Obvious arithmetical error in damages calculation is sufficient for arbitral award to be set aside for procedural irregularity, finds High Court
The High Court has found that an "obvious arithmetical error" in the calculation of damages was a procedural irregularity under s 68 of the Arbitration Act 1996 (the Act) and set aside the relevant part of the award.
The Court's judgment in Ducat Maritime Ltd v Lavender Ship Management Incorporated  EWHC 766 (Comm) provides useful clarity to parties and tribunals on when awards may be remitted or set aside in such circumstances.
The owners of a vessel (the Owners) sought USD 37,831.83 as unpaid hire under a charterparty in an LMAA arbitration. The charterers (the Charterers) brought certain defences and counterclaims.
In the award, the arbitrator found in favour of the Owners, save for the Owners' claim for USD 9,553,92 for inadequate hull cleaning. He also dismissed the Charterers' counterclaim for USD 15,070 for the alleged underperformance of the vessel.
When summarising the damages position, however, the arbitrator incorrectly added the value of Charterers' counterclaim to the value of the Owners' claims: "The Owners' claims…together total USD 53,692.66".
Excluding the value of the Owners' unsuccessful claim for USD 9,553,92, the arbitrator therefore proceeded incorrectly to value the Owners' successful claims at USD 41,638.74.
Noting that he did not have the power to award more than had originally been claimed, the arbitrator awarded the Owners USD 37,831.83. This was USD 9,553,92 more than the Owners should have been entitled to.
The Charterers applied to the arbitrator under the slip rule at s 57(3) of the Act seeking correction of the award. The Owners objected on the basis that there had been no accidental slip or error because the arbitrator had done what he had intended to do. The arbitrator declined the application.
The arbitrator rejected a second application by the Charterers to correct the award. The Charterers issued a challenge to the award in the High Court alleging procedural irregularity under s 68 of the Act.
The parties' positions
It was common ground that in order for the challenge to succeed, the Charterers would need to show an irregularity that fell within the exhaustive list of categories set out in s 68(2) of the Act and that that irregularity had caused or would cause substantial injustice to the Charterers.
S 33 of the Act provides, in summary, that the tribunal has certain general duties which include: a) acting fairly and impartially between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent; and b) adopting procedures suitable to the circumstances of the case so as to provide a fair means for the resolution of the matters falling to be determined.
The Charterers claimed that there had been an irregularity on two bases: a) the arbitrator had failed to comply with s 33 of the Act because he reached a conclusion that was contrary to the common position of the parties and for which neither party contended without providing an opportunity for the parties to address him on the issue; and b) the arbitrator had made an obvious accounting mistake.
The Owners relied upon the Court's decision in Sonatrach v Statoil Natural Gas LLC  EWHC 875 (Comm) as showing that s 68 is not available for challenges based on the inadequacy or illogicality of the tribunal's reasoning. They relied also upon the judgment in UMS Holding Limited and Others v Great Station Properties SA and another  EWHC 2398 (Comm) that stated that the mere fact that a tribunal has reached the wrong conclusion cannot constitute a serious irregularity within s 68(2). The Owners therefore submitted that an obvious accounting error did not constitute any of the kinds of irregularity specified in s 68(2).
As to the need to show a substantial injustice, the Charterers contended that the mistake had inflated the Owners' claim by 50% and meant that the Charters were ordered to pay more than they should have been. The Owners contended that by agreeing to arbitration the parties agreed to accept the possibility of some injustices and that the financial impact of the irregularity exceeded the cost of remedying it.
The Court's view: accounting mistake may represent a lack of fair proceedings
Mr Justice Butcher agreed with what had been said in Sonatrach and UMS Holding Limited about the focus of s 68 being whether there had been a failure of due process and not whether the tribunal had got the answer right.
The Judge held, however, that a gross and obvious accounting mistake may well represent a failure to conduct the proceedings fairly because it constitutes a departure from the cases put by both sides without the parties having had an opportunity to address it. In such a case, neither party's case is likely to have included the mistake as a basis for the result arrived at and, in making the error, the tribunal is likely to have departed from common ground between the parties as to how arithmetical processes work or whether items in an account are credits or debits, and to have done so without giving the parties an opportunity of addressing the justifiability of the departure.
The Judge also held that there had been a substantial injustice. Had the Charterers been given the opportunity before the award was made to comment on the way in which the arbitrator was proposing to deal with the failed counterclaim, the arbitrator might well have reached a different view and the outcome may have been different. The sum involved, although small, had to be viewed in the context of the total amount of the Owners' claim over which the parties had agreed to arbitrate, which was USD 37,831.83. It was therefore substantially unjust that a party should be asked to pay about 33% more than was due by way of principal and then to pay interest on its own unsuccessful counterclaim.
As to the relative costs of putting the mistake right, the Judge held that these would have been lower had the Owners accepted the mistake earlier as either the arbitrator would have admitted the mistake and corrected the award or s 68(2)(a) (general duty of the tribunal) would have been of indisputable application.
The grounds on which an arbitral award may be challenged on grounds of procedural irregularity are rightly narrow. In particular, an award may only be set aside if one of the grounds specified in section 68(2) is met. In practice, this means that the Courts may refrain from intervening even if the tribunal has not come to the right answer.
That remains the law. However, this decision clarifies that an obvious arithmetical error in the tribunal's reasoning may still leave an award open to challenge on grounds of procedural irregularity because such an error may mean that the tribunal has failed to conduct the proceedings fairly.
This decision also helpfully addresses the situation in which a tribunal has declined to correct an obvious mistake under the slip rule provided by s 57 of the Act. Parties may be reassured that although England remains a pro-arbitration jurisdiction and that the grounds for challenging an award remain appropriately narrow, the Court may still intervene on grounds of procedural irregularity to correct obvious errors.