Background to the dispute and Hyundai’s application for dismissal

The dispute in Grindrod arose from a charter party concluded on 20 August 2010, pursuant to which Grindrod, doing business as Island View Shipping (‘IVS’), time chartered from Hyundai the bulk carrier ‘KAMBER’. Shortly thereafter, on 24 August 2010, the vessel’s master refused an order to sail to the west coast of Africa due to piracy concerns. This prompted IVS to file an arbitration claim against Hyundai in July 2011, alleging a breach of the charter party. The charter party was governed by English law and provided for London Maritime Arbitration Association (‘LMAA’) arbitration in London before a three-arbitrator panel.

As acknowledged by both parties, the arbitration proceedings progressed slowly. By August 2016, which is when the statutory six-year limitation period for IVS’s claim expired, the arbitration had reached only the documentary disclosure stage. In the meantime, IVS had requested Hyundai to provide it with security for its claim in October 2011, which request IVS renewed in February 2016, at a time when Hyundai was facing serious financial difficulty.1

Against this backdrop, on 20 January 2017, Hyundai made an application under section 41(3) of the Act, seeking dismissal of IVS’s claim for inordinate and inexcusable delay.

Under section 41(3), a tribunal may dismiss a claim where it finds that: (1) ‘there has been inordinate and inexcusable delay on the part of the claimant in pursuing his claim’, and (2) where such delay is either (i) likely to give rise to a substantial risk that it is not possible to have a fair resolution of the issues, or (ii) likely to cause serious prejudice to the respondent.

In Hyundai’s submission, IVS was responsible for inordinate and inexcusable delay in the prosecution of its claim in certain periods, among other reasons, for focusing attention on its request for security rather than on progressing the arbitration.

With respect to the second limb of section 41(3), Hyundai argued that IVS’s delays would have diminished the availability of essential witnesses and documentary evidence. In at least one of its submissions, and under the heading ‘Whether to exercise discretion to dismiss the claim’, Hyundai further argued that whatever prejudice IVS would suffer through the dismissal of its claims would be ‘outweighed’ by the cost and waste of resources Hyundai faced in having to maintain a substantial bond as security for IVS’s claim.

By agreement of the parties, the Tribunal decided Hyundai’s section 41(3) application on the basis of the parties’ written submissions and without a hearing.

The Tribunal’s Award

The Tribunal agreed with Hyundai’s contention that IVS had been responsible for inordinate and inexcusable delay in the prosecution of its claim for certain of the alleged periods of delay. In particular, the Tribunal found that, but for IVS’s delays, the case would have proceeded to decision by the end of 2013 or 2014 at the latest. Accordingly, the Tribunal found the requirements of the first limb of section 41(3) to have been met.

Regarding the second limb of section 41(3), the Tribunal rejected Hyundai’s arguments under section 41(3)(a) that IVS’s delays would have diminished the availability of essential witnesses and documentary evidence.

However, the Tribunal found IVS’s delays to have caused Hyundai ‘serious prejudice’ under section 41(3)(b), reasoning as follows:

As we suspect that Hyundai would not have been threatened with an arrest of one of their ships prior to their financial difficulties of 2016, we are therefore satisfied that there is a clear causal link between the delay and the substantial financial prejudice Hyundai have incurred in providing [IVS] with security for their claim. [IVS’s] demand [for provision of security] also came at a most inconvenient time for Hyundai, when they were restructuring their fleet and reorganizing their financial affairs. The mere threat of the arrest of one of their ships exposed Hyundai to further prejudice as it might have had a disastrous effect on their restructuring programme.

Accordingly, the Tribunal issued its Award on 27 July 2017, dismissing IVS’s claim and awarding Hyundai the full amount of its costs pursuant to section 41(3) of the Act.

IVS’s challenge

On receipt of the Tribunal’s Award, IVS brought challenges under two provisions of the Act: section 68 (‘serious irregularity’) and section 69 (‘appeal on point of law’). The challenge under section 69 was not allowed to proceed as the issue on which IVS sought the High Court’s review was ‘essentially one of fact or at best mixed fact and law’.

As for its challenge under section 68, IVS argued that the Award was affected by a ‘serious irregularity’ in that the Tribunal failed to act in accordance with its duties under section 33(1) of the Act to act fairly and to give each party a reasonable opportunity to state its case. According to IVS, the Tribunal’s finding of ‘serious prejudice’—which was essential to its decision to dismiss the claim pursuant to section 41(3)—was based on matters that the Tribunal devised of its own motion, and which Hyundai had never relied upon in support of its application: namely, the ‘substantial financial prejudice’ that Hyundai suffered in providing IVS with security. Although Hyundai raised these matters as part of its submissions on discretion, IVS argued that they were not among the bases on which Hyundai’s section 41(3) application had been pursued and thus, they were not ‘fairly in play’ such that IVS should have expected to address them in the way and for the purpose the Tribunal did. IVS further argued that, had it been given an opportunity to make submissions on these points, the Tribunal might well have reached a different result.

In addressing the merits of IVS’s challenge under section 68, Blair J proceeded by setting out the applicable rules and principles, including by highlighting the following salient points:

  • Parties are entitled to assume that a tribunal will base its decision solely on the evidence and argument presented by them. If the tribunal is inclined to decide the dispute on another, alternative basis, it must allow the parties an opportunity to address that basis.
  • However, a tribunal is not required to refer its analysis back to the parties where they ‘have had an opportunity to address all the “essential building blocks” in the tribunal’s conclusion’.
  • There is a distinction to be drawn between a party having no opportunity to address a point and a party failing to recognise or take such opportunity. Only the former can give rise to a breach of section 33 of the Act.

Blair J also referred to the recent decisions in ABB AG v Hochtief Airport [2006] 2 Lloyd’s Rep 1 and in Reliance Industries Ltd v Union of India [2018] EWHC 822 (Comm), both of which rejected section 68 challenges to arbitral awards that, like the Award in Grindrod, were based on reasoning that did not precisely mirror the form of either party’s submissions. He summarised these cases as standing for the following proposition:

[A] party will usually have had a sufficient opportunity to meet the case if the "essential building blocks" of the tribunal’s analysis and reasoning were "in play" or "in the arena" in relation to an issue, even where the argument was not articulated in the way adopted by the tribunal [at 75].

Applying these principles to the facts at hand, Blair J made it a point to note that ‘[t]his is not an altogether easy case’, as the essence of IVS’s argument that Hyundai’s case on section 41(3)(a) and (b) focused on a diminution in the value of the evidence and not on financial prejudice linked to the provision of a security. He also noted established precedent holding that ‘where a case is decided on the papers, arbitrators have to be particularly careful not to raise new points without giving the parties a chance to respond’.2

Notwithstanding, Blair J ultimately found that the ‘serious prejudice’ argument relied upon by the Tribunal was sufficiently ‘in play’ or ‘in the arena’ before both parties, despite not having been framed or relied upon by Hyundai in the way adopted by the Tribunal. He thus held that the parties had a fair opportunity to address arguments ‘on all the essential building blocks in the tribunal’s conclusion’. Accordingly, Blair J rejected IVS’s contention that the Tribunal’s Award reflected a ‘serious irregularity’ within the meaning of section 68 of the Act.

Although unnecessary to do so in light of his decision on the ‘serious irregularity’ issue, Blair J nonetheless proceeded to address IVS’s arguments regarding ‘substantial injustice’—namely, that if IVS had the opportunity to make submissions on the specific matters relied upon by the Tribunal, the Tribunal might have reached a different result. Blair J rejected this contention as well, finding that an experienced maritime tribunal like the one sitting in this case was unlikely to have been persuaded by any of the submissions that IVS says it would have made.

Conclusion

While it is generally consistent with the High Court’s jurisprudence on sections 68 and 41(3) of the Act, the Grindrod decision nevertheless reflects a remarkable development in these areas in light of the unique circumstances involved in that case. Of particular note are the facts that the Award under review dismissed the claimant’s claims outright based on a finding of ‘serious prejudice’ that was neither relied upon as such by the respondent nor the type of prejudice typically raised in connection with section 41(3) of the Act (e.g. the diminution of key evidence). In these respects, Grindrod stands out from the sections 68 and 41(3) cases that preceded it.3

As such, Grindrod is a noteworthy reminder that parties should cover all of the material issues ‘in play’ in their case, regardless of how such issues were framed by the counterparty. As counsel, we are sometimes wary of responding to alternative legal theories as to how a particular set of issues should be addressed when those alternatives were not expressly raised by the other side. The thinking is that there is a risk of improving the other side’s case, and so it is better to ‘let sleeping dogs lie’. The High Court’s decision in Grindrod cautions us that this approach can backfire with significant (and indeed, outcome determinative) consequences.


1
See also the Report in Global Arbitration Review for a focus on the security for costs issue, https://globalarbitrationreview.com/article/1170162/can-there-ever-be-a-bad-time-to-demand-the-provision-of-security.

2
Citing, as an example, Pacol Ltd v Joint Stock Co. Rossakhar [2000] 1 Lloyd’s Rep 109, 115 (Colman J).

3
There is scant jurisprudence on section 68 challenges to arbitral awards dismissing claims pursuant to section 41(3). None of the section 68 cases that Blair J relied upon in his Judgment concerned a section 41(3) dismissal. The first case to address a section 68 challenge involving a dismissal made pursuant to section 41(3) was TAG Wealth Management v West [2008] EWHC 1466 (Comm, per Aikens J). However, the key issue in TAG was the timing of the tribunal’s award—i.e. whether the tribunal was justified in dismissing the claimant’s claims just six months after the close of proceedings. Aikens J held that it was.