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Daewoo Shipbuilding v Songa: Clarification of Catch 22?

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Summary: A recent commercial court decision appears to resolve the problematic inter-relation between sections 57 and 70 of the Arbitration Act by introducing a test of materiality.

In Joseph Heller’s novel “Catch 22” – the main character feigns madness in order to avoid dangerous combat missions, but his desire to avoid them is taken to prove his sanity.

Whilst not quite causing madness, for a number of years now parties and the courts have been grappling with the problematic inter-relation between sections 57 and 70 of the Arbitration Act 1996.

The decision of Mr Justice Bryan in Daewoo Shipbuilding & Marine Engineering Company Ltd v Songa Offshore Endurance Ltd [2018] EWHC 538 (Comm) appears to resolve that problem. 

The problem with section 70

Section 70 deals with applications and appeals under sections 67, 68 or 69 of the Act.

Section 70(2) provides that any application or appeal may not be brought if the applicant has not first exhausted:

(a) any available arbitral process of appeal or review; and

(b) any available recourse under section 57 (correction of award or additional award).

Section 70(3) provides that any application or appeal must be brought within 28 days from either:

(a)  the date of the award; or

(b)  the date the parties are notified of the result of “any arbitral process of appeal or review”.

Critically, unlike section 70(2), section 70(3) makes no reference to any available recourse under section 57.  This creates a problem, described as “something in the nature of a Catch 22”.  If you cannot make a challenge application or bring an appeal by virtue of section 70(2) until you have exhausted the available recourse, including an application under section 57, then how then can you comply with section 70(3)?  Your 28 day time limit for challenging the award will runs from the date of the original award, not the award as corrected, and will run in parallel with and may expire before notification of any correction to the award.

The Daewoo solution – a test of materiality

After detailed analysis of prior authorities, Mr Justice Bryan resolved this conundrum by applying a test of materiality: a test identified by Mr Justice Teare in K v S and followed by HHJ Waksman in Essar Oilfields. 

  • The solution can be summarised as follows:
  • The correction/clarification process under section 57 cannot not be regarded as "any arbitral process of appeal or review" under section 70(3)(a), so it does not automatically delay the start of the 28 days.
  • Simply applying for a correction or clarification under section 57 will not, of itself, delay the start of the 28 days.
  • However, where a correction or clarification is necessary to enable the party to know whether he has grounds to challenge the award (a “material” correction), then time runs from the date of that type of correction or clarification being made.
  • To give effect to that, the words "date of the award" in section 70(3) is to be read as "the date of the award as corrected" by a correction of this kind, but this kind only.

Statutory support

The fact that section 70(3) fails to mention any application to correct an award under section 57 certainly looks very much like a drafting error and there is certainly no reference in section 70(3) to any concept of materiality. 

So it’s interesting that, in spite of this, Mr Justice Bryan found a test of materiality to be “supported by the language of section 70 in the context of its statutory object and purpose”  and inherent within the structure of section 70.

"The purpose [of section 70] is to ensure that before there is any challenge, any arbitral procedure that is relevant to that challenge has first been exhausted. Thus if there is a material ambiguity that is relevant to the application or appeal you have first to go back to the arbitrators.  However if what you are doing is seeking correction to typos then that is not a bar to you pursuing your application. Materiality is inherent within section 70(2). It is only where a matter is material that you first have to exhaust the available remedies specified in section 70(2), so that it is only in those circumstances that it is necessary for time only to run after those available remedies have been exhausted. There is no reason or necessity for time not to run, or be extended, in the context of immaterial corrections – these are not matters that have to be corrected before an appeal can be brought. This illustrates that the test of materiality is inherent in the structure of section 70(2) and 70(3)."

Whilst the logic of this is persuasive, and the approach may reflect the ethos of the Arbitration Act, the fact remains that it does require additional words to be read in to section 70(3) that were not provided by Parliament.  It also requires the words “date of the award” in section 70(3) to be read as having two different meanings depending on whether a “material” correction is required or not.

This also raises a question which Mr Justice Bryan did not have to address in Daewoo.  What happens if a material correction is sought under section 57 but the tribunal refuses to make any correction to the award?  How are the words “date of the award” to be read then?

The materiality test – clear and easy to apply?

There is also the question of the application of the test.  Mr Justice Bryan saw no difficulty with this at all.

“The test of materiality also has the merit of being clear and easy to apply, and it can leave no party uncertain as to the time by which it has to issue an arbitration claim form to seek permission to appeal.

It remains to be seen whether his optimism is well-founded.  However, it is perhaps significant that the Daewoo case involved an application to correct what were accepted by both parties as  ”classic clerical and typographical errors” which were “not connected in any way, shape or form with [the] subsequent appeal."  

In such cases like this the test is clear and easy to apply but it is not hard to envisage scenarios where it is not clear (and the parties are unable to agree) whether a correction or clarification is necessary to enable it to make a challenge so as to render it “material”.

This problem is illustrated in K v S.  Here the court accepted that there was a connection between the application for a correction and the jurisdictional challenge.  However, Mr Justice Teare was not persuaded that the connection was sufficient to render the application material. The applicant knew what the tribunal's view was as to its challenge to the jurisdiction and it knew what its grounds were for challenging that view. The issue of the tribunal's correction of its award was not expected to add to those grounds and did not in fact add anything to those grounds.

So, whilst the decision in Daewoo provides some welcome clarification on some aspects of the section 70 conundrum, it is probably not a panacea for all its ills. 

There is an acknowledgement of this in the Daewoo judgment.  Mr Justice Bryan suggests that, if in doubt, prospective applicants could always issue an application for an extension of time before the 28-day time period expired, and seek permission to appeal to the extent that it was able to do so at that time.

Perhaps for the time being, in all but the most straightforward of cases, this may remain the safest approach. 

This blog post first appeared on Practical Law Arbitration Blog on 23 March 2018.

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