cases in which courts or arbitrators have to determine what rate of profit would have been earned but for a tort or breach of contract. As I see it, in a case of this kind, where the court has held that the vessel would have been profitably engaged during the relevant period, where there is a relevant market and where the court can and does make a finding as to the profit that would probably have been made (and has been lost), there is no place for a discount from that figure to reflect the chance that the vessel would not have been employed.” Sir Anthony Clarke MR went on contrast a case where it was not shown that the vessel would have been profitably employed, but might have been. In those circumstances, he said, it might be possible to approach the problem as a loss of a chance: [73].[100]In this case there can be no doubt that the tribunal found that there was an available market, and that (despite the way it might have expressed it) the vessel would probably have performed the Shell and Valero fixtures in the absence of the owners’ breach of contract. It is not permissible to challenge these factual findings through a section 69 application. Since there was an available market and the charterers’ losses were calculated on the basis of fixtures that probably would have been performed, there was no error of law founding a section 69 challenge in the tribunal’s conclusion that those losses should not be discounted for loss of chance. Sir Anthony Clarke MR’s analysis in The Vicky 1 is directly in point. CONCLUSION[101]For the reasons given in the judgment I dismiss the applications.

Cited in 1 later judgment