A recent English High Court decision serves as a reminder of the importance of taking great care in relation to service of notice to commence arbitration. The case concerned whether the notice was sent to the correct party.
The judge set aside a US$1.68 million arbitral award for being neither valid nor binding as the notice to commence arbitration was not correctly served.
- A notice of arbitration must be served on the intended respondent as set out in the arbitration agreement.
- It is insufficient to serve notice on the person/entity with whom you commercially communicated during the business if they are not a party to the contract.
- An agent for commercial purposes is not necessarily an agent to accept service of the notice of arbitration.
Impact It is common in commercial contracts to communicate with an agent, associated company or head office. If the contract ends up in dispute, a party should take care to ensure that the arbitration claim comes to the notice of the contract counterparty, rather than simply the ‘usual’ party communicating during the business relationship.
Facts Dana Shipping and Trading PTE Singapore (Dana) entered into a contract of affreightment (COA) with a charterer, Sino Channel Asia Ltd (Sino), through a third party, Beijing XCty Trading Ltd (Beijing XCty). Under the COA, Sino was named as charterer for the carriage of iron ore from Venezuela to China, but Sino anticipated that the contract would be performed by Beijing XCty.
Mr Daniel Cai, an employee of Beijing XCty, was the main point of contact between the parties and presented himself to Dana as ‘Daniel of Sino Channel Asia’. However, a dispute arose when Beijing XCty failed to arrange any shipments of iron ore.
Disputes arising under the terms of the COA were to be referred to arbitration in London, which would be initiated when one party receives a “notification in writing of the appointment of the other party’s arbitrator”. The recipient of the notice will then have 14 days to appoint its arbitrator, “failing which the decision of the single arbitrator appointed shall apply”.
To initiate arbitration, Dana appointed an arbitrator and served the notice of arbitration by email to Mr Cai on 4 February 2014. On receipt of the notice, Mr Cai requested an extension of time but did not forward the notice and took no further action. Sino never received the notice and had no knowledge of the arbitration.
On account of Sino’s lack of response, Dana’s arbitrator, in line with the terms of the COA, proceeded as sole arbitrator and made an award of US$1.68 million plus interest and costs in favour of Dana on 3 February 2015. Sino was only made aware of the arbitration proceedings on 30 June 2015 when a corrected version of the award was sent to its registered office in Hong Kong.
It was not until 29 October 2015, when Dana attempted to enforce the award in Hong Kong, that Sino took action. On 28 January 2016, Sino finally issued proceedings, pursuant to section 72(1)(b)(c) of the Arbitration Act 1996, for a declaration that the award had been made without jurisdiction, as Sino had not received notice and the tribunal was not properly constituted.
Judgment of the High Court The key issues before the High Court concerned:
- Implied Actual Authority. Did Mr Cai/Beijing XCty have implied actual authority to receive the notice of arbitration on behalf of Sino?
- Ostensible Authority. Did Mr Cai/Beijing XCty have ostensible authority to receive the notice of arbitration on behalf of Sino?
- Ratification. Had Sino ratified the award by its subsequent conduct/inaction? The High Court judge held that none of the above issues assisted in relation to the arbitration claim and the arbitrator had no jurisdiction.
Remedy Sir Bernard Eder granted the section 72 application in favour of Sino and gave an order setting aside the award. There is no time limit preventing a person who did not participate in arbitral proceedings from waiting until an application to enforce before challenging an award under section 72. The strict time limits imposed by section 70 only apply to applications or appeals under sections 67, 68 and 69.
- Consider this issue when making larger or long term contracts – do you need an express notice provision which makes it clear where contractual notices should be sent?
- Take care to be clear as to the exact contract counterparty and their contact details (particularly when you are asked to accept another name as buyer/seller).
- When sending an arbitration notice, take steps to ensure it goes to and is received by the contract counterparty (and that you can prove receipt) as well as your ‘usual’ contact for the business.
- In any event, where you are being asked to communicate with another party, request contact details for the counterparty and copy them in on all messages.