Award - Appeal - Challenge to award on ground of serious irregularity

Micoperi SrL v Shipowners' Mutual Protection & Indemnity Association (Luxembourg): Queen's Bench Division, Commercial Court (Mr Justice Burton): 21 October 2011

The defendant was the Shipowners Mutual Protection Indemnity Association (Luxembourg) (the club). The claimant, Micoperi SRL (Micoperi), had been a member of the club for the 2005/6 year. After an incident on 3 October 2005 in the Black Sea, which led to claims against Micoperi by (inter alia) a third party (TTL), Micoperi's vessel was arrested by TTL in Palermo on 3 July 2006. Micoperi successfully applied to a judge in Palermo to have the vessel released. Micoperi denied any liability to TTL (whose claim was said to be for up to €11.6m), and asserted its own claim against TTL for some €4.5m.

Micoperi was contemplating (as appeared from a solicitor's note of meeting of 11 July 2006), an arrest of pipes, the property of TTL, which had been sent to a yard in Italy for cement coating and were essential for TTL's operations. In the event, on 14 July 2006, two things occurred: (i) the club unequivocally accepted that Micoperi was covered by the club such that the club would, in accordance with it rules, provide security for Micoperi in respect of TTL's claim; and (ii) TTL agreed to provide security for Micoperi's claim, provided that Micoperi provided security - which it was then able to do.

Security was therefore provided in respect of the claim and the counterclaim, and in due course, TTL issued proceedings against Micoperi in the High Court and Micoperi counterclaimed with the club's solicitors acting for Micoperi in defending the claim. However, in August 2006, the club contended that Micoperi was not covered on the basis that the casualty had been the result of specialist operations which were excluded under the club cover.

Following discussions, the club agreed to continue the cover, under reservation of rights, and continued to provide the services of the club's solicitors for the purposes of defending TTL's claim. With a view to resolving the disputed proceedings between Micoperi and TTL, a mediation took place on 28 and 29 October 2008. A settlement was agreed by which Micoperi was to pay TTL $5.8m. The club subsequently sought to recover, through arbitration, the amount it had paid to TTL, together with legal costs incurred, for which the club had paid.

The preliminary issue as set out by the arbitrators was whether the club had waived its right to contend and/or whether the club was estopped from: (a) denying that the underlying claim had been covered; and (b) claiming repayment or indemnity or restitution or damages in respect of its payment to TTL.

The issue consequently, was one of whether there had or had not been estoppel. The arbitrators therefore asked two main questions, namely: (i) whether the club had made an unequivocal representation that it had not intended to enforce its legal rights; and (ii) whether Micoperi had acted in reliance on that representation with the effect that it would be inequitable for the club to enforce its rights.

In respect of the first question, the arbitrators took the view that the first limb of the requirements for equitable estoppel was established: the club had unequivocally represented that it had accepted cover and would not enforce its legal rights to decline it. In respect of the second limb, the arbitrators decided that, looking at the overall position, Micoperi had not acted in reliance on the representation that the claim had been covered by the club in any of the respects alleged. Micoperi appealed, pursuant to section 69 of the Arbitration Act 1996 (the act), and applied, pursuant to section 68 of the act, to set the award aside.

In respect of the appeal pursuant to section 69 of the act, Micoperi submitted that the arbitrators finding in respect of the second question was such an error of fact, thereby indicating that there had been an error of law by the arbitrators sufficient to mount a successful appeal against the arbitration award. The claimant suggested that the arbitrators had erred in one of two ways, namely in relation to the issues of partial reliance and absence of detriment. In relation to its application to set the award aside, pursuant to section 68 of the act, Micoperi asserted that there had been an irregularity causing substantial injustice in relation to the arbitration, falling within section 68(2)(a) and/or (b) of the act, effectively summarised by the submission that the arbitrators had reached a conclusion in relation to the issue of reasonableness of the settlement which had been entered into in November 2008 which had not fallen within its reference; which might have a substantial prejudicial effect on the balance of the arguments in the arbitration after the resolution of the preliminary issues by the arbitrators, and after the instant appeal.

The court ruled: (1) In the instant case, even if the arbitrators had fallen into error in their conclusion that there had been no reliance by Micoperi in any of the respects alleged by Micoperi, such error, if error it had been, did not result from either the issues of partial reliance and absence of detriment, as the claimant had asserted (see [19] of the judgment). There had been no errors of law by the arbitrators and therefore no basis for the appeal (see [22] of the judgment).

Finelvet AG v Vinava Shipping Co Ltd, The Chrysalis [1983] 2 All ER 658 considered; Motor Oil Hellas (Corinth) Refineries SA v Shipping Corpn of India, The Kanchenjunga [1990] 1 Lloyd's Rep 391 considered; OAO Northern Shipping Co v Remolcadores de Marin SLp, The Remmar [2007] All ER (D) 420 (Jul) considered.

(2) There was no doubt, and the exchange of correspondence prior to the arbitration bore out, that the reasonableness of the settlement, and thus the entitlement to be indemnified in respect of what the club had paid out, had not been one of the preliminary issues which had been referred to the arbitrators.

If the arbitrators had then gone on a frolic of their own, and had expressed the view referred to by Micoperi, there would indeed have been grounds for complaint under section 68 of the act. However, that was not the case at all (see [25] of the judgment). The application pursuant to section 68 of the act would be dismissed (see [30] of the judgment).

Sara Masters (instructed by Ince & Co LLP) for the claimant; Robert Bright QC (instructed by Reed Smith LLP) for the club.