K/S Norjal A/S v Hyundai Heavy Industries Company Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LEGGATT,LORD JUSTICE STUART-SMITH,THE VICE-CHANCELLOR |
| Judgment Date | 21 February 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J0221-1 |
| Docket Number | 91/0097 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 February 1991 |
[1991] EWCA Civ J0221-1
The Vice-Chancellor
(Sir Nicolas Browne-Wilkinson)
Lord Justice Stuart-Smith
Lord Justice Leggatt
91/0097
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE PHILLIPS)
Royal Courts of Justice
THE HON. MICHAEL BELOFF Q.C. and MR TIMOTHY WORMINGTON, instructed by Messrs Ince & Co., appeared for the Appellant (Defendant).
MR JONATHAN SUMPTION Q.C., instructed by Messrs Clifford Chance & Co., appeared for the Respondent (Plaintiff).
The dispute out of which this appeal arises is between K/S Norjarl A/S, who are plaintiffs in an originating application and respondents in this court, and Hyundai Heavy Industries Co. Ltd., who are defendants in the originating application and appellants in this court. I shall refer to the parties as "Norjarl" and "Hyundai" respectively. The present issue concerns the proper conduct of an arbitration pending between the parties in which Hyundai are claimants and Norjarl respondents. Over six years ago Hyundai, who are North Korean shipbuilders, contracted to build a drilling rig for Norjarl, who are a Norwegian limited partnership. The contract contained an arbitration clause in conventional form, by which in the event of a dispute each party was to appoint one arbitrator, and both of them were to appoint a third. It contained no provision for the arbitrators' fees. In the arbitration the issue is whether Norjarl were entitled to reject the rig on delivery.
In January 1987 Hyundai appointed Cedric Barclay as their arbitrator, and Norjarl appointed Stewart Boyd Q.C. as their arbitrator. No reference was made to fees. In May 1987 those arbitrators appointed David Steel Q.C. as third arbitrator. Again there was no mention of fees, but Mr Boyd reported Mr Steel's acceptance of his appointment as having been on the basis of an understanding that the hearing of the arbitration would take place by May 1989 and last from three to five weeks. In May 1989 Hyundai appointed Mr John Estes as their arbitrator, because Mr Barclay had died in the meanwhile. By that time Hyundai's solicitors were Ince & Co. and Norjarl's solicitors were Clifford Chance. Amended Points of Claim were served in June 1989 and Points of Defence and Counterclaim in February 1990.
It was at that stage by letter of 7th February 1990 that Clifford Chance applied to the arbitrators on behalf of Norjarl "to request that dates which have been reserved provisionally should now be fixed for the hearing" of the arbitration, namely the first twelve weeks of the Trinity term 1992, which begins on 28th April 1992. They added that "Both the size of the case and the exceptionally busy nature of the arbitrators and Counsel involved in the case makes it necessary to reserve these dates as far in advance as possible." In response to this request Mr Estes replied that he had reserved the dates mentioned.
By letter of 1st March 1990, which accompanied proposals for a preliminary meeting, Mr Steel for the arbitrators, in a letter signed on his behalf by his clerk, referred separately to the invitation to fix a date. Because it is at the heart of this dispute I must recite the body of the letter in full:
"The parties have invited the tribunal to fix a date for this hearing for 12 weeks from the 28th April 1992.
The tribunal is prepared to consider such a course (subject to any matters covered by our agenda for the preliminary meeting) but we felt that the parties should have ample time before committing themselves at the meeting to consider the likely fees which will be incurred and the conditions upon which they will be charged which are:—
(a) The tribunal will commit themselves to those dates subject only to death, incapacity or judicial appointment. The parties must take out insurance on such eventualities if they so desire.
(b) Each member of the tribunal will charge £1,500 per day spent on the case during 1990. The charge will rise to £1,750 in 1991 and £2,000 in 1992. Upon the basis of a fee in 1992 of £2,000 per day for each member of the tribunal, the fees for 60 days would be £120,000 for each member, leaving aside any pre-hearing or post-hearing work. The tribunal accordingly requests the solicitors for the parties to undertake joint responsibility for the following payments:—
(i) a non-returnable payment of 10% of the fee for the hearing upon fixing the dates (a further such fee will be payable in the event of any dates being fixed in substitution);
(ii) the balance of 90% to be earned in equal monthly instalments from the 28th August 1991, and payable in any event.
(c) Mr Estes will further require accommodation in London for such time he is required both to hear the arbitration and prepare the award together with reimbursement of his necessary expenses.
(d) The balance of the tribunal's fees in respect of pre-hearing and post-hearing work and for any hearing days beyond 60 days will be notified to the parties when the award is prepared. The total outstanding fees will be payable on notice that the award is ready to be taken up and before the award is taken up."
It should be made plain that Mr Estes, who is a Texan marine consultant, has at all times and in every respect remained aloof from the ensuing discussions about fees between the parties and the other arbitrators.
To the arbitrators' fee proposals Ince & Co. replied on 5th March 1990, saying—
"The effect of sub-paragraph (b) appears to be that each member of the Tribunal would receive a minimum of £120,000 in full before the hearing even commenced and that this would not be returnable in the event that the hearing did not proceed. We note also that you are requesting solicitors' undertakings in relation to these payments, which would involve us in requesting immediate deposits of these very substantial sums from our Clients. We are not prepared to recommend the agreement of the conditions set out in your letter and we respectfully invite you to withdraw them."
On 7th March 1990 Clifford Chance told the arbitrators that they also were not prepared to recommend to their clients that they agreed to the conditions set out in the arbitrators' letter, and they joined Ince & Co.'s invitation to the arbitrators to withdraw them. To these letters Mr Steel replied on 13th March 1990, on this occasion signing the letter himself. He said:
"Our proposal with regard to fees is intended to strike a fair balance between the need for the tribunal to keep clear a quarter of their 1992 diary and the possibilities of the arbitration settling before it commences.
The only fee payable forthwith upon fixing of the dates would be £12,000. No further fees become payable until either the case settles or the award is taken up. In the event that the case settles prior to the 28th August 1991 no further fee is earned. If the case were to settle thereafter progressive tranches of fees would be earned (in much the same way as counsel will no doubt accrue brief fees).
In the event that the arbitration were to settle on the first day of the arbitration, it is true that the fees for the period set aside would have been earned in full. We do not think that such an approach is unreasonable.
Of course, an acceptable alternative may be found. The tribunal would be happy to consider any suggestion."
On 22nd March 1990 Ince & Co. retorted that they had no counter-proposal and again invited the arbitrators to withdraw their requirements in relation to fees. On 30th March 1990 Mr Steel replied on behalf of Mr Boyd and himself, saying:
"Since the Claimants are not prepared to accept our proposals with regard to fees or to make any alternative suggestions, we both hereby offer to resign our appointments."
This offer evoked a new suggestion from Clifford Chance that they would recommend to their clients a modified arrangement instead of the existing fee proposals about which they would be embarrassed to take their clients' instructions. Rejecting the annual steps in the arbitrators' daily rate as unjustified and rejecting also the proposal for a non-returnable deposit, Clifford Chance continued:
"We are, however, prepared to recommend that some payment be made in advance of the hearing commencing. We propose that 25% of the fee for the hearing should be earned in instalments from 28th February 1992 on a rising scale as follows:—
28th February 1992-
£3,625
28th March 1992-
£7,250
28th April 1992-
£10,875
TOTAL-
£21,750
being 25% of 60 days at £1,450 per day."
At this stage further discussions took place between Clifford Chance and the clerk to Messrs Steel and Boyd. This resulted in an agreement in principle that two-thirds of the total fee payable for the hearing (less preliminary deposits amounting to £10,000) would accrue in six monthly instalments on a sliding scale, the last such instalment to be paid on the day on which the hearing began, with the balance falling due four weeks thereafter. On an assumed daily rate for 1992 of £1,700 per day this would have involved a total payment in advance of the hearing of £67,750. No agreement was, however, concluded, pending further discussions with Ince & Co.
On being apprised by Clifford Chance of these discussions Ince & Co. responded on 24th May 1990, saying:
"We do recognise the concern of any tribunal at the prospect of blocking out a substantial period for a case which may settle shortly before the hearing. However, it must be acknowledged that prominent leading Counsel are frequently able to obtain reasonable alternative...
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