Serving notice of arbitration on agent: a fair conclusion on unusual facts

Dana Shipping and Trading PTE Singapore & Another v. Sino Channel Asia Ltd [2017] EWCA Civ 1703

The Court of Appeal has recently revisited the question of whether an arbitration award was made without jurisdiction because a notice of arbitration was not validly served. This case provides a helpful reminder of the legal framework behind implied actual authority and ostensible authority.

The background facts

This case involves three main parties: Dana Shipping (“Dana”), Sino Channel (“Sino”) and Beijing XCty Trading Limited (“BX”). Whilst the reference is between Dana and Sino, it is the relationship between Sino and BX which is really of interest.

In around 2009, BX approached Sino, requesting that Sino perform various “services” on its behalf. Essentially, Sino was to conclude back-to-back sale and purchase agreements in its own name and handle the financial arrangements, whereas BX was to deal with the operational side of the contracts.

In 2013, BX asked Sino to enter into a contract of affreightment (COA) for the carriage of iron ore from Venezuela to China with Dana. Aside from being named in the contract, Sino then had nothing further to do with the COA. In short, Sino was “fronting” for BX.

Dana was, however, unaware of the fronting arrangements. Whilst all the communications (bar one message) during the operation of the COA were actually between BX (a Mr Cai) and Dana, Dana understood that Mr Cai was employed by Sino.

In 2014, and further to various disputes arising under the COA, Dana purported to commence arbitration against Sino (via an email to Mr Cai and Sino’s brokers); that being the party with which Dana understood it had contracted. Sino, however, did not positively engage with the arbitration, neither appointing its own arbitrator, nor participating in the arbitration. The award was subsequently handed down in Dana’s favour and, in 2015, Dana served the same on Sino at Sino’s registered address in Hong Kong.

According to Sino, this was the first that they had heard of the arbitration. Sino refused to accept the award and applied, in 2016, to the English Court for a declaration that the award was not valid.

The court at first instance set aside the arbitration award, finding in favour of Sino and declaring that “the arbitral tribunal was not properly constituted and… the Award was made without jurisdiction”.

Unsurprisingly, Dana disagreed and the case was appealed.

The Court of Appeal decision

The question on appeal was whether service of Dana’s notice of arbitration was effective. The Court of Appeal considered two legal principles in particular:

1. Whether BX had implied actual authority to receive the notice on behalf of Sino; and

2. Whether BX had ostensible authority to receive the notice on behalf of Sino.

The Court of Appeal first examined the issue of actual authority. Actual authority can either be express, i.e. given by express words, or (as contended by Dana in this matter) implied, i.e. inferred from the conduct of the parties.

The Commercial Court had drawn a distinction between an agent having “general authority” to act on behalf of his principal and an agent having “specific authority” to accept service of notice of arbitration. The Court of Appeal disagreed with this distinction.

The Court of Appeal instead considered that the key question was to look at the relationship between the principal and the agent. The starting point, therefore, must be to examine the arrangements between the parties as they were in reality.

The relationship between Sino and BX was highly unusual. Sino had played no part, and had shown no interest, in the negotiation or performance of the COA. BX were, therefore, dealing with every aspect of the COA. Therefore, in the Court of Appeal’s view, it was unrealistic to suggest that Sino, at the time that the notice was served, could have required or expected the notice to have been served on themselves, rather than on BX. The Court accordingly concluded that BX must have had implied actual authority to receive the notice on behalf of Sino.

Secondly, and although further examination of this issue was not strictly necessary due to its first finding, the Court of Appeal considered the question of ostensible authority. It helpfully clarified that ostensible authority is a form of estoppel that arises from a representation made by the principal to a third party that the agent has authority to act on its behalf.

The appearance given to Dana by Sino was that Sino’s representative, BX, was to be dealt with for all purposes relating to the COA, which must include the receipt of notice of arbitration. As such, and whilst ostensible authority is conceptually different to implied actual authority, this was, as the Court of Appeal remarked, an instance where the two coincided. The Court, therefore, also found for Dana on the issue of ostensible authority.

Comment

The Court of Appeal’s decision in this matter seems to be the fair and just result. It would be surprising if, in these circumstances, BX had been allowed to hide behind its agency relationship.

This judgment does make clear, however, that the issue of authority is heavily dependent on the facts. One would not usually expect a principal to show such a lack of interest in the contracts that his agent enters into on his behalf. As such, we think it unlikely that most cases involving a notice of arbitration disputed for being served on an agent, as opposed to its principal, will be so clear cut. We thus caution that, despite this welcome judgment, it remains important to ensure that an agent’s authority to accept notice of commencement of proceedings has been sufficiently demonstrated.