CNH Global NV v PGN Logistics Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Burton J. |
| Judgment Date | 26 February 2009 |
| Date | 26 February 2009 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Burton J.
P Key (instructed by Allen & Overy LLP) for the claimant.
J Temmink (instructed by Cripps Harries Hall) for the defendant.
The following cases were referred to in the judgment:
AOOT Kalmneft v Glencore International AG [2001] CLC 1805.
Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks CoELR [1903] AC 426.
Checkpoint Ltd v Strathclyde Pension FundUNK [2003] 14 EG 124.
Food Corp of India v Marastro Cia Naviera SA (The Trade Fortitude)UNK [1986] 2 Ll Rep 209.
Fuga AG v Bunge AGUNK [1975] 2 Ll Rep 192.
Golden Strait Corp v Nippon Yusen Kubishiki Kaisha [2007] 1 CLC 352; [2007] 2 AC 353.
Lesotho Highlands Development Authority v Impregilo SpAUNK [2003] 1 All ER (Comm) 22; [2005] 2 CLC 1; [2006] 1 AC 221 (HL).
Mutual Shipping Corp v Bayshore Shipping Co Ltd (The Montan)UNK [1984] 1 Ll Rep 389; [1985] 1 WLR 625 (CA).
Nagusina Naviera v Allied Maritime IncUNK [2002] EWCA Civ 1147; [2003] 2 CLC 1.
Panchaud Freres SA v R Pagnan & FratelliUNK [1974] 1 Ll Rep 394.
RWJ Sutherland & Co v Hannevig Bros LtdELR [1921] 1 KB 336.
Warborough Investments Ltd v S Robinson & Sons (Holdings) Ltd [2003] EWCACiv 751.
Wordingham v Royal Exchange Trust Co LtdELR [1992] Ch 412.
Arbitration — Serious irregularity — Substantial injustice — Arbitrators erroneously failed to award interest on claims for loss of profits during periods which expired before making of award — Arbitrators acceded to application to correct award under ICC Rules — Arbitrators lacked power to correct award since error not clerical, computational or typographical — Correction of award serious irregularity — Irregularity not causing substantial injustice — Court would not intervene to set aside irregularity where to do so would cause substantial injustice to other party — Arbitration Act 1996, s. 68(2)(b).
These were an application and cross-application under s. 68 of the Arbitration Act 1996.
The defendant (PGN) alleged in an ICC arbitration that the claimant (CNH) had wrongfully terminated a services agreement. The arbitrators concluded in a partial award on issues of liability that the claimant was in repudiatory breach of the services agreement by virtue of its termination and that the defendant was entitled to substantial damages.
One of the heads of damages claimed was loss of profits, since the agreement had three years to run. Experts were instructed on both sides. Initially the loss of profits was calculated as at the date of termination with a discount for early payment. However by the time of the award the contract period had expired and the tribunal accepted an argument that damages should be assessed without any discount on the basis of what had actually occurred over the relevant period. The tribunal therefore awarded damages on the basis of what would have been received in the three years, with interest from the date of the award.
The defendant applied to the arbitrators to correct the award, by correcting the fact that interest was awarded only as from the date of the award, and thus not on the damages from the dates when the sums would otherwise have fallen due. The application was made under art. 29 of the ICC Rules which permitted the tribunal to correct a clerical, computational or typographical error, or any errors of a similar nature contained in an award. The tribunal acceded to that application. The tribunal said that it had not intended the defendant to be deprived of interest on its claims for loss of profits which it would have earned during periods of time which had expired prior to the making of the award. The tribunal amended its award to provide that interest on the damages for lost profits was payable at the equivalent rate from 1 July in each year in which such profits would have been earned, compounded quarterly until the date of payment
The claimant challenged the amendment on the basis that the arbitrators had no power to correct the arbitration award under art. 29 and there had thus been a serious irregularity causing substantial injustice within s. 68 of the 1996 Act.
Held, dismissing the claimant's s. 68 application:
1. It was not possible to say that this was a clerical error. What occurred was not an error affecting the expression of the arbitrators' thought. It was more like an error in the thought process itself, in the sense that it did not accurately express their intention, but it did so in clear words. (Mutual Shipping Corp v Bayshore Shipping Co Ltd (The Montan) [1985] 1 WLR 625 applied.)
2. Nor could it be said to have been a computational or typographical error. Nor was it an error of a similar nature, which was something close to a clerical, computational or typographical error, but not precisely falling within those categories.
3. Nor was there an erroneous exercise of an available power. There was simply a mistake which the arbitrators sought to correct. It might have involved a change of mind. It might not. It was not a correction which fell within art. 29. The arbitrators did not go wrong within their powers, they simply did not have the power to correct at all. There was consequently an irregularity falling within s. 68(2)(b). It was an irregularity which was serious in its effect, because it had the result of transferring a position in which the claimant did not have to pay a figure of between £1.5 million and £3 million into one in which it did.
4. The irregularity did not cause substantial injustice. No reason for not awarding interest in this case had been suggested by anyone; not by the arbitrators, who, when the error was pointed out to them, explained that it was a wholly unintended error, and, indeed, contrary to their intention. It would not cause substantial injustice to the claimant if the procedural irregularity were reversed and the correction of the mistake prevented, if doing so would cause, on the one hand, a substantial injustice to the defendant and, on the other, a wholly undeserved windfall to the claimant. The court would not intervene to set aside what would otherwise be a procedural irregularity, where such irregularity had not caused substantial injustice to the applicant because to remove it would cause substantial injustice to the other party. Therefore the application by the claimant under s. 68 was dismissed. In those circumstances it was not necessary to deal with the cross-application by the defendant under s. 68, because it was entirely responsive.
Burton J:
1. This has been the hearing of an application and a cross-application under s. 68 of the Arbitration Act 1996 (“the 1996 Act”). It arises out of a substantial dispute between the parties, which was the subject of ICC arbitration relating to a services agreement between the claimant CNH Global NV (as it now is) and the defendant PGN Logistics Ltd (PGN) and other parties who are not relevant to these applications.
2. The services agreement was terminated by the claimant in circumstances which the defendant alleged to be wrongful on 12 January 2005. ICC arbitration was commenced by the defendant on 9 February 2005. There was a partial award on issues of liability on 31 July 2007 by […] the arbitrators who were L Yves Fortier CC QC, as Chairman, Mr Anthony Boswood QC and Judge Paul Hammond. The award was delivered on 31 July 2007. By that partial award the arbitrators concluded that the claimant was in repudiatory breach of the services agreement by virtue of its termination. The result would be that there would be a substantial damages claim by the defendant against the claimant. That would form the subject matter of a further hearing by the arbitrators on quantum. That took place on 8 and 9 October 2007.
3. The issue which has resulted in this application before me related to only one of the heads of claim by the defendant against the claimant said to result from the repudiatory breach by the claimant, namely loss of what were called future profits. As a result of the termination, the services agreement did not continue in force after January 2005; had it continued in force, transportation obligations, taken on by the defendant for the claimant, in relation to certain items of equipment would have continued until December 2005, and in respect of other items of equipment would have continued for three years until December 2007. The services agreement involved effectively the total involvement of the defendant's manpower with the claimant. They were in substance the defendant's only customer, and there was a substantial turnover between the two companies under the services agreement — hence the loss of profits that were claimed were also very substantial.
4. There were experts instructed on both sides. The way that the experts, in the early stages, argued the point was by reference to a calculation of the loss of profit as at the date of termination. Both experts accepted in that case that there would be required to be a discount from the total amount of the lost profit as formulated. In the case of the defendant's expert, the expert accepted that that would be the case by virtue of early payment of the loss of profits over the notional three year period, if they were to be assessed as at January 2005. Both experts opined that, in addition, there would need to be taken into account, in respect of the calculation of the loss of profits, estimated variables. So far as the defendant was concerned, the defendant would have argued that had the defendant remained in control under the services agreement, more profit might have been made; the business might have been more successful or more satisfactorily conducted than it was once they were dismissed. So far as the claimant was concerned, they submitted that there were uncertainties, as at January 2005, by way of whether the business would continue, whether the defendant was in a position to continue the...
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