Fri, 16 March, 2018
Daewoo Shipbuilding & Marine Engineering Company Ltd v Songa Offshore Endurance Ltd  EWHC 538 (Comm)
Where a party seeks correction or clarification of an arbitral award as a precursor to challenging the award either under s.67 or 68 or 69 of the Arbitration Act 1996, when does the Act’s 28 day time period for the challenge start? From the date of the award? Or of the correction or clarification? And does that apply to any correction or clarification or only to certain types? If the latter, what types and why? And what happens if the tribunal declines to correct?
The decision of Bryan J. (handed down on 16th March 2018) in Daewoo Shipbuilding & Marine Engineering Company Ltd v Songa Offshore Endurance Ltd  EWHC 538 (Comm) brings welcome and definitive clarity to the position. It sets out what should now be regarded as the settled practice of the Court to these problems and to the correct construction of the 28 day time limit provisions in s.70(3). It resolves an apparent conflict in other first instance decisions once and for all.
In summary, after a thorough analysis of the authorities, the Court held:
Leave to appeal was refused.
DSME contracted with Songa to build a series of drilling rigs. The hull design (including the front-end engineering design ("FEED") documentation) was to be provided by a third party design consultancy. Construction proved to be very protracted and DSME claimed in respect of delays and cost over-runs, alleging that the cause was defects in the FEED. It alleged that under the contracts, responsibility for design, including the FEED, was with Songa not DSME and DSME was entitled to recover all costs and expenses and was not responsible for delay. This was contested by Songa.
The question of design responsibility under the contracts was determined as a preliminary issue in two arbitrations. The Tribunal (Sir David Steel, John Marrin QC and Stewart Boyd QC) held that Songa was correct and that DSME bore full responsibility for the design, including for the FEED.
The Awards were published on 18th July 2017.
Under section 70(3) of the Arbitration Act, DSME had 28 days in which to apply for permission to appeal, expiring on 15th August. Section 70(3) provides:
"Any application or appeal must be brought within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the applicant or appellant was notified of the result of that process."
On 4th August, DSME applied to the Tribunal for the correction of what it itself described as four "clerical errors in the Awards arising from accidental slips" such as transposing Songa for DSME, etc. The corrections were unopposed.
The Tribunal issued a Memorandum of Corrections on 14th August (27 days after the Awards).
On 8th September, 24 days late, DSME issued an Arbitration Claim Form seeking permission to appeal the Awards under section 69, on the basis that the Tribunal’s construction of the contract as to design responsibility was obviously wrong in law.
Songa applied to strike the application out as being out of time.
DSME responded that the 28 days ran from the date of the Memorandum of Corrections and so was brought in time; alternatively it sought an extension of time under s. 80(5) because its management structure and intervening holidays meant that a decision to appeal could not reasonably have been taken any sooner. (Given the 24 day delay and this ‘justification’, unsurprisingly this application was dismissed on ordinary principles.)
Section 70(3) contains only two express start dates for the running of the 28 days for any challenge to the award: (a) "the date of the award" and (b) the date when the parties are notified of the outcome of "any arbitral process of appeal or review".
How does this work in the context of a request for the correction or clarification of an award? Section 70(3) is silent on the topic and there is prima facie a lacuna in the drafting of the Act.
A connected issue is the so-called ‘Catch 22’ inherent in section 70(2) which requires a party to exhaust all available arbitral routes of recourse (including under s.57) before being entitled to challenge the award. In relation to corrections, if these are ones which have to be sought before a challenge can be made, then how can time run from the date of the original, uncorrected, award if this date is what has to be taken for s.70(3) purposes?
DSME’s primary argument was that the term "any available process of appeal or review" covered a correction or clarification process carried out by a tribunal itself. It argued that the process of correction involved, in one sense, a process of ‘reviewing’ the award and accordingly this was enough. It also relied upon the definition of a different term ("available arbitral process") in s. 82(1) as one which "includes any process of appeal or review by an arbitral or other institution or person" as showing that "appeal or review" did not just mean appeal or review by some other arbitral body (such as common forms of ‘two-tier’ arbitral procedures in commodity arbitration under GAFTA or FOSFA Rules) but must be wider and therefore had to cover an ‘internal’ corrective review.
DSME relied heavily on an unreported decision of Jackson J. in Surefire Systems Ltd v Guardian ECL Ltd  EWHC 1860 (TCC), noted in the textbooks. In that case, Jackson J. baldly stated; "In my view, the arbitrator's clarification issued on 2nd May 2005 constitutes "an arbitral process of … review" for the purposes of section 70(3) of the Act".
Bryan J rejected DSME’s argument for three reasons.
(1) First, on the plain meaning of the statutory language.
The construction was contrary to the plain and ordinary meaning of the term "appeal or review" as used in section 70(3) which had to be viewed in the light of s.70(2). Section 70(2) requires an applicant seeking to challenge any award to have first exhausted, as a pre-requisite to the right of challenge, all routes of recourse to the arbitral process. It distinguishes in this context between "any available arbitral process of appeal or review" (s.70(2)(a)) and "any available recourse under section 57" (s.70(2)(b)). The Judge held that this was "a clear, and indisputable, distinction" . He considered that the "ordinary and natural meaning" of the reference to "appeal or review", in the context of a statutory provision that draws a delineation between an appeal or review and a correction, "is that it is a reference to a process by which an award is subject to an appeal or review by another arbitral body".
(2) Secondly, on the better view of previous decisions
The Judge regarded this as being as the settled approach which had been taken in the previous cases (Price v Carter  EWHC 1451 (TCC); K v S  EWHC 1945 (Comm) and Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd  EWHC 2361 (Comm) as well as the commentaries. He regarded the view of Jackson J. in Surefire as wrong. 
(3) Thirdly, as contrary to the founding principles of the 1996 Act.
The Judge held the questions of construction of the Act before him had to be approached in the light of the guiding principles in s.1(1)(a) of the Arbitration Act. One of these is that "the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense".
"The principles of speed and finality of arbitration are of great importance. These would be undermined if the effect of making any application for a correction is that time for appealing runs from the date the appellant is notified of the outcome of that request. This is not simply a "concern" (nor is it one that has been over-stated as alleged by DSME) rather it is contrary to the whole ethos of the Act. It would be open to parties who have freely agreed to arbitrate their disputes to frustrate and delay that agreed mechanism of dispute resolution by relying upon completely irrelevant minor clerical errors. This cannot have been the intention of Parliament …" .
DSME argued next that an award could not be regarded as final for the purposes of time running until and unless any process of correction started in respect of the award had been fully completed; that applied as much to a material correction impinging upon a potential ground of challenge as to an immaterial textual or other clerical correction. The date when the process was completed was the "date of the award" for s.70(3) purposes.
DSME contended that there was no warrant for treating "the date of the award" as running from a corrected award where the correction was ‘material’ (whatever that meant) but not where it was a purely typographical correction. The date was either affected by corrections for all purposes or none. The Court having previously held that it was affected for material ones, then this applied equally to all other corrections.
Songa argued that the key to the resolution of the lacuna was to recognise the inter-relationship between section 70(3) and section 70(2). Under the latter, a party had to seek a correction or clarification of the award where this affected the challenge which it intended to make against the award as a pre-condition to challenging the award. This need to exhaust arbitral recourse to the tribunal under section 57 identified a class of corrections and clarifications which were indeed ‘material’, because if they were not sought, then the challenge would be barred. It was in relation to these and these only that the lacuna arose. Therefore the distinction between ‘material’ and non-material corrections was inherent in the Act itself and the term "date of the award" would be construed accordingly.
The Judge accepted that argument. He stated at  (original emphasis):
"The purpose is to ensure that before there is any challenge, any arbitral procedure that is relevant to that challenge has first been exhausted. Thus if there is a material ambiguity that is relevant to the application or appeal you have first to go back to the arbitrators, however if what you are doing is seeking correction to typos then that is not a bar to you pursuing your application. Materiality is inherent within section 70(2). It is only where a matter is material that you first have to exhaust the available remedies specified in section 70(2), so that it is only in those circumstances that it is necessary for time only to run after those available remedies have been exhausted. There is no reason or necessity for time not to run, or be extended, in the context of immaterial corrections – these are not matters that have to be corrected before an appeal can be brought. This illustrates that the test of materiality is inherent in the structure of section 70(2) and 70(3)."
Again deploying the ethos of the Act and section 1(1(a), he held that it was contrary to any sensible construction of "the date of the award" to treat it as accommodating trivial or irrelevant corrections . As the Judge held (and as DSME accepted) "these are classic clerical and typographical errors. They are not connected in any way, shape or form with DSME’s subsequent appeal." 
The decision is to be welcomed as laying to rest the ‘Surefire argument’ once and for all.
The Court, in refusing permission to appeal, considered the point to have no realistic prospect of success on appeal and stated in terms that it was "high time to draw a line under the debate" given the "consistent and continuing practice of this Court which has particular expertise in the construction of the act, and its application."
Materiality? The Judge saw no difficulty with a ‘materiality’ test which is "clear and easy to apply" . With the section 70(2) concept in mind, it is submitted that the Judge is plainly right: a party can usually easily tell the difference between points which it has to investigate under s.57 before it can make a challenge under s. 67, 68 or 69 at all and all other corrections or clarifications.
If in doubt however, as the Judge said "[one] could always issue an application for an extension of time before the 28 day time period expired, and indeed seek permission to appeal to the extent that it was able to do so at that time. No doubt in many cases (based on the content of the application for a correction showing materiality) such an application for an extension of time would not even be opposed, or if opposed, would be resolved in the applicant’s favour should any point be taken." 
Refusal to correct? An unanswered question (which the Judge did not have to address) is as to the position if a material correction is sought under s.57 but the tribunal refuses to make any correction. How is the "date of award as corrected" test then to be applied? In Maclean, the Judge thought it would be the date of the notification of the refusal to correct . The same view was implicitly suggested in K v S where Teare J referred to the grounds of challenge being "dependent on the outcome of the application for clarification" . Given Bryan J’s general endorsement of the reasoning in these cases, the same approach to this question must follow.
This seems right. If a material correction is (and has to be) sought in the exercise by an applicant of all available recourse to satisfy the s.70(2) requirement, then the applicant’s fate cannot sensibly be dependent on the whim of the tribunal and whether it is an expansive one, happy to explain better what it has done or, as is not infrequently the case, one which is resentful of the temerity of a suggestion of the need for clarification and whose approach is the ‘nil return’.
Simon Rainey QC is one of the best-known and most highly regarded practitioners at the Commercial Bar with a high reputation for his intellect, advocacy skills, commercial pragmatism and commitment to client care. He has established a broad commercial advisory and advocacy practice spanning substantial commercial contractual disputes, international trade and commodities, energy and natural resources, insurance and reinsurance and shipping and maritime law in all its aspects. He appears in the Commercial Court and Court of Appeal and also the Supreme Court (with two recent landmark victories in NYK v Cargill  UKSC 20 and Bunge SA v Nidera SA  UKSC 43.) He regularly handles Arbitration Act 1996 challenges.
He has extensive experience of international arbitration, regularly appearing as advocate or co-counsel in disputes under all of the main international arbitral rules (LCIA; SIAC, UNCITRAL; ICC, Swiss Rules etc) and also sitting as arbitrator.
Current examples of his work as counsel are in arbitration before the Permanent Court of Arbitration in a US 13billion gas supply dispute; under Nigerian Law and seat in relation to an offshore oilfield redetermination dispute between oil majors, under UNCITRAL Rules in a mining supply take or pay dispute involving one of the world’s leading mine conglomerates; an ICC arbitration concerning a new mine development in Russia and an ICC Dubai seat arbitration involving specialist offshore vessels and in associated s67 and s68 LCIA challenges in the A v B  EWHC 3417 (Comm) litigation in the Commercial Court. Recent arbitral appointments include an ICC Paris seat arbitration concerning a power station failure, a French law and seat arbitration relating to an oil rig drilling contract, an offshore construction contract claim under SIAC Rules and a long-term ore supply contract claim under Swiss Rules.
He is highly ranked by Chambers and Partners and Legal 500 as a first division international arbitration specialist ("Highly regarded for his expertise in handling high-profile international arbitrations in connection with complex oil and gas, banking and finance and trade issues. He is well known for his prowess in advising and representing clients in disputes in countries as far flung as Turkey, Russia, the USA, China and India" 2018; "Incredibly good, with a particular skill in reducing the complicated to the elegantly simple, which when you're trying to present a case to a tribunal or court is one of the more valuable things you need to have" 2018; "Clearly now one of the top commercial silks and a delight to work with." 2018; "A mixture of brilliance and brevity, his written submissions are like poetry" 2018), He was nominated for "International Arbitration Silk of the Year 2017" by Legal 500 and has also been awarded "Shipping & Commodities Silk of the Year" 2017 by both Chambers & Partners and Legal 500.
He sits as a deputy High Court Judge in the Commercial Court and is Honorary Professor of Law, Business and Economics, University of Swansea.
Tom Bird has a broad commercial practice with a focus on shipping, commodities, aviation, insurance and reinsurance. Chambers UK recommends him as “a rising star ... He's responsive, accessible, bright, tenacious, and user-friendly."
Tom has represented clients in the High Court, Court of Appeal and Supreme Court. He is equally at home in arbitration. His significant cases include appeals to the Supreme Court in The DC Merwestone – a marine insurance dispute concerning the fraudulent device doctrine – and Stott v Thomas Cook, the leading case on the exclusivity of the Montreal Convention and its relation to EU law.