In the recent case of Kyla Shipping Company Limited v. Bunge S.A. [2013] EWCA Civ 734, the applicant vessel owners sought to challenge a judge’s refusal of permission to appeal from his own decision on a question of law arising from an arbitration award.

Case Background

The owners (“Kyla”) and the charterers (“Bunge”) had entered into a time charter, during which the vessel was seriously damaged following a collision whilst docked at a Brazilian port. As a result of the damage, Kyla claimed that the vessel was a constructive total loss. Kyla argued that the charterparty had been frustrated since the damage to the vessel was such that the cost of repair exceeded her market value and, as a consequence, the voyage could not be completed.

In February 2010, the parties commenced arbitration to consider issues of frustration of the charterparty, relating to the damaged vessel. The existence of an insurance provision within the charterparty effectively created a fund that was adequate to cover repairs to the vessel and, moreover, indicated that a risk of this type of damage had been contemplated by both parties at the time at which the contract was made. Despite this, the arbitrator found that the charterparty had been frustrated since the uneconomical repair position made Kyla’s obligations under the charterparty commercially impractical.

Bunge sought permission to appeal the award pursuant to section 69 of the Arbitration Act 1996 (the “Act”). That application was determined on paper by a High Court Judge, and permission was granted on the basis that the question of law had raised a “question of general public importance”. At the hearing of the appeal, the parties presented arguments to Flaux J, who, following their submissions and a subsequent period of time to reflect on the issues, held that the doctrine of frustration should not be interpreted so as to create an uncompromising position whereby uneconomical repair costs would automatically frustrate a charterparty. Rather, it was his view that the insurance clause created a responsibility for Kyla to repair the damaged vessel up to the amount of cover. He considered that, since Kyla had taken the decision not to execute the repairs, despite the insurance cover to cater for such damage, the catalyst for the failure to complete the voyage was not the alleged frustrating event, as submitted by Kyla, but rather, the commercial decision not to repair the vessel.

Consequently, it was held that the charter could not be treated as having been frustrated and Bunge’s appeal was upheld. Kyla then sought permission to appeal this decision pursuant to section 69(8) of the Act, which Flaux J refused.

The Court of Appeal’s Decision

Having had their application for permission to appeal rejected, Kyla applied to the Court of Appeal for permission to appeal, or alternatively, to set aside the decision of Flaux J.

Under section 69 of the Act, a High Court decision can only be appealed with the leave of the High Court where it considers the question to be of general importance or one which should be considered by the Court of Appeal. That being said, the Court of Appeal has a residual jurisdiction to set aside a refusal of permission to appeal, in instances where there exists some special reason to set aside.

Kyla put forward two main submissions in support of their application to set aside the decision of Flaux J. Firstly, that once it had been concluded that the question of law had raised a question of “general public importance”, Flaux J had no reason to state that the case turned on its own set of facts or contractual construction. Secondly, that the arbitrator had not found that the insurance underwriters were willing and ready to repair the damaged vessel and, accordingly, Flaux J had no business to come to this conclusion when denying Kyla’s permission to appeal.

In his interpretation of section 69 of the Act, Longmore LJ declared that the Court of Appeal had no jurisdiction to hear Kyla’s application for permission to appeal since the High Court had held that “the case was not a case of general importance”. In addition, he stated that the residual jurisdiction to set aside a refusal of permission is only exercisable in cases where that refusal stems from unfair or improper process, to the extent that “the decision to refuse cannot be categorised as a decision at all”. In his judgment, he made reference to CGU v Astra Zeneca Insurance Co Ltd1, in which Rix LJ had examined the scope of the court’s ability to apply this residual jurisdiction following some form of unfair or improper process. In that case, it was stated that residual jurisdiction was exercisable following events where “something which has gone fundamentally wrong in the process, cannot properly be called a decision”.

Unfortunately for Kyla, they were unable to point to anything which had gone “fundamentally wrong with the process” or, to a real defect in the fairness of the judicial process. Section 69(8) of the Act places a particularly high threshold upon an applicant to satisfy in this regard, a task that their counsel were unable to overcome in the absence of any applicable case law where the Court of Appeal had exercised this residual jurisdiction.

Accordingly, the Court of Appeal refused to overturn Flaux J’s decision not to grant permission to appeal against his decision under section 69 of the Act. Longmore LJ did however provide some useful guidance for litigants in the future when facing a similar difficulty, stating that “if the shipowners wish to be sure that they have readier access to the expertise of this court, they should agree to the High Court resolving their disputes in the first place".