By way of analogy to the case of The Kostas Melas [1981] 1 Lloyd’s Rep. 18, the Owners submitted that they were entitled to a prompt determination of their claim for hire akin to applications for partial awards for hire on The Kostas Melas principles. It will be necessary for the Claimant to demonstrate that on the evidence before the arbitrators an ascertainable minimum sum is due. If the Respondent seeks to rely on a cross-claim he will have to establish that he has made out a prima facie case on the merits of the claim which would involve that it is made in good faith and on reasonable grounds.
In Exmar BV v National Iranian Tanker Co (The "Trade Fortitude") [1992] 1 Lloyd's Rep 169, at 175rhc-176lhc, Judge Diamond QC said:
"It is clear both on the authorities and as a matter of principle that arbitrators have a complete discretion to decide whether or not to issue an interim award in favour of one of the parties. As to the authorities, I have referred already to The Angelic Grace. In that case Lord Denning, M.R., (p. 293) pointed out that s. 14 of the Arbitration Act, 1950 provides that the arbitrator or umpire may if he thinks fit make an interim award. Lord Denning then continued:
Under that section the arbitrator has a complete discretion. He may, if he thinks fit. Those words seem to me to enable the arbitrators to impose any proper condition which they think fit on the making of an interim award. It is well within the jurisdiction of arbitrators to impose a condition ...
It seems to me that, in making an interim award, the arbitrators can and should look at all the circumstances of the case. They can look at the other two arbitrations as well as this one. They can apply the principle of equitable set-off such as was considered in The Nanfri (Federal Commerce v. Molena) [1978] 2 Lloyd's Rep. 132; [1978] Q.B. 927.
I should also refer to The Leon, [1985] 2 Lloyd's Rep. 470 at p. 476 where Mr. Justice Hobhouse, after deciding that a cross-claim by charterers for discrepancies in bunker consumption could not be set off against the hire, refused leave to the owners to amend their notice of motion to claim an award for the full amount of the hire. His Lordship refused to allow the amendment on the ground, inter alia, that:
… whether or not in any case to make an interim award in favour of owners as opposed to dealing with the matter in a final award and, if so, on what terms is a matter for the discretion of the umpire.
It follows in my judgment from the wording of s. 14 and from the above authorities that as a matter of practice there will often be two separate questions to be considered by arbitrators on an application by one of the parties to the reference for an interim award in respect of a minimum sum claimed to be due.
The first stage will often be to consider whether on the evidence before the arbitrators the claimant has established his entitlement to a minimum sum due. That question will be governed by the luminous judgment of Mr. Justice Robert Goff, as he then was, in The Kostas Melas, [1981] 1 Lloyd's Rep. 18 at pp. 25-27. It will be necessary for the claimant to demonstrate that on the evidence before the arbitrators an ascertainable minimum sum is due. If the respondent seeks to rely on a cross-claim he will have to establish that he has made out a prima facie case on the merits of the claim which would involve that it is made in good faith and on reasonable grounds. He will also have to establish that the cross claim is one which falls within an express contractual right of deduction or is one for which the remedy of equitable set-off is available.
If the arbitrators come to the conclusion at the first stage that on the evidence before them there is a minimum sum due to the claimant they will then have to go on to the second stage of the matter and consider how to exercise their discretion under s. 14. They have a discretion not to issue an interim award at all but to deal with the claims and the cross-claims together in a final award. They also have a discretion if they are minded to issue an interim award to impose conditions for the issue of such award, for example that the claimant shall provide reasonable security for the respondent's cross-claims. All this is clear from the authorities which I have mentioned.......
Therefore, as it was stated in this article: Reflections on speed and performance claims
B.1.1 Kostas Melas-type applications
London maritime arbitrators have ample powers to proceed without delay in making an “interim” or “partial” award in cases involving underperformance claims.5 It should be noted that although the terms “interim award” and “partial award” are regularly used interchangeably even today, the term “interim award” “is a constant source of confusion and should be abandoned”6 (as it will be in the present article). Whether such applications will succeed depend on many factors: section 47 empowers the tribunal to make a partial award, but the tribunal exercises its powers by having regard to section 33 of the Arbitration Act 1996 (AA 1996), which sets out the general duty of the tribunal in very broad terms. Furthermore, as most speed and performance disputes fall within the LMAA Small Claims Procedure (SCP), such applications will succeed in exceptional cases.7
Take as an example that the charterers advance a cross-claim or a counterclaim for loss due to underperformance to challenge the owners’ claim for hire. In these cases the tribunal is required to determine first whether the charterers have either a right of deduction or set-off against hire and, if so, they will have to establish that the charterers made out a prima facie case on the merits of the claim, which would involve that it is made in good faith and on reasonable grounds. The burden to defeat such an application is a light one; the charterers merely need to demonstrate a reasonably bona fide defence. If the charterers fail, the tribunal will decide whether to exercise its discretion to issue a partial award or dispose of all issues (including the underperformance claim) in a final award. If the tribunal proceeds with a partial award dealing only with the owners’ claim (it need not determine the counterclaim), the charterers can bring a counterclaim later if they can adequately justify it with evidence.
Putting these in context, in London Arbitration 1/22,8 the charterers advanced a counterclaim as off-hire due to the vessel’s underperformance. They relied on a performance report and comments from the WRC to support their claim. However the charterers had not persuaded the tribunal that the above met the test formulated by Robert Goff J in The Kostas Melas. In particular, the charterers had neither justified their off-hire claim nor addressed the point made by the owners that the qualified words “in good faith” meant there was no warranty of speed or consumption. Seemingly, the charterers adduced no evidence or offered no indication to support their case to make a prima facie case of off-hire, thus resisting an immediate partial award in the owners’ favour. For example, in other instances where the charterers advanced their underperformance claim as off-hire, they submitted a performance report and evidence to bring themselves within the ambit of the off-hire clause or other clauses relevant to their claim.9
Recent Arbitration Cases
In London Arbitration 14/24, Owners made an application for a partial award in respect of hire, and even without a substantiated counter-claim at that stage from Charterers, the tribunal made an award “for the US$1,300,873.10, being the difference between the owners' claim for hire and bunkers, and the charterers' intimated counterclaim.” The counter-claim lacked proper evidence at that stage, yet the tribunal allowed the set-off.
In a partial final award issued on 15 August 2024 (reported in Jus Mundi) by a sole arbitrator under the LMAA Terms 2021, the Owner served claim submissions and included an application for a partial final award in the sum of USD 83,293.30 as an admitted balance of hire due as per the Charterer's own final hire statement. The Owner claimed US$124,442.39 as a balance due under their Final Hire Statement. The Charterer had prepared their own Final Hire Statement, admitting that a balance was due of US$83,293.30. The two final hire statements covered the same period. The tribunal wrote to the parties that “"I note the submission that there is an admitted balance due; and no response has been received from the charterers to my direction that they comment on the timetable within last Thursday 25 July…” Charterers failed to respond, and a peremptory ordered followed, with sanctions for non-compliance as per Arbitration Act 1996 the arbitrator made an award on the basis of the submissions and documents presently before him, to the exclusion of anything received thereafter without express permission or direction from him.
Clearly, the claimant fulfilled the requirements under “The first stage will often be to consider whether on the evidence before the arbitrators the claimant has established his entitlement to a minimum sum due” ( the admitted sum here).
However, it is important to mention that the Charterer never explained to the Owner why they had withheld payment, and the Owner applied for a partial final award pursuant to the jurisdiction established in The Kostas Melas [1981] 1 Lloyd's Rep 18 to award a sum that was indisputably due and reserve the balance in dispute.
The charterer had corresponded with the tribunal (regarding the orders) and made no attempt to deny that the figure they had calculated in their own Final Hire Statement was due. Therefore, the tribunal found that the Owner was entitled to an award in their favour for this minimum sum due under the Charterparty, which was US$83,293.30.
It was the admitted and undisputed amount due that the tribunal allowed in its partial award. In dealing with performance disputes, the Charterer will usually submit a performance report from a weather routing company. It is more likely the tribunal to deal with both issues, claim and cross-claim, in a final award.
Discussion:
The arbitrator retains full discretion; however, this discretion must be exercised as a balancing act, having regard to Section 33. Notably, LA 1/22 resulted in significant arbitration costs, which appears to conflict with Sections 1 and 33. For commercial parties negotiating and drafting performance clauses it is clear that the words "in good faith" do not have the effect of the words "without guarantee" (the award summary is extremely brief to understand the tribunal's reasoning and the relevance of the comments submitted by Charterers' appointed weather routing company). Seemingly, the charterers adduced no evidence or offered no indication to support their case to make a prima facie case of off-hire. Therefore, London Arbitration 1/22 is an exceptional case.
Most specialist arbitrators can determine with limited evidence put before them that the vessel was underperforming due to vessel's issues, and not due to the weather conditions.
The burden to oppose such an application is relatively low. In most speed and performance disputes, submitting a performance report will suffice. Additionally, indirect evidence—such as documented instances of high slip or other factors that suggest hull fouling or technical issues (e.g., intentional slow steaming, engine damages, low RPM)—establishes a prima facie case to potentially resist such an application.
For example, LA 1/22 and LA 23/21 can be compared. In the latter case, even in the absence of direct evidence, sufficient circumstantial evidence enabled the tribunal to determine that fouling had occurred, thereby constituting a breach of Clause 15.
Furthermore, significant discrepancies between the masters’ reported figures and those analyzed by the weather routing company may establish a prima facie case for a breach of Clause 11 (NYPE 1946), thereby providing grounds to potentially resist an application for a partial award.
Concerning small claims, partial award applications may not succeed even when the contract prohibits set-off, and there is a cross-claim to be supported with evidence (as per above). The Anna Dorothea case did not involve a small claim (two maritime arbitrators awarded the Owners US$2,147,717.79), a factor requiring consideration.
Note: The above observations are drawn from recently published and some unpublished arbitration awards and do not represent the authors' opinion.