Danae Air Transport SA v Air Canada
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tuckey,Lord Justice Ward,Lord Justice Kennedy |
| Judgment Date | 29 July 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0729-7 |
| Date | 29 July 1999 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | QBCM1 1999/0261/3 |
[1999] EWCA Civ J0729-7
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
(MR JUSTICE LONGMORE)
Royal Courts of Justice
Strand
London WC2
Lord Justice Kennedy
Lord Justice Ward
Lord Justice Tuckey
QBCM1 1999/0261/3
MR S TOMLINSON QC and MR P SHEPHERD (Instructed by Messrs Brown Cooper, London WC1A) appeared on behalf of the Plaintiff
MR M COLLINS QC and MR V FLYNN (Instructed by Messrs Dibb Lupton Alsop, Finsbury Square, London) appeared on behalf of the Defendant
Introduction.
By a final award published in London on 26th October 1998 arbitrators ordered the Claimants (Danae) to pay the costs of the award from 15th August 1995 (£519,659.) and the Respondents (Air Canada) costs from that date (a substantial sum still to be assessed). The arbitrators made this costs award because they thought that Danae had not beaten a Calderbank offer made by Air Canada on 15th August 1995. Danae contend and Longmore J. accepted that in reaching this conclusion the arbitrators made a basic arithmetical error. They had in fact beaten the offer so they should have been awarded all their costs. However, the arbitration agreement between the parties excluded all rights of appeal. Danae therefore sought to have the award remitted or set aside under sections 22 and/or 23 of the Arbitration Act 1950. The Judge rejected this application but gave leave to appeal saying "My decision results in undoubted injustice to (Danae)"
Danae acted as Air Canada's agent in Greece until April 1989 when, as the arbitrators found, their appointment was wrongly terminated. At the time of termination Danae held money from the sale of tickets which they were obliged to pay over to Air Canada but they held on to it as partial security for their claim. In the arbitration which started in early 1995 Air Canada counterclaimed this money held by Danae. Although the principal amount held by Danae in this way had been agreed by August 1995 there were arguments about the period during and the rate at which Air Canada should receive interest.
The essence of the Calderbank offer was that Air Canada would forego their counter-claim and pay Danae an additional Can$500,000. Danae rejected the offer. It is agreed that the effect of the arbitrator's final award, adjusted so as to reflect interest up to August 1995, was that Danae were awarded Can$1,904,481 on their claim and Air Canada were awarded Can$1,026,811 on their counterclaim. The arbitrators ordered the counter-claim to be set off against the claim, so on these figures Air Canada had to pay Danae Can$877,670 and Danae did not have to repay the money which they were holding. It is self-evident from this summary that Danae did better (by Can$377,670.) by going on with the arbitration than they would have done if they had accepted the Calderbank offer.
And yet the arbitrators by a majority (Bruce Coles QC. and W.E. McKie, Esq.) held otherwise. They made their order for costs on the basis that Danae had failed to beat the offer by about Can$400,000. The financial consequences of this error from Danae's point of view, if it cannot be corrected, are enormous. They will end up paying well in excess of £1m. when, if the arbitrators had not made the error, they had good prospects of not having to pay anything and receiving a substantial additional costs order in their favour.
I shall have to trace the history of how this has come about in a little more detail but that is the position in a nutshell. Air Canada simply say the Judge was right. The courts cannot interfere. They say they are not taking advantage of the arbitrator's error although they have not given any convincing reason to justify this assertion. This stance suggests that they know that it would be unacceptable for a large international airline to admit that they are taking advantage of an obvious error in their favour at the expense of a former agent of lesser means. But that is exactly what they are doing.
History.
Following the publication of the arbitrators' fourth interim award in September 1997 the parties turned their attention to the question of costs and in particular to whether Danae had beaten the offer. Each side on their own initiative and not in response to one another produced schedules which analysed the value of the award in the same way. By coincidence the arbitrators had awarded Can$500,000 to Danae as damages for "moral prejudice". This was therefore the same amount as Air Canada's cash offer and the two amounts cancelled one another out. The comparison between the award and the offer could therefore be made by a straight comparison between the award to Danae on their claim (ignoring the Can$500,000) and the award to Air Canada on their counter-claim. At this stage the latter only exceeded the former by on Air Canada's figures about Can$44,000 and on Danae's about Can$35,000.
These schedules were used at a hearing before the Arbitrators on 24th September 1997 at which a number of costs and interest issues were argued. I need only refer to two of these issues. The first arose out of the terms of the Calderbank offer. It included the payment of all Danae's costs with the exception of certain costs which had been incurred in the recent past or would be incurred if the arbitration settled, which the offer proposed should be borne equally. Danae calculated that their share of these costs was Can$57,185. They submitted that the value of Air Canada's offer should be reduced by this amount. Of course this relatively small amount was crucial having regard to the difference between claim and counterclaim.
The second issue arose out of what is described as the "Ballotta incident". Mr. Ballotta had been a senior employee of Air Canada until November 1989 who, (contrary to his assertion) as the arbitrators subsequently found, had "clearly been concerned with the events which gave rise to the arbitration". Nevertheless Air Canada appointed Mr. Ballotta as their arbitrator and in spite of Danae's protests resisted all attempts to remove him for two years during which the progress of the arbitration was considerably delayed. Danae argued that Air Canada should be deprived of interest on their counter-claim for the period of this delay. The value to Danae of this argument, as subsequent events to which I will come show, was Can$400,000.
Air Canada resisted Danae's attempts to improve their position on both these issues. They relied on the figures in their schedule which showed that the amount of the award exceeded the amount of the offer. Their written submissions on this point concluded with the following paragraph :
"In addition to the amounts awarded in drachma, Danae was awarded Can$500,000 in tort. By coincidence this amount equates precisely to the additional sum offered to Danae in the sealed offer. It follows that the net amount awarded to Danae by the arbitrators is not only substantially less than that contained in the sealed offer, but is less even than the amount of the additional Can$500,000 then offered to Danae in addition to the value of Air Canada's counter-claim."
I do not really understand the last sentence of this paragraph but it certainly does not suggest the error which the arbitrators subsequently made.
The hearing was followed by an exchange of correspondence with the arbitrators in which the solicitors for the parties each took a number of confusingly bad points but again the error which the arbitrators subsequently made was not suggested, or at least clearly suggested.
The arbitrators produced a draft final award in November 1997. This is where the error first appeared. They valued the offer by adding the value which Air Canada had put on their counterclaim in the Calderbank letter (Can$818,500.) to the Can$500,000. But they valued the award by subtracting their award on the counterclaim from their award on the claim. On the figures they used this showed that Danae had failed to beat the offer by about Can$800,000. No one had suggested that the calculation should be done in this way. It was palpably wrong because the arbitrators were not comparing like with like. If the value of the counterclaim was to be added to the amount of the cash offer for the purpose of valuing the offer it should not have been subtracted for the purpose of valuing the award. On the basis that Danae failed to beat the offer the draft final award had said that they were to pay the costs of the award and Air Canada's costs from 15th August 1995. Air Canada were to pay Danae's costs up to that time.
The arbitrators accepted Danae's arguments on the first issue to which I have referred so they reduced the value of the offer by Can$57,185. On the Ballotta incident they said that as they had already dealt with interest on the counter-claim in an earlier award and as no submissions had been made to them about the incident before they made that award they had no jurisdiction to deal with the matter.
The draft final award, as one would expect, caused great concern in the Danae camp. Their solicitors made increasingly frantic efforts to persuade the arbitrators of their error. They bombarded them with letters, submitted an accountant's report and eventually persuaded them to hold a further hearing. Air Canada's stance was that having published their award in draft, the arbitrators could not reconsider their decision and that they had not made any error. Indeed, their solicitors asserted that the arbitrators were...
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