COMPANIA SUD-AMERICANA DE VAPORES SA V NIPPON YUSEN KAISHA

[2009] EWHC 1606 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Beatson, 9 July 2009

Arbitration - Defence apparently abandoned and then raised again at late stage in arbitration - Arbitrators accepting defence - Whether serious irregularity on the part of arbitrators - Whether substantial injustice caused to other party - Arbitration Act 1996, sections 33 and 68(2)(a)

The parties, along with a third party, had entered into a joint container service agreement, SGEX. This was terminable by 90 days' notice. Notice of termination was given to the third party on 7 April 2003. The parties met in Santiago on 5 June 2003. Subsequently, on 30 June 2003 NYK gave notice to CSAV terminating the SGEX with effect from 6 July 2003, 90 days from 7 April 2003. NYK commenced an arbitration to recover sums allegedly due under the SGEX, and CSAV counterclaimed for damages for wrongful termination. In its written pleaded case CSAV raised four defences to the counterclaim, one of which was that there had been an agreement to terminate the SGEX on 5 June 2003. In opening oral submissions at the arbitration CSAV did not rely upon the alleged agreement of 5 June, and failed to respond to the suggestion by CSAV that the argument had been abandoned. On the fifth day of the arbitration NYK raised the point in cross-examination, and was allowed to proceed despite objections from CSAV. The arbitrators by a majority dismissed all of NYK's defences to the counterclaim other than that based on the 5 June agreement, and ruled in favour of NYK on that basis. CSAV challenged the award under section 68(2)(a) of the Arbitration Act 1996, on the ground that the arbitrators had relied upon a matter which CSAV had been given no chance to rebut and had thus acted contrary to the natural justice requirement in section 33 of the 1996 Act. Beatson J held that: (1) NYK had by its conduct abandoned the defence based on the 5 June argument; (2) by allowing NYK to raise it at a late stage in the arbitration, the arbitrators had committed a serious irregularity under section 68(2)(a); but (3) the award would not be set aside because there was no substantial injustice to CSAV - the arbitrators had been entitled to conclude that they would have reached the same decision on the other evidence that the SGEX agreement had been terminated on 5 June 2003.