Compania Sud-Americana De Vapores S.A. v Nippon Yusen Kaisha

Factual and Procedural Background

This matter concerns an application by Company A under section 68 of the Arbitration Act 1996 to set aside parts of an arbitral Award dated 1 December 2008. The dispute arose between Company A and Company B, parties to two joint container service agreements involving Japan, the Far East, and the east coast of South America. Company B claimed approximately US $786,000 under the agreements prior to their termination, with only a small portion disputed. The principal dispute related to Company A's counterclaim alleging wrongful termination of the joint service agreements by Company B.

The arbitrators rejected all but one of Company B's defences to Company A's counterclaim. By majority, the tribunal allowed Company B to argue that an agreement was reached at a meeting on 4 and 5 June 2003 to terminate the second joint service agreement. Company A contended that this point had been abandoned and that allowing Company B to rely on it constituted a serious irregularity causing substantial injustice, as Company A had no reasonable opportunity to address the argument during cross-examination.

Company B denied any irregularity, asserting no abandonment of the pleaded case and that the relevant evidence was adequately tested before the tribunal. The arbitration involved witness statements from representatives of both parties and extensive submissions on the issue.

The background includes the original joint service agreement entered into in 1993, its partial cessation by certain parties, and the formation of a successor agreement in 2002 known as the SGEX agreement. The SGEX agreement was short-lived due to performance and financial issues with a third party, leading Company A and Company B to serve termination notices in April 2003 and engage in negotiations with a potential replacement party. Disputes arose over whether valid notice had been given to terminate the SGEX agreement.

The arbitration was conducted before a three-member tribunal. Company B maintained that the SGEX agreement was validly terminated either by notice or by agreement at the June meeting. Company A denied this, arguing that no such agreement existed and that termination notices were invalid or improperly given. The tribunal majority found that an agreement to terminate was reached at the June meeting, while one arbitrator dissented, citing prejudice to Company A due to lack of opportunity for cross-examination on that point.

Legal Issues Presented

1. Whether the tribunal committed a serious irregularity by allowing Company B to rely on an alleged agreement made on 4/5 June 2003 to terminate the SGEX agreement after Company A had concluded cross-examination without addressing this point.
2. Whether such an irregularity, if established, caused or will cause substantial injustice to Company A under section 68 of the Arbitration Act 1996.
3. Whether Company B had abandoned the pleaded case concerning the 4/5 June agreement, either expressly or impliedly.
4. The proper interpretation and effect of the parties’ conduct and agreements relating to termination of the SGEX agreement.

Arguments of the Parties

Company A's Arguments

• The tribunal failed to comply with its duty under section 33 of the Arbitration Act 1996 to act fairly and give Company A a reasonable opportunity to deal with Company B’s case regarding the 4/5 June agreement.
• Company B had effectively abandoned reliance on the 4/5 June agreement, as evidenced by its omission from written and oral opening submissions and failure to respond to Company A’s submissions.
• Allowing Company B to advance the argument late caused Company A substantial prejudice because it had no opportunity to cross-examine Company B’s witnesses on this critical point.
• Cross-examination on the 4/5 June agreement was crucial to ascertain whether an agreement to terminate the SGEX agreement had in fact been reached and on what terms.

Company B's Arguments

• There was no serious irregularity as Company B did not abandon its pleaded case regarding the 4/5 June agreement.
• The relevant evidence was adequately tested before the tribunal, and Company A did cross-examine on related issues.
• The tribunal’s majority correctly found that Company B was entitled to rely on the 4/5 June agreement, and it would be unjust to prevent Company B from doing so.
• Company A’s assumption of abandonment was unreasonable as Company B never expressly withdrew the point and the tribunal did not raise the issue with Company B’s legal team.
• Even if the point was abandoned, Company A was not misled to its substantial prejudice, and the circumstances did not amount to unconscionable conduct justifying setting aside the Award.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed whether the tribunal committed a serious irregularity under section 68 of the Arbitration Act 1996 by allowing Company B to rely on the alleged 4/5 June agreement after Company A had concluded cross-examination without addressing this point. The court identified two limbs to serious irregularity: (1) the presence of an irregularity specified in the Act, and (2) whether that irregularity caused substantial injustice to the applicant.

The tribunal’s duty under section 33 to act fairly and impartially requires giving each party a reasonable opportunity to present its case and respond to the opponent’s case. Company A argued that the absence of any reference to the 4/5 June agreement in Company B’s written and oral opening submissions, combined with Company B’s failure to respond to Company A’s submissions, created a reasonable impression of abandonment. This led Company A to omit cross-examination on this point, resulting in prejudice.

The court found that, although the absence of reliance in written submissions and silence did not alone constitute abandonment (citing The Linardos and Thomas v Marconi), the oral opening submissions by Company A’s counsel explicitly addressed the issue and indicated Company A’s understanding that the 4/5 June agreement had been abandoned. Company B’s legal team did not contradict this during the hearing, reinforcing that impression. The court concluded that, on the totality of the circumstances, Company B impliedly abandoned the point.

However, the court also considered whether the irregularity caused substantial injustice. It noted that the tribunal majority had carefully considered the evidence and submissions on the 4/5 June agreement and found, based on contemporaneous documents and the parties’ own acceptance that the joint service would end on 6 July 2003, that the SGEX agreement was terminated accordingly. The dissenting arbitrator’s concerns about prejudice were acknowledged but did not outweigh the majority’s findings.

The court emphasised that the absence of cross-examination on this point was unfortunate but did not render the arbitration unfair in all the circumstances. The tribunal was entitled to conclude that cross-examination would not have materially altered the outcome, especially given the undisputed documentary evidence and Company A’s own acceptance of termination of the joint service. The court distinguished this case from others where lack of opportunity to address issues led to setting aside awards, noting that here the issue was fully ventilated before the tribunal.

Accordingly, while an irregularity affecting the proceedings was found, it did not amount to a serious irregularity causing substantial injustice under section 68.

Holding and Implications

The court DISMISSED Company A’s application to set aside parts of the arbitral Award under section 68 of the Arbitration Act 1996.

The direct effect of this decision is that the tribunal’s majority finding that the SGEX agreement was terminated by agreement on 4/5 June 2003 stands, and Company A’s counterclaim for wrongful termination fails on this basis. No new legal precedent was established beyond reaffirming the high threshold for setting aside arbitral awards on grounds of serious irregularity and substantial injustice. The decision underscores the importance of parties clarifying their positions during arbitration proceedings and the limited circumstances in which late reliance on pleaded points may justify setting aside an award.