Danae Air Transport SA v Air Canada
| Jurisdiction | England & Wales |
| Judge | Kennedy,Ward,Tuckey L JJ. |
| Judgment Date | 29 July 1999 |
| Date | 29 July 1999 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Kennedy, Ward and Tuckey L JJ.
Stephen Tomlinson QC and Philip Shepherd (instructed by Brown Cooper) for Danae.
Michael Collins QC and Vernon Flynn (instructed by Dibb Lupton Alsop) for Air Canada.
The following cases were referred to in the judgments:
Blexen Ltd v G Percy Trentham LtdUNK[1990] 2 EGLR 9.
India (President of) v Jadranska Slobodna PlovidbaUNK[1992] 2 Ll Rep 274.
King v Thomas McKenna LtdELR[1991] 2 QB 480.
Mutual Shipping Corp v Bayshore Shipping Co Ltd (The Montan)WLR[1985] 1 WLR 625.
Arbitration Whether court could remit costs award in arbitration based on arithmetical error Arbitration Act 1950 1950, s. 17, 22, 23.
This was an appeal from a judge's refusal to remit or set aside an arbitration award under s. 22 or 23 of the Arbitration Act 1950.
Danae acted as Air Canada's agent in Greece until April 1989 when its appointment was terminated. It made a claim against Air Canada which was referred to arbitration. At the time of termination Danae held money from the sale of tickets which it was obliged to pay over to Air Canada but which it kept as partial security for its claim. In the arbitration which started in early 1995 Air Canada counterclaimed for that money held by Danae. Air Canada made a Calderbank offer the essence of which was that it would forgo its counterclaim and pay Danae an additional Can$500,000. Danae rejected the offer. The effect of the arbitrator's final award was that Danae was awarded Can$1,904,481 on its claim and Air Canada was awarded Can$1,026,811 on its counterclaim. The arbitrators ordered the counterclaim to be set off against the claim, so Air Canada had to pay Danae Can$877,670 and Danae did not have to repay the money which it held. Danae therefore did better (by Can$377,670) by going on with the arbitration than it would have done if it had accepted the Calderbank offer. However the arbitrators by a majority made their order for costs on the basis that Danae had failed to beat the offer by about Can$400,000 and by a final award published in London on 26 October 1998 ordered Danae to pay the costs of the award from 15 August 1995 (519,659) and Air Canada's costs from that date. Danae sought to have the award set aside or remitted under s. 22 or 23 of the Arbitration Act 1950 (since the arbitration agreement excluded the right of appeal under s. 1(2) of the Arbitration Act 1979). Longmore J held that the arbitrators had made an arithmetical error in concluding that Danae had not beaten the award and that having beaten the offer Danae should have been awarded its costs. He held however that the arbitrators' error did not involve excess of jurisdiction, misconduct or procedural mishap within s. 22 and 23 of the Arbitration Act 1950. He gave leave to appeal.
Heldallowing the appeal and remitting the costs award to the arbitrators:
A simple error of arithmetic could ordinarily be amended under the slip rule (s. 17 of the Arbitration Act 1950 and/or the UNCITRAL rules). If the arbitrators did not make the correction, their failure to do so would be a procedural mishap so that the court would have jurisdiction to remit the matter to the arbitrators under s. 22 of the 1950 Act. That decision fell within the general principle on remission. (King v Thomas McKenna LtdELR[1991] 2 QB 480applied.)
Tuckey LJ:
By a final award published in London on 26 October 1998 arbitrators ordered the claimants (Danae) to pay the costs of the award from 15 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 15 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 s. 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 for 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 forgo their counterclaim 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 counterclaim 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) 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.
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 24 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 counterclaim 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 counterclaim.
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