OAO Northern Shipping Company v Remolcadores De Marin SL (Remmar)

Factual and Procedural Background

This case involves an application by the Plaintiff Buyers, Company A, under section 68 of the Arbitration Act 1996 to set aside or remit for further consideration an arbitral award dated 18 October 2006 ("the Award"). The dispute arose from an agreement dated 21 June 2005 for the sale and purchase of an ice classed tug ("the Vessel"). The Agreement was based on the 1993 Norwegian Saleform with amendments.

The Plaintiff Buyers alleged that the contract was induced by a misrepresentation regarding the total power rating of the Vessel’s engine. Specifically, a certificate presented to the Buyers’ representative at a pre-purchase inspection indicated a total rated power of 1265 kW, whereas the actual power was found to be approximately 956 kW. The arbitral tribunal found that there was no material representation that the engine power equalled 1265 kW, concluding that the Defendant Sellers had only represented the authenticity, not the truth, of the certificate.

The Buyers challenged this finding on the basis that the issue of representation was not contested by the Sellers at the arbitration hearing and that the tribunal decided against them on a ground not raised or argued. The Sellers did not attend to contest the application to set aside the award. The tribunal had found in favour of Buyers on all other issues, including falsity, inducement, belief, non-exclusion of damages, and loss.

Legal Issues Presented

1. Whether the arbitral tribunal committed a serious irregularity by deciding against the Buyers on a ground (no representation) that had not been raised or contested by the Sellers and without giving Buyers an opportunity to address it.
2. Whether such serious irregularity caused or will cause substantial injustice to the Buyers within the meaning of section 68 of the Arbitration Act 1996.
3. Whether the arbitral award should be set aside or remitted for further consideration on the basis of the tribunal’s failure to deal with all issues put to it, including the issue of quantum.

Arguments of the Parties

Plaintiff Buyers' Arguments

• The Buyers argued that the representation issue was not in dispute at the arbitration hearing, as the Sellers’ defence submissions indicated acceptance of the representation of the engine power figure.
• The Buyers contended that the tribunal’s finding that the Sellers had only represented the authenticity of the certificate was a new ground not raised by either party and that they were not given a chance to address it through submissions or evidence.
• They submitted that the tribunal’s failure to comply with its general duty under section 33 of the Arbitration Act 1996 to act fairly and give each party a reasonable opportunity to put their case amounted to a serious irregularity under section 68(2)(a).
• Alternatively, Buyers argued the tribunal failed to conduct proceedings in accordance with the agreed procedure under section 68(2)(c).
• They also submitted that the tribunal failed to deal with all issues, notably the quantum of damages, amounting to a serious irregularity under section 68(2)(d).

Defendant Sellers' Arguments

• The Sellers did not respond to the application to set aside or remit the award beyond acknowledging service and did not attend to contest the application.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Lesotho Development v Impregilo SpA [2006] 1 AC 221	Defines the threshold for serious irregularity under section 68 and the requirement of substantial injustice.	The court applied the principles to assess whether the tribunal’s conduct amounted to serious irregularity causing substantial injustice to Buyers.
The Vimeira [1984] 2 Lloyd's Rep 66	An arbitrator must resolve issues raised by the parties and must put points to them to allow comment if a new issue arises.	The court relied on this to hold that the tribunal should have raised the "no representation" point with the parties before deciding on it.
Zermalt Holdings SA v Nu Life Upholstery Repairs Ltd [1985] 2 EGLR 14	An arbitrator must give parties an opportunity to comment on new points or approaches relied on in the decision.	Supported the court’s conclusion that the tribunal’s decision based on an unargued point was unfair.
ABB AG v Hochtief Airport [2006] 2 Lloyd's Rep 1	Tribunal must give parties a fair opportunity to address all essential building blocks of its conclusions.	The court found the representation issue was an essential building block not addressed fairly by the tribunal.
Pacol v Rossakhar [2000] 1 Lloyd's Rep 109	Arbitrators should avoid deciding matters not in issue and be aware of the dangers of introducing new issues in paper arbitrations.	Used to emphasize the importance of the tribunal addressing only live issues and informing parties of changes to issues.
Vee Networks Ltd v Econet Wireless International Ltd [2005] 1 Lloyd's Rep 192	Serious injustice arises if procedural irregularity causes an arbitrator to reach an unfavourable conclusion that might have been otherwise.	The court applied this to determine that Buyers were deprived of an opportunity to make reasonably arguable submissions.
BTC Bulk Corporation v Glencore International [2006] EWHC 1957 (Comm)	Threshold for remission of an award for serious irregularity requires the point to be not hopeless and to have some force.	The court found the Buyers’ arguments on representation had a considerable degree of force and were not hopeless.
Geest plc v Fyffes [1999] 1 All ER (Comm) 672	Implied representations are assessed objectively from the viewpoint of the reasonable representee.	The court noted that had the tribunal explored the representation issue properly, it could have considered the impression conveyed to the Buyers’ representative.

Court's Reasoning and Analysis

The court analysed whether the arbitral tribunal’s decision to reject the Buyers’ claim on the basis that no representation was made by the Sellers was a serious procedural irregularity under section 68 of the Arbitration Act 1996. The tribunal had decided on a point that was neither raised nor seriously disputed by the Sellers at arbitration and had not invited the Buyers to address this issue through submissions or evidence.

The court applied established principles that an arbitrator must resolve issues raised by the parties and must provide a fair opportunity to address all essential points in the tribunal’s conclusion. The tribunal’s failure to raise the "no representation" issue with the parties breached its general duty under section 33 of the Act to act fairly and impartially and to give each party a reasonable opportunity to put their case.

The court recognised the high threshold for setting aside an arbitral award under section 68, designed to prevent technical or unmeritorious challenges and to promote finality. However, it emphasized that the right to a fair hearing is fundamental, and serious irregularities causing substantial injustice justify intervention.

The court found that the Buyers were deprived of the opportunity to make submissions on a reasonably arguable point that was critical to the tribunal’s decision. The tribunal’s approach was especially problematic given the arbitration’s small claims nature, the Sellers’ lack of English legal representation, and the fact that Buyers were successful on all other issues.

Additionally, the court found that the tribunal failed to address all issues put to it, particularly the quantum of damages, which warranted remission for further consideration.

Holding and Implications

The court SET ASIDE the arbitral award dated 18 October 2006 and REMITTED the matter to the arbitral tribunal for further consideration.

The direct effect of this decision is that the arbitration process must be reopened to allow the parties to address the representation issue properly and for the tribunal to reconsider the quantum of damages. No new legal precedent was established beyond the application of existing principles relating to procedural fairness and the scope of section 68 challenges under the Arbitration Act 1996.