In
Background
In 2017,
On
Pan Ocean appealed under section 69 of the Arbitration Act 1996, which permits an appeal on a question of law if the parties agree or if the Court gives permission (unless, in both cases, the arbitration agreement excludes this right).
The Commercial Court decision
Pan Ocean argued that the Tribunal had not applied the correct legal test, as it had concluded that it was "reasonable" for Pan Ocean to be under an implied obligation2. Reasonableness by itself, Pan Ocean submitted, was not sufficient for the implication of a term.
Test for the implication of a term
The Court reiterated the five requirements for the implication of a term into an agreement3:
(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract;
(3) it must be so obvious that it goes without saying;
(4) it must be capable of clear expression; and
(5) it must not contradict any express term of the contract.
Interpreting arbitration awards
It is a key principle that, if possible, courts should construe an arbitral award in such a way as to make it valid. Here, the Judge decided that the Tribunal had applied the correct legal test despite merely referring to "reasonableness" instead of the full criteria.
The Judge noted that the Tribunal had adopted
Content of the implied term
Pan Ocean further argued that the content of the term implied by the Tribunal was wrong in law, as it imposed a strict obligation on it alone, even though the appointment of an independent surveyor clearly required cooperation by both sides.
The judge agreed that any implied term had to oblige both parties to take reasonable steps to cooperate to organise a reinspection without undue delay. However, adopting a "fair and supportive reading of the award", and considering the overall context, the judge decided that this was indeed the content of the term implied by the Tribunal (despite noting that the award was "certainly not ideal in its expression", and that the arbitrators had expressed themselves in shorthand form).
When was the implied term breached?
However, the Judge held that the Tribunal was wrong in law to decide that the vessel was immediately available for hire once the master had notified Pan Ocean that the cargo holds were clean, with damages therefore running from that point. The Tribunal should instead have assessed when the reinspection should have taken place had Pan Ocean complied with the implied term, with damages running from the date until the reinspection was actually carried out. been complied with. Accordingly, the judge remitted the award back to the Tribunal to decide this question.
Takeaway
The case is an example of both the long tradition of English courts construing arbitration awards sympathetically, even on points of law, but also the willingness of the Court to intervene if there is a clear error.
Footnotes
1. [2023] EWHC 391 (Comm)
2. At paragraph 25 of the Award
3. As established in
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