Neutral Citation Number: [2005] EWHC 3020 (Comm)
Case No: 2005 FOLIO 684
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 21/12/2005

Before:

MR JUSTICE CHRISTOPHER CLARKE
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Between:

	BERNUTH LINES LIMITED	Applicant	
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	HIGH SEAS SHIPPING LIMITED	Respondent	

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Mr David Lewis (instructed by Jackson Parton) for the Applicant
Mr Ravi Aswani (instructed by Swinnerton Moore) for the Respondent

Hearing dates: 16th December 2005
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Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

.............................

MR JUSTICE CHRISTOPHER CLARKE

MR JUSTICE CHRISTOPHER CLARKE: 
1.	I have before me an application to set aside the Final Award of an LMAA Arbitrator dated 26th July 2005. The basis of the application is that the arbitration was purportedly commenced by e-mail but was not effectively served.

2.	The Applicant – Bernuth Lines Ltd – was the charterer of the “Eastern Navigator”. Bernuth Lines Ltd is described in the charter, concluded on 18th August 2004 on an amended NYPE form, as being of Grand Cayman, in the Cayman Islands.  Their agents are Bernuth Agencies Ltd. 

3.	The “Eastern Navigator” was owned by High Seas Shipping Ltd (“High Seas”) of the Marshall Islands. Their brokers, whose stamp appears on the charterparty, were Jan Gisholt Shipping Inc. (“Jan Gisholt”). They also had as general agents Altomar Maritime Inc (“Altomar”). 

4.	The charter was for a period of “one time charter trip to Nicaragua via good/safe ports. Duration 6 days without guarantee”. The vessel was to be delivered, as in the event she was, at the arrival pilot station at Miami. Clause 45 of the charterparty contained a London arbitration clause which provided as follows:

“All disputes arising out of this contract shall be arbitrated at London and, unless the parties agree forthwith on a single Arbitrator be referred to the final arbitrament of two Arbitrators carrying on business in London who shall be members of the Baltic Mercantile & Shipping Exchange and engaged in Shipping, one to be appointed by each of the parties, with power to such Arbitrators to appoint an Umpire…. 

For disputes where the total amount claimed by either party does not exceed US $ 50,000 the arbitration shall be conducted in accordance with the Small Claims Procedure of the London Maritime Arbitrators Association”.

5.	The vessel departed Miami on 24th August 2004. She was bound for  Nicaragua. The intention was that she should go to Rama, a riverine port on the River Escondido, access to which is by the Bluefields lagoon starting at the port of El Bluff. On 27th August the Master sent a message to the effect that he would not be able to enter El Bluff because the vessel’s departure draught was 4.2 metres and the maximum permissible draft at El Bluff was 3.30 metres. On 29th August the vessel arrived at El Bluff. According to the (disputed) evidence of Captain Monocandilos, the President of Bernuth Lines, the river pilot advised the Master that at high water the vessel could proceed safely because at that time the depth would be 3.8 metres compared to the vessel’s then draught of 3.6 metres. But at high water the Master declined to proceed because he insisted on a clearance greater than 0.28 metres. He is said to have wanted a clearance of at least 0.30 metres. As a result the vessel was sent to San Andres the nearest port where she discharged her entire cargo into another of Bernuth Lines vessels.    

6.	On 1st September 2004 High Seas issued a revised invoice in the sum of $ 34,100 for hire (less commission) and bunkers. The invoice was addressed to Bernuth Lines at the postal address in Miami of Bernuth Agencies. On 7th September 2004 Bernuth Agencies sent a fax to Jan Gisholt which enclosed claims invoices of Bernuth Agencies, as agents for Bernuth Lines, totalling $ 93,384.77, producing, when set off against a claim understood by Bernuth Agencies to be for $ 29,695.03 a balance of $ 63,689.74.  On 13th and 16th September 2004 High Seas, through Altomar, forwarded their second hire invoice to cptdavis@bernuth.com, which Captain Davis of Bernuth Agencies forwarded to c.polo@polylina.com. Mr Polo was also a representative of Bernuth Agencies.  

7.	On March 22nd 2005 Lawrence J. Roberts & Associates P.A., a Law Office of Coral Gables, Florida wrote (they said “again”) to Mr Polo at Bernuth Agencies in relation to the unpaid charter hire. The letter demanded that Bernuth Lines post security for not less than $50,000 “in order to satisfy any London arbitration award in favour of High Seas”. The letter went on to say that “In the event that Bernuth fails to respond to this demand for security by March 25 2005, our client is expected to authorise us to pursue litigation against Bernuth Lines, Ltd, in order to obtain the necessary security”. 

8.	On 5th May 2005 High Seas’ London lawyers, Swinnerton Moore, sent an e-mail to info@bernuth.com. This e-mail invited Charterers to settle the amount of $ 34,100 said to be due as hire for the period 30th August to 2nd September 2004 so as to avoid the commencement of arbitration proceedings. It went on to say that once such proceedings were commenced the owners would seek to recover the outstanding hire, compound interest, and costs pursuant to the LMAA Small Claims Procedures, and gave notice requiring agreement to the appointment of a sole arbitrator. 

9.	The e-mail address – info@bernuth.com - was not an address that had appeared on any previous communication from Bernuth Agencies. It is however an address for Bernuth that appears (a) in the Lloyds Maritime Directory 2005 and (b) on a website – www.bernuth.com  – where it follows the postal address, telephone and fax numbers of Bernuth Agencies in Miami. According to the instructions given to Mr Hughes of Jackson Parton, as recorded in his first witness statement, the address given on the website is only intended for cargo bookings for Bernuth Lines’ liner service. There is, however, no indication either on the website or in Lloyd’s Maritime Directory that it is only to be so used. In his third witness statement Mr Hughes describes the address as a “general information e-mail address”. 

10.	Thereafter a series of communications were sent by Swinnerton Moore, Mr Timothy Marshall (“the arbitrator”), and the LMAA by e-mail to info@bernuth.com. These included:

(a) an e-mail of 7th June from Swinnerton Moore enclosing  claim submissions and a letter to the LMAA; 

(b) a fax from the LMAA to Swinnerton Moore copied to info@bernuth.com by e-mail informing the recipient of the appointment of the arbitrator;  

(c)  an e-mail of 13th June 2005 from the arbitrator notifying the recipient of his appointment by the President of the LMAA under the Small Claims Procedure and asking for defence submissions within 28 days;

 (d) an e-mail of 12th July 2005 from Swinnerton Moore to the arbitrator seeking a peremptory order requiring service of a defence within 7 days; 

(e) an e-mail of 12th July from the arbitrator to Swinnerton Moore. And by copy to info@bernuth.com asking for the Respondent’s comments on the earlier e-mail of that day; 

(f) an e-mail from the arbitrator of 14th July 2005 making a final peremptory order requiring defence submissions by close of business on 22nd July 2005; 

(g) a request of 22nd July 2005 by Swinnerton Moore to the arbitrator to proceed with his award; 

(h) an e-mail from the arbitrator of 25th July confirming that he will do so.

E-mails from Swinnerton Moore generated e-mail confirmation of delivery receipts. 

11.	On 29th July the arbitrator issued his final award which was sent to info@bernuth.com and also by post.  This was the first communication since 5th May 2005 in connection with the arbitration to be sent to the charterers otherwise than by e-mail to info@bernuth.com. 

12.	In the recital to his Award the arbitrator recorded the procedural history, including, as recital K:

“No Defence submissions were received at any time. I was and am satisfied that the Charterers are aware of these proceedings and that they have had a reasonable time to serve Defence Submissions. Accordingly I proceeded to my Award”.

	       He did not state on what basis he was so satisfied.

13.	By his Award the arbitrator held that owners were entitled to $ 40, 220.93 for hire, less commission and payment received and a sum for hold cleaning, and awarded interest and costs. 

14.	On 12th August 2005 Jackson Parton, who had by now been instructed on behalf of Bernuth Lines, wrote to the arbitrator and Swinnerton Moore expressing their client’s surprise at receiving the Award and stating that their client had been unaware thereof until receipt of the Award by post.  They said that:

“..it appears that email notices may have been sent to our client’s department for cargo bookings for liner service and would have been ignored by the clerical staff in receipt of such messages. Our client is perplexed that the other channel of communication established through your client’s Miami lawyers appears to have been by passed.” 
	
They asked for copies of the relevant correspondence. 

15.	On 15th August Jackson Parton appointed Mr George Henderson as Bernuth Lines’ arbitrator in respect of their counterclaims, said to be just under $ 100,000, and invited Swinnerton Moore to appoint Mr Marshall as their arbitrator to start the proceedings afresh.

16.	The application before me was made under section 68 of the Arbitration Act 1996. It is said that the arbitration proceedings were not properly brought to the attention of Bernuth Lines such that there has been a serious irregularity affecting the proceedings which has caused or will cause them substantial injustice.  During the course of the hearing Mr David Lewis, for Bernuth, indicated that he sought also to advance a claim under section 72 of the Arbitration Act. Mr Ravi Aswani on behalf of High Seas was without instructions on the point and did not consent to my dealing with the matter under that section. 

The statutory provisions  

17.	The central question is whether the arbitration was validly commenced. By section 14 (4) of the Arbitration Act 1996 (“the Act”) arbitral proceedings, in a case such as this, are commenced when one party serves on the other party notice in writing requiring him to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of the relevant matter. It is not disputed that the e-mail of 5th May 2005 constitutes “writing” for this purpose: see section 5 (6) of the Act.

18.	Section 76 of the Act deals with service. It provides as follows:

“(1)	The parties are free to agree on the manner of service of any notice or other document required or authorised to be given or served in pursuance of the arbitration agreement or for the purposes of the arbitral proceedings.

(2)	If or to the extent that there is no such agreement the following provisions apply.

(3)	A notice or other document may be served by any effective means.

(4)	If a notice or other document is addressed, pre-paid and delivered by post -
	
(a)	to the addressee’s last known principal residence or, if he is or has been carrying on a trade, profession or business, his last known principal business address, or

(b)	where the addressee is a body corporate, to the body’s registered or principal office

it shall be treated as effectively served.”

19.	There would, therefore, have been no difficulty if Swinnerton Moore had sent the contents of the e-mail of 5th May to Bernuth Lines by post. But they did not do so. 

The argument

20.	Mr David Lewis for Bernuth Lines submits that High Seas did not serve Bernuth Lines by any effective means, nor did they serve Bernuth Lines by any agreed method of service. No issue is taken as to any distinction between Bernuth Lines and Bernuth Agencies. It is accepted that if the contents of the e-mail of 5th May had been sent by post to Bernuth Agencies’ address in Miami, or faxed there, that would have been good service on Bernuth Lines.

21.	What is said, in respect of the first ground, is that service by e-mail has not, for good reason, heretofore been recognised as effective service under the CPR, save under closely defined conditions not applicable to the present case. By analogy, the court should not regard sending a notice initiating an arbitration to any e-mail address of the person to be served as effective service. Service in a manner totally at variance with that prescribed by the CPR should not be treated as effective service. E-mail service would only be good if the recipient had agreed to accept service at the e-mail address to which the document had been sent, or if the service was effective in the sense that the notice reached the relevant legal or managerial personnel.

E-mail service under the CPR

22.	CPR 6.2 (1) (e) provides that a document may be served by fax or other means of electronic communication in accordance with the relevant practice direction. The relevant practice direction – CPR 6 PD -  provides, in paragraph 3.1,  that  where a party is to be served by “electronic means”:

“(1) the party who is to be served or his legal representative must previously have expressly indicated in writing to the party serving – 

(a) that he is willing to accept service by electronic means;  

and

 (b) the fax number, e-mail address or electronic identification  to which it should be sent”.

(2)	the following shall be taken as sufficient written indication for the purposes of paragraph 3.1 (1) –

(a)	a fax number set out on the writing paper of the legal representative of the party who is to be served; and

(b)	a fax number, e-mail address or electronic identification set out  on a statement of case or a response to a claim filed with the court” 

23.	Paragraph 3.2. of CPR 6 PD provides that:

“Where a party seeks to serve a document by electronic means he should first seek to clarify with the party who is to be served whether there are any limitations to the recipient’s agreement to accept service by such means including the format in which documents are to be sent and the maximum size of attachments that may be received.”

24.	As is apparent from the above, service by e mail is not allowed in the absence of an express written indication by the party to be served to the party serving of (i) a willingness to accept service by e-mail and (ii) the e-mail address to which the document should be sent. It is only when an e-mail address appears on a statement of case or a response to a claim that that address can, of itself, be taken as a sufficient written indication of those matters. 

25.	CPR 6 .2 (2) provides that a company can be served by any method permitted under Part 6 as an alternative to the methods set out in sections 725, 695, and 694A of the Companies Act 1985.  

The fate of the e-mails

26.	The e-mails sent to info@bernuth.com were received at that address and not rejected. Jackson Parton’s fax of 12th August 2005 indicated that they:

“….. would have been ignored by the clerical staff in receipt of such messages”

27.	In his first Witness Statement Mr Hughes of Jackson Parton said that the persons who received the e-mails did not know what to do with them and ignored them.  In his third witness statement he says that the e-mails were ignored as “spam”. He states that the address receives hundreds of spam and unsolicited e-mails every day and that “the Customer Service Representative took the view that no serious legal matter would be sent to the Applicant using that address” and “that the email was not serious and that serious legal correspondence would go through appropriate channels”. He adds “One has in mind the frequency with which junk e-mail is received containing apparently legitimate legal email correspondence which is in fact spurious.” It is apparent from that evidence that the representative in question saw the e-mail of 5th May and consciously decided to ignore it.  Presumably something similar happened with the others.

28.	I do not regard the provisions of CPR Part 6 as an appropriate benchmark by which to judge whether or not service by e-mail is effective in the context of an arbitration. The Civil Procedure Rules cater for litigants of all kinds from major corporations represented by the most accomplished firms of solicitors to individuals represented by more modest firms and those who are not represented at all. By contrast arbitrations are usually conducted by businessmen represented by, or with ready access to, lawyers. Section 76 (4), when providing that a notice could be served on a person by any effective means was, in my judgment, purposely wide. It contemplates that any means of service will suffice provided that it is a recognised means of communication effective to deliver the document to the party to whom it is sent at his address for the purpose of that means of communication (e.g. post, fax or e-mail). There is no reason why, in this context, delivery of a document by e-mail – a method  habitually used by businessmen, lawyers and civil servants – should be regarded as essentially different from communication by post, fax or telex. 

29.	That is not to say that clicking on the “send” icon automatically amounts to good service. The e-mail must, of course, be despatched to what is, in fact, the e-mail address of the intended recipient. It must not be rejected by the system. If the sender does not require confirmation of receipt he may not be able to show that receipt has occurred. There may be circumstances where, for instance, there are several e-mail addresses for a number of different divisions of the same company, possibly in different countries, where despatch to a particular e-mail address is not effective service.    

30.	But in the present case none of those difficulties arise. The e-mail of 5th May 2005 and, so it would appear, all subsequent e-mails, were received at an e-mail address that was held out to the world as the, and so far as the evidence shows, the only e-mail address of Bernuth.  Someone looked at the e-mails on receipt and, apparently, decided that they could be ignored, without making any contact with the sender. The position is, to my mind, no different to the receipt at a company’s office of a letter or telex which, for whatever reason, someone at the company decides to discard. In both cases service has effectively been made, and the document received will, in the first instance, be dealt with by a clerical officer.

31.	I am confirmed in that conclusion by the case of The Pendrecht [1980] 2 Lloyd’s Rep 56. In that case a telex was received by charterers at their head office in Japan outside office hours on Friday 7th January. At that time the office would not have had in it employees of the charterers responsible for its commercial affairs. The telex did not come to the notice of a responsible employee until the office re-opened on Monday 10th January. Time expired on either the 8th or the 9th January.  Parker J, as he then was, held that – for the purposes of section 27 (4) of the Limitation Act 1939 - the telex was served, both in the case of an English and a foreign company, when it was received, irrespective of whether this happened within business hours and whether or not the office was closed. It was not necessary that it should come to the attention of the company or to any particular individual at the company at the time it was served. I do not regard the decision in that case as being dependent on the fact that the telex did in fact come to the attention of the responsible personnel on the Monday. On the contrary, passages at page 65 of Parker J’s judgment indicate that service would be valid even if the document served may not come to the attention of the party to be served for some time. 

32.	Section  27 of the Limitation Act 1939 provided as follows:

“(3) 	For the purposes of this Act and of any such enactment as aforesaid, arbitration shall be deemed to be commenced when one party to the arbitration serves on the other party or parties  a notice requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator…. 

(4)	Any such notice as aforesaid may be served either (a) by delivering it to the person on whom it is to be served; or (b) by leaving it at the usual or last known place of abode in England of that person; or (c) by sending it by post on a registered letter addressed to that person at his usual or last known place of abode in England; as well as in any other manner provided in the arbitration agreement; and where a notice is sent by post in the manner prescribed by paragraph (c), service thereof shall, unless the contrary is proved, be deemed to have been effected at the time at which the letter would have been delivered in the ordinary course of post.”

33.	Sections 27 (3) and (4) of the Limitation Act 1939 are the forerunners (via section 34 of the Limitation Act 1980) of sections 76 (1) (3) and (4) of the Act. Sections 27 (3) and (4) of the Limitation Act 1939 do not contain any requirement that service has to be on, or brought to the attention of, any particular personnel. By the same token there is no such requirement implicit in section 76 (4) of the Act. Service under section 76 (4) is treated as effective if the notice is addressed and delivered by post to the relevant address. Similarly, as it seems to me, a notice is to be treated as effectively served if it is delivered to the party to be served by e-mail. 

34.	In short I do not regard service of the 5th May notice by e-mail as ineffective because, when it was received, a particular employee did not think that a serious legal matter would be sent to that address. That e-mail and those that followed it, are plain and straightforward in their terms. They bear none of the hallmarks of “spam”. On the contrary they called for serious attention. The e-mail of 5th May was sent with High Importance. It referred to a vessel which Bernuth had in fact chartered by the charterparty mentioned in it. It identified Swinnerton Moore as High Seas’ London solicitors, which they were, and referred to an outstanding hire claim which had been the subject of earlier correspondence. It purported to initiate arbitration proceedings by calling for agreement as to an arbitrator.  I should be surprised if much junk e-mail purports to do that or to emanate, as later e-mails did, from an LMAA arbitrator. If the e-mails never reached the relevant managerial and legal staff, that is an internal failing which does not affect the validity of service and for which Bernuth has only itself to blame. Having put info@bernuth.com  into the current Lloyd’s Maritime Directory as their only e-mail address, they can scarcely be surprised to find that an e-mail inviting them to agree to the appointment of an arbitrator in a maritime matter was sent to that address. 

35.	I do not accept that, in an arbitration context, in order for service to be effective it is essential that the e-mail address at which service is purportedly made has been notified to the serving party as an address to be used in the context of the relevant dispute.  Section 76 does not say as much and there is no basis upon which that can be implied.

36.	That conclusion renders it unnecessary for me to decide whether or not, if service by e-mail was not, in the present case, effective under section 76(3) it was rendered effective because of the provisions of the Small Claims Procedure (“SCP”) of the LMAA; or to decide the type of relief, if any, that would be appropriate. But since both matters have been the subject of considerable argument, I propose to indicate my obiter conclusions on them. 
 
The Small Claims Procedure

37.	High Seas rely upon the provisions of the SCP as entitling them to initiate the arbitration by e-mail. Paragraph 5 (i) of the SCP provides:

“ (i) All communications or notification under this procedure may be by letter, telex, telefax or e-mail”.

High Seas rely on the second paragraph of clause 45 of the Charterparty, taken with clause 5 (i) of the SCP, as an agreement on the manner of service, as permitted by section 76 (1) of the Act.  Bernuth contend that the dispute did not come within the SCP because, although High Seas’ claim was for less than $50,000, Bernuth’s counterclaim was for over $93,000. 

38.	That begs the question as to the time at which the question whether, in accordance with the agreement between the parties, the claim falls within the SCP is to be determined. 

The parties’ submissions

39.	Bernuth contend that, since they had asserted a claim in excess of $50,000 prior to the purported commencement of the arbitration, the dispute did not fall within the SCP. High Seas contend that, if Bernuth, in response to their invocation of arbitration, had asserted a counterclaim of over $50,000 the SCP would, or might, have been inapplicable. But Bernuth did not do so; and neither High Seas nor the arbitrator was bound to proceed upon the footing that there was a continuing dispute involving such a claim. Accordingly the SCP was applicable to High Seas’ claim. Bernuth’s riposte to that, through Mr Lewis, is to submit that it cannot be correct for High Seas to be able to rely on a provision of the SCP permitting service by e-mail if the question whether the SCP applies can only be determined after the arbitration has begun. If this were so, High Seas would be able to start an arbitration by e-mail, purportedly under the SCP, in circumstances where, if service by e-mail does not reach anyone at Bernuth who does anything about it, Bernuth will have been deprived of the opportunity of showing that the disputes are, because of its counterclaim, not within the SCP, and that the arbitration could never have been validly begun by e-mail at all.  High Seas will, thus, by asserting the application of the SCP, be able to invoke it when it ought not to be invocable, and Bernuth may lose their ability to challenge the application of the SCP as a result of High Seas using a method of service which only the inapplicable SCP could justify.  

40.	In support of his submissions Mr Aswani submitted that his clients were not bound to assume that Bernuth would in fact maintain any  counterclaim in excess of $ 50,000.  Claims are often made under the SCP where counterclaims have previously been asserted in excess of $ 50,000, which, in the event, are never pursued by respondents, who may, in the event, take no part in the arbitration. If awards made in this way can be challenged on the basis that, because of the counterclaim previously asserted, the arbitration could not proceed under the SCP, its utility would be much reduced.

41.	Mr Aswani  drew attention to paragraph 9 of the Commentary on the SCP  which reads:

“…The success of the Procedure in promoting cost-effective arbitration in London has led to a regrettable number of cases in which disputes have been referred to arbitration according to the Procedure which are not appropriate for determination in accordance with the spirit, if not the letter, of that Procedure. Such situations can arise simply as the result of the fact that parties to a contract agreed in that contract to apply the Procedure to all disputes involving less than a certain sum of money regardless of the nature of such disputes. In such cases the parties should be aware that the arbitrator may at the outset or at any time thereafter inform them that in his opinion the dispute referred to him cannot be dealt with satisfactorily according to the Procedure. He will then be entitled to invite the parties either to agree to an appropriate variation of the Procedure or, alternatively to agree to his continuing to act on the basis of the LMAA Terms in force for the time being. In the event of a refusal  by the parties so to agree the arbitrator shall be entitled to resign from the reference whilst retaining out of the Small Claims fee a sum sufficient to remunerate him for services thus far rendered.”

42.	Mr Aswani submitted that, if it should transpire that there was a counterclaim in excess of $ 50,000, then an arbitrator appointed under the SCP could, and, in appropriate cases, would take the course contemplated by the Commentary. This contention does not, however, seem to me to pay sufficient regard to the fact that, in a case where there is a provision such as that contained in the second paragraph of clause 45, if one side has a bona fide claim for $40,000 and the other side has one for $90,000, the counterclaimant is contractually entitled to have the dispute between them resolved otherwise than by the SCP. The position is even more marked where, as here, if the SCP is inapplicable the agreement between the parties is for arbitration by two arbitrators who are members of the Baltic, rather than an arbitration under LMAA terms (unless both members of the Baltic are also members of the LMAA in which case the LMAA terms may apply – see paragraph 5 (a) of those terms). The passage from the Commentary is, moreover, directed to a situation where the arbitrator is minded to resign, although the parties have agreed that he shall have jurisdiction, and not to a case where the arbitrator may continue under the SCP even though one side has a counterclaim that, according to the agreement between the parties, puts the dispute between them outside the SCP.  It is also material that, if the dispute falls within the SCP then, by virtue of clause 4 of the SCP, any right of appeal to the Courts is excluded, whereas otherwise it is not. 

43.	I incline to the view that the correct analysis is that the second paragraph of clause 45 should be interpreted so as to mean that it applies to disputes where the total amount claimed by either party in the arbitration does not exceed $50,000.  Such a construction enables a claimant to initiate an arbitration for a sum less than $50,000 even though a counterclaim had previously been asserted in excess of that sum. If no such claim is put forward in the arbitration, the arbitration can proceed under the SCP. If, on receipt of a notice inviting agreement to a sole arbitrator the respondent intimates a claim in excess of $50,000, it will have become apparent that there are and remain disputes between the parties that require to be determined by arbitration, and that, in the case of at least one party, the claim exceeds $50,000. The SCP will no longer be applicable and, in a case such as the present, the claimant and the respondent will each have to appoint their own arbitrators and proceed to a full-blown arbitration.  Were it otherwise the claimant could find itself compelled to initiate a full blown LMAA arbitration in circumstances where the respondent did not respond to the request to agree an arbitrator, and then took no part in the proceedings at all. This approach seems to me to give effect to the underlying purpose of the second paragraph of clause 45, namely to ensure that, if there is a dispute which requires determination by an arbitrator it shall be determined under the SCP unless that which requires to be arbitrated includes a claim by at least one side which exceeds $ 50,000 in value. If that analysis is correct, it does not, in my view, produce any unacceptable retrospectivity. If the dispute is unquestionably one within the SCP – because a claim in excess of $50,000 has never existed or been asserted on either side – the parties are bound by any agreed method of service under it. In those circumstances there is nothing startling in the parties being bound by that agreement so long as the matter is correctly proceeding pursuant to the SCP.     

44.	Accordingly, as it seems to me, High Seas were entitled to proceed in the first instance on the basis that any arbitration would be under the SCP.  

45.	The SCP provides as follows:

“2.	APPOINTMENT OF ARBITRATOR

(a)	If a dispute has arisen and the parties have agreed that it should be referred to arbitration under the Small Claims Procedure, then, unless a sole arbitrator has already been agreed on, either party may start the arbitration by giving notice to the other requiring him to join in appointing a sole arbitrator. If within fourteen days the parties have agreed on a sole arbitrator and the intended arbitrator has accepted the appointment, the Claimant shall within a further fourteen days send to the Respondent (with copies to the arbitrator) a letter of claim accompanied by copies of all relevant documents including experts’ reports and shall further send to the arbitrator a remittance in his favour for the small claims fee as defined in para 3 (B).

(b)	If the parties have not within fourteen days agreed on a sole arbitrator, either party may apply in writing to the Honorary Secretary, London Maritime Arbitrators Association for the appointment of a sole arbitrator by the President ….The President, having considered the nature of the dispute shall appoint an appropriate arbitrator and shall give notice to the parties…”

4	RIGHT OF APPEAL EXCLUDED

The right of appeal to the Courts is excluded under this procedure. By adopting the Small Claim Procedure the parties shall be deemed to have agreed to waive all rights of appeal.

5	PROCEDURE

Paragraphs 5 (a) – (h) deal with the procedure to be followed from the filing of a letter of defence and details of counterclaim (if any) down to the hearing (if any).

 (i) 	All communications or notification under this procedure may be by letter, telex, telefax or e-mail”. 

46.	A question arises as to whether the reference in 5 (i) to “this procedure” is to the LMAA Small Claims Procedure or to that part of it which is dealt with in section 5 under the heading Procedure. In my judgment it is the former. It seems to me unrealistic and unreasonable to suppose that the draftsman, when referring to all communications in sub-paragraph (i) intended to provide that all communications other than a communication initiating arbitration could be by letter, telex, telefax or e-mail, and to make no provision in respect of such a communication. The SCP was intended as an expeditious, low cost, usually documentary procedure, with a single arbitrator, no discovery and reduced formality. It is consistent with that overall purpose that communication, whether initiating the procedure or continuing it, may take place by any modern method. If the draftsman had intended 5 (i) to apply to only part of the SCP he could easily have said so. I do not regard the fact that paragraph 2 (a) refers to a “notice” as an indication that it is not a “communication or notification” within 5 (i).

47.	Had I reached the conclusion that section 76 (3) of the Act did not contemplate the initiation of an arbitration by the service of a notice by e-mail, I would not have found it surprising that paragraph 5 (i) should do so. On the contrary it is the sort of provision that I would regard as perfectly sensible for potential users of the SCP to make.   

The appropriate remedy if service by e-mail is not possible

Section 69

48.	Mr Aswani submitted that, if Bernuth had any claim, it lay under section 69 of the Act and was unmaintainable because Bernuth have not secured the necessary leave and are out of time to do so. In addition Rule 4 of the SCP excludes a right of appeal. 

49.	Mr Aswani submits that it is apparent from Recital K of his Award that the arbitrator was proceeding on the basis that service by e-mail was a valid method of commencement. That proposition is either correct or incorrect in law. The arbitrator must have taken the view that it was correct. So Bernuth are in truth, if one looks at the substance of the matter, challenging the validity of the Award and, in the words of section 69, seeking to “appeal to the court on a question of law arising out of an award made in the proceedings”

50.	I do not accept this. In Recital K the arbitrator was recording his view that charterers were aware of the proceedings and had had an opportunity to respond and that he would therefore proceed to his award. That recital is, avowedly, not part of his Award. Neither his Award nor the reasons for it purport to determine any question of law in relation to the commencement of the arbitration. Even if recital K is to be taken as part of his Award I do not consider it to have purported to determine any question of law in respect of the efficacy of service of the notice by which the arbitration was initiated. It was a decision that it would be appropriate to proceed to an award having regard to the notice of the proceedings that the arbitrator believed that Bernuth had had. Further it would seem to me the logical conclusion of Mr Aswani’s submissions that, whenever an arbitrator proceeds to an award, and a question arises as to whether he had jurisdiction, he must be taken impliedly to have answered, in a manner favourable to the party in whose favour the award is granted, every question of law bearing on whether or not he had jurisdiction; so that all such questions can only be challenged pursuant to section 69 and not under section 67. This is not, in my judgment, correct. If correct it would rob section 67 of much of its apparent effect. 

51.	There is an additional consideration, not raised in argument, and upon which I express no view. Sections 67, 68 and 69 allow “a party to arbitral proceedings” to apply to the court. Such a person is to be contrasted with “a person alleged to be a party to arbitral proceedings but who takes no part in the proceedings”: section 72. The learned authors of Mustill & Boyd suggest – at page 363 of the 2001 Companion – that the former expression is used in the Act to describe a person who takes part in or continues to take part in the arbitral proceedings. If the effect of that is, as they suggest (page 362), that a person who takes no part in the arbitral proceedings does not enjoy any of the rights under the Act of a “party to arbitral proceedings” other than those specifically conferred on him by section 72 the effect of Mr Aswani’s argument would be to restrict the rights of an alleged party who takes no part in the proceedings to a challenge to the jurisdiction based on fact alone. 

52.	Further it  seems to me that a party to arbitral proceedings, who contends that the tribunal lacks substantive jurisdiction, and who is in receipt of an adverse ruling involving a determination of law may apply under section 67 to challenge that conclusion. There is nothing in section 69 or section 67 which compels him to proceed under the former and it would be natural for him to proceed under the latter. If so, a person who has taken no part in the arbitral proceedings can invoke section 67 by reason of section 72 (2) (a). 

Section 68

53.	Section 68 of the Act applies if there has been a serious irregularity affecting the tribunal, the proceedings or the award. By section 68 (2) serious irregularity is defined as being of one or more of a number of kinds “which the court considers has caused or will cause substantial injustice to the applicant”. Two of those specified are:

“(a) 	failure by the tribunal to comply with section 33 (general duty of tribunal);

 (b).	the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67)”.

 Section 33 of the Act provides:

“33.	General duty of the tribunal

(1)	The tribunal shall -

(a)	act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent; and

(b)	adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.”

What is said is that, because the proceedings were never validly notified to Bernuth Lines there has been a serious irregularity in the form of a failure by the tribunal to comply with its duty to give each party a reasonable opportunity of presenting its case. 

54.	I do not think that Bernuth’s complaint fits very readily within section 68. The gravamen of its complaint, as it seems to me, is that the arbitral tribunal lacked substantive jurisdiction and that the award should be set aside upon that ground. Substantive jurisdiction embraces the question as to whether the tribunal is properly constituted and what matters have been submitted to arbitration in accordance with the arbitration agreement: section 30 (1).  Bernuth’s case is that the tribunal was not validly constituted and/or that nothing was validly submitted to arbitration because the arbitral proceedings were never properly initiated since Bernuth never had proper notice of them. By contrast section 68 is intended for cases where the tribunal has substantive jurisdiction - see section 68 1 (b), which excludes acting in excess of powers by exceeding substantive jurisdiction – but the tribunal fails properly to comply with its obligations. Bernuth’s present complaint falls, in my view, more appropriately within section 67, as permitted by section 72 (2) (a).

55.	I did not understand Mr Lewis to submit that, if the arbitration was validly commenced by e-mail, he was nevertheless entitled to succeed under section 68. In any event, on that hypothesis I do not accept that there has been any failure to comply with section 33. The proceedings have been validly commenced by e-mail and the arbitrator has notified Bernuth of what was going on by e-mail at every stage. It was this aspect of the matter to which the arbitrator no doubt intended to refer in Recital K.   

Section 72

56.	On the morning of the hearing Mr Lewis indicated that Bernuth, sought, in the alternative, to invoke section 72 which provides:

“72.	Saving for the right of persons who take no part in the proceedings

(2)	A person alleged to be a party to the arbitral proceedings but who takes no part in the proceedings may question –

(a)	whether there is a valid arbitration agreement,

(b)	whether the tribunal is properly constituted, or

(c)	what matters have been submitted to arbitration in accordance with the arbitration agreement

by proceedings in the court for a declaration or injunction or other appropriate relief

(3)	He also has the same right as a party to the arbitral proceedings to challenge an award –

(a)	by an application under section 67 on the ground of lack of substantive jurisdiction in relation to him

(b)	by an application under section 68 on the ground of serious irregularity (within the meaning of that section) affecting him;

and section 70 (2) (duty to exhaust arbitral procedures) does not apply in his case.”

57.	Mr Lewis submitted that, since Bernuth took no part in the arbitration, they were entitled to a declaration under section 72 (1) that the Award was of no effect and could make such an application, without limit of time and without showing, as section 68 would require, that the Award would cause substantial injustice. Mr Aswani submitted that the relief available under section 72 (1) must have a narrower scope than that contemplated by section 72 (2) (a) taken with section 67 since, if all the relief available under section 67 could be obtained under section 72 (1), a person who had taken no part in the proceedings, would never proceed under section 67 as applied by section 72 (2) (a).  If he were to do so he would unnecessarily subject himself to a time limit under section 70 (3) and to a restriction on his entitlement to appeal under section 67 (4). Further since Mr Lewis did not seek on behalf of his clients to claim under section 67, as opposed to section 72, it could not apply at all. 

58.	It seems to me that Mr Aswani is on strong ground in saying that section 72 (1) must have a more limited scope than section 67 (3) at least to the extent that, if an applicant seeks, as Bernuth does, to set aside the award he must proceed under section 67. The distinction between section 72 (1) and section 72 (2) appears to reflect the distinction between an application for a declaration under section 67 (1) (b) and a challenge to an award under section 67 (1) (a) with a consequent order under section 67 (3). But the distinction between declaring an award to be of no effect because the tribunal did not have substantive jurisdiction and setting it aside would not appear to be major, and it is not immediately apparent why an application under section 72 (1) should be subject to no time limit, whereas an application under sections 67 and 72 (2) (a) is subject to the time limit for an application under section 67 specified in section 70 (3). Section 72(1) seems to be primarily intended to deal with the position at an interlocutory stage, when the court may be prepared to declare that an applicant is not bound by the arbitration agreement and to restrain the respondent from further continuance of the arbitration.  Mr Lewis submitted that section 72 (1) was the principal provision to be invoked if substantive jurisdiction was challenged and that section 72 (2) (a) was inserted as an abundance of caution.  

59.	Had I reached the conclusion that the arbitration had not been validly commenced because the e-mail of 5th May had not been effectively served or served in accordance with an agreed method of service, I would not have refused to set aside the award on the ground that section 72 (1) did not permit it and that section 67 had not been invoked. It would be necessary, on that hypothesis, to look at the substance of the matter. Bernuth brought their application within 28 days of the award. It should more pertinently have been brought under section 67 as applied by section 72 (2) (a). If that is so, I can see no relevant prejudice to High Seas in granting to Bernuth the necessary permission to amend their application notice so as to make it an application under section 67. If the proceedings had originally been brought under sections 67 and 72(2) (a) High Seas would have made exactly the same arguments, save that the question of substantial injustice would not arise. I would, therefore, have given Bernuth permission to amend and set aside the award under section 67. 

Substantial injustice

60.	Mr Aswani submits that, although there is, as has now become apparent, a prima facie dispute of fact as to whether or not the Master unreasonably refused to follow orders, serious questions arise as to the validity of that contention. Moreover there can, he submits, be no substantial injustice in allowing the Award for hire (predominantly) to stand, leaving Bernuth to make their counterclaims in the arbitration that they have now launched. 

61.	Mr Lewis submits that the injustice lies in the fact that, unless the Award is set aside, Bernuth will be faced by an award against which they will not be able to set off  any of their counterclaims, whereas, if the Award is set aside they will be able to do so at least in respect of some of them. In the former case they will thus have to pursue those claims against a company based in the Marshall Islands. In reality the value of any counterclaim lies in Bernuth’s ability to set it off against a claim for hire. If they cannot do that they may suffer the real injustice of being liable under the Award but, in practice, unable to recover in respect of their counterclaims. Those counterclaims are as follows:

         US$
(i)  A speed claim under the performance warranties		        8,954

(ii) Time lost and bunkers consumed because of the Master’s
      failure to go to El Bluff  					          
   17,633.49

(iii) Hire of substitute vessel for movement of cargo from
       “Eastern Navigator”     		                  				
   24,537.92

(iv)  Wasted expenses Nicaragua				        5,000

62.	Mr Aswani submits that I should not, in the absence of any evidence, infer that there is any particular difficulty with enforcement in the Marshall Islands. He also points out it is only in the third witness statement of Mr Hughes that the alleged set offs are explained in any detail. Bernuth’s failure to do so earlier, or to mention at any earlier stage the apparent theft of a computer belonging to Captain Jordan containing important information, casts doubt on the validity of their case. 

63.	In my judgment, if the proceedings were not validly served so that, on that account, Bernuth had not had a reasonable opportunity of putting their case, they would have suffered a substantial injustice. They have a case to make. It is not suggested that it is unarguable and, if well founded, some at least of the counterclaims are capable of being set off. On this hypothesis the proceedings against Bernuth were never validly constituted and the relevant legal and managerial personnel never received notice of what was going on until after the Award was made. In those circumstances I would not think it to be just to allow the award to stand. To do so would be to deprive Bernuth of the opportunity of seeking to set off their claims and expose them to the need to enforce their claims against a company in the Marshall Islands, an exercise which seems to me likely to involve at the lowest significant expense and delay and which may be fraught with difficulty. 

64.	Accordingly I decline to grant the relief sought.