The High Court’s recent decision in Mare Nova Incorporated v Zhangjiagang Jiushun Ship Engineering Co. Ltd [2025] EWHC 223 (Comm) provides a rare example of a party successfully challenging an arbitral award on the ground of serious irregularity. 

Background

The substantive dispute arose under a ship repair contract between the Claimant and the Defendant, which incorporated general conditions of tender (the General Conditions).

In March 2021, the Claimant’s vessel entered the Defendant’s shipyard for repair works. The works were signed off by the Claimant’s representative on 30 March 2021. However, shortly after the vessel left the shipyard, the crew detected a burning smell, and it was discovered that the Defendant had damaged the vessel’s intermediate shaft bearing. 

The Claimant referred the dispute to arbitration and, following an application to the Commercial Court, a sole arbitrator was appointed. The Defendant did not agree that the dispute should be referred to arbitration and did not take part in the proceedings. 

The arbitration proceedings

In the arbitration, the Claimant claimed $652,937 as damages for the Defendant’s breach of clauses 2.1, 2.2 and 2.3 of the General Conditions or in negligence. In the alternative, the Claimant claimed a sum due under a six-month guarantee in clause 2.10 of the General Conditions.

The arbitration proceeded without a hearing, based on the Claimant’s written submissions and responses to various questions put to it by the Tribunal.

In the subsequent award, the Tribunal decided that the Defendant had caused the damage to the vessel, and that this amounted to a breach of clauses 2.1 – 2.3 of the General Conditions. 

However, the Tribunal dismissed the Claimant’s claim for damages on the basis that the Defendant’s liability was discharged as soon as the vessel left the shipyard. In arriving at that conclusion, the Tribunal relied on what it considered to be the proper construction of clauses 2.1 and 6.3 of the General Conditions. These read as follows.

2.1 All tasks herein specified shall be carried out and completed in all detail. All workmanship and materials are to be of the best quality throughout and confirm to those now on the Vessel unless otherwise specified. All work is to be done to the satisfaction of the Owner's Representative and to the rules and requirements of the Classification Society concerned. Any dispute which may arise during the progress of the work as to quality of material or workmanship shall be left to the decision of the Owner's Representative.

[…]

6.3 The Contractor's liability shall begin at the time when the vessel is delivered to Contractor's yard, pier or other location designated by him, ready for repairs, and shall cease only when all of the work herein specified has been completed to the satisfaction of the Owners or their accredited representative, and all of the Contractors equipment and all rubbish have been removed from the vessel.

On that basis, the Tribunal instead awarded the Claimant the lesser sum of $298,651 under the guarantee in clause 2.10 of the General Conditions.

The Claimant’s challenge

The Claimant sought to challenge the award under s.68 AA, on the ground that the question of whether clauses 2.1 and 6.3 ought to be construed so as to discharge the Defendant from liability (the Discharge Question) had not been raised by the Claimant or the Tribunal during the proceedings. 

The Claimant submitted that this constituted a serious irregularity, as it had been deprived of addressing the Tribunal on the Discharge Question, which violated the Tribunal’s general duty of fairness and impartiality under s.33 AA.

In the alternative, if the Court found that the Discharge Question had been raised in the proceedings, the Claimant sought to appeal the award under s.69 AA, on the basis that the Tribunal’s construction of clauses 2.1 and/or 6.3 was obviously wrong as a matter of law.

Decision

The Court found that the Discharge Question was never raised in the proceedings. Whilst the Claimant had relied on clause 2.1 as one of the contractual obligations that the Defendant had breached, it had never been suggested that this might also operate to discharge the Defendant from liability, and clause 6.3 was only mentioned for the first time in the award. 

The Court agreed that this was a serious irregularity which had violated the Tribunal’s general duty under s.33 AA and had caused substantial injustice to the Claimant, depriving it of its larger remedy in damages. On that basis, the Court allowed the s.68 challenge and determined that the award be remitted to the Tribunal for reconsideration. 

However, the Court went further, noting that if the award was to be remitted to the Tribunal for reconsideration, that reconsideration must proceed on a correct understanding of the law. 

The Court concluded, in strong terms, that the Tribunal’s interpretation of clauses 2.1 and 6.3 was wrong in law. 

The Court restated the well-established interpretation principle that parties will be presumed not to have intended to abandon their rights and remedies for breach of contract without clear and unequivocal words to rebut this presumption. The Court found that not only was the wording of clauses 2.1 and 6.3 not sufficiently clear to rebut that presumption but also that, in their full context, there was no possible interpretation of those clauses as meaning that the Defendant was discharged from liability for breach of contract the moment the vessel left the shipyard. 

While the Court agreed that the Tribunal’s interpretation of the contract was obviously wrong in law, the s.69 appeal was nonetheless dismissed because it was brought in the alternative to the s.68 challenge, which had succeeded. The Court re-iterated, however, that the Tribunal must have regard to its explanation of the law under the s.69 challenge when reconsidering the award.

Conclusion

S.68 challenges rarely succeed, and the Courts will continue to be slow to undermine arbitral processes where the tribunal has conducted proceedings in a manner that is compliant with their general duties of impartiality and fairness under s.33 AA. 

Nonetheless, the decision is a reminder that, in clear-cut cases of serious irregularity such as this, the Court will not hesitate to exercise its powers under s.68 AA to ensure that arbitration proceedings are not conducted in a manner that causes substantial injustice to the parties.