English commercial court considers requirement for party to be given fair opportunity to respond

In the recent decision of Grindrod Shipping v Hyundai Merchant Marine [2018] EWHC 1284, the English Commercial Court considered the degree to which issues relied upon by the tribunal must have been put before it; in particular, whether points raised by one of the parties in one context can be deployed by the tribunal in another. The short answer is that there is no problem with this, provided the issues can be said to have been “in play” so as to give the other a fair opportunity to respond.

Factual and procedural background

The case concerned an arbitration arising from a charterparty between Grindrod Shipping Pte Ltd T/A Island View Shipping (“IVS”) and Hyundai Merchant Marine (“Hyundai”). This arbitration proceeded very slowly. IVS had commenced it in 2011, but by August 2016 the parties had only reached documentary disclosure.  A further significant development was that in February 2016, IVS renewed a request for security against Hyundai which was granted.

In January 2017, Hyundai applied under s. 41(3) of the Arbitration Act (“AA”) to dismiss IVS’s claims on the basis of inordinate and inexcusable delay. That provision provides, in an arbitration with its seat in England, the tribunal with the discretion to so act if it is satisfied that there has been an inordinate and inexcusable delay by the claimant which either: (i) gives rise, or is likely to give rise, to a substantial risk of unfairness (s 41(3)(a)); or (ii) has caused, or is likely to cause, serious prejudice to the respondent (s 41(3)(b)).

In summary, in making this application, Hyundai argued that both of these requirements had been made out by reason of the effect of the delay on the availability of evidence. It did not raise the negative effects on it of the posting of security in the context of those specific requirements – but instead relied on those effects in addressing why the tribunal should exercise any discretion it had to dismiss the claim.

Whilst the Tribunal granted Hyundai’s application, its reasons did not follow Hyundai’s submissions. Specifically, it chose to accept that s.41(3)(b) was made out not on the basis of issues about evidence (as Hyundai had relied upon) but on the basis of “serious prejudice” to Hyundai arising from the grant of security.

Issues before the Court, and its judgment

IVS challenged this award on the grounds of serious irregularity under s.68 AA, arguing that the tribunal’s approach was in breach of its general duty of fairness under s.33 AA. In essence, IVS’s complaint was that the tribunal had decided the application on a basis not argued before it – a connection between “serious prejudice” and the security not having been made or relied upon by Hyundai. In its view this was connection was “devised” by the tribunal in an impermissible way.

In ruling on IVS’s complaint, the Court referred to previous authorities in which similar issues had arisen (ABB AG v Hochtief Airport GmbH [2006] 2 Lloyd’s Rep 1 and Reliance Industries Ltd v Union of India [2018] EWHC 82). These, it held, established the proposition that a party would have had a sufficient opportunity to meet the case against it if the “essential building blocks” of the tribunal’s eventual analysis and reasoning were “in play” or “in the arena” in the proceedings, even where the argument was not articulated in the way adopted by the tribunal (or, to put it another way, the heads under which the parties’ adopted their contentions could not place them within silos) – although ultimately the question was one of fairness in the circumstances.

On this basis, the Court accepted Hyundai’s submissions that the points in the Tribunal’s reasoning had been “in play”. It held that it was “indisputable” that prejudice resulting from the grant of security had been raised by Hyundai, despite being in the context of “discretion”. And, even though the issue had been dealt with briefly by Hyundai, the basic prejudice caused by this grant of security had been clear. Further, the Court noted that IVS had an opportunity to respond to this point which, even though made briefly, had been a significant part of the facts of the case.

The decision illustrates the latitude that the Court will afford an arbitral tribunal in reaching a decision. Ultimately, whether an issue is “in play” appears to be a question of  looking at the overall substance of the parties’ arguments and material raised before the tribunal, and whether there has been an opportunity to respond to the same (rather than looking at the strict form and context in which the points are presented). Arguments that the tribunal should confine its decision making strictly to the parties’ pleaded cases are likely to face an uphill battle.  

Stephen Lacey and Sadie Buls would like to thank Reyna Ge for her assistance in preparing this article.