Arithmetic anomaly is grounds to challenge arbitration award

One of the perceived benefits of arbitration is that its outcomes are said to be final and binding. While most jurisdictions allow for arbitrators’ awards to be challenged on certain procedural grounds, in most countries there is no right of appeal against an award, and it’s accepted that an award can’t be challenged on the basis that the arbitrators simply got it wrong.

One exception to that rule is England. The English Arbitration Act 1996 contains provisions that allow a party to an arbitration to challenge an award on its merits. Section 69 permits an appeal to the courts on a point of law, and section 68 allows a party to bring a challenge in the courts where there has been “serious irregularity” affecting an award. Both sections have been applied extremely narrowly by the courts, but the scope of section 68 has recently been clarified in Ducat Maritime Ltd v Lavender Shipmanagement Inc [2022] EWHC 766 (Comm).

This was a claim for unpaid hire under a charterparty – the value of the claim was no more than $37,832. There was a counterclaim for $15,070. Somehow, the arbitrator included the amount of the counterclaim in the amount of the principal claim, as if it were another sum sought by the claimant. Based upon his findings, the claimant should have been awarded about $27,000, but the arbitrator managed to produce a figure of $53,692. As he did not think he could award the claimant more than it had asked for, the arbitrator then reduced that to $37,832. At no point in this chaotic mathematical jumble were the parties invited to make submissions on these calculations. Twice the unsuccessful respondent asked the arbitrator to correct the award, and twice the arbitrator insisted that the award contained no mistake. The respondent then challenged the award under section 68.

The judge, Butcher J, emphasised that a party seeking to rely on section 68 faces a “high hurdle” and a “heavy burden”. He added that the section was “really designed as a long stop, only available in extreme cases, where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”.

Nonetheless, he found that the award was tainted by two irregularities. The first was that the arbitrator had departed from a common position held by the parties – that the sum of $15,070 was not claimed by the claimant – without allowing them an opportunity to comment on it. The second was that the arbitrator had made an “obvious accounting mistake”. Although the judge insisted that the focus of section 68 is irregularity of process, not outcome, he accepted that a “gross and obvious accounting mistake, or an arithmetical mistake of the 2 + 2 = 5 variety”, could amount to a failure to conduct proceedings fairly. Since these irregularities caused a substantial injustice, Butcher J had no difficulty in setting aside the parts of the award affected by them.

It remains the position that section 68 is not intended to operate as a mechanism for an appeal against an arbitrator’s decision on its merits. The Ducat case does make it clear, however, that some errors by arbitrators may be so obvious and unjust as to amount to irregularity, especially when the parties have not been afforded an opportunity to make submissions on the relevant issue.

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