Sino Channel Asia Ltd v Dana Shipping & Trading Pte Singapore & Another (2017)

Background

In an important case concerning the authority of agents to receive arbitration notices, the Court of Appeal considered whether a notice of arbitration served by Dana Shipping & Trading Singapore (Dana) on Beijing XCty Trading Limited (BX) constituted effective service on Dana's contractual counterparty, Sino Channel Asia Ltd (Sino).

By a Contract of Affreightment (COA) dated 9 April 2013, Dana, as owner, agreed to carry five shipments of iron ore, totalling about 275,000 mt, from Venezuela to China. Dana's contractual counterparty was Sino. Sino "lent its name" and "fronted" the transaction for BX, with Sino handling the financial (letter of credit) side of the transaction, and BX handling the operational side.

Although Sino were the party contracting as charterers (with the director and apparent 100% shareholder of Sino signing the COA on their behalf), Sino were not involved in either the negotiations or performance of the COA, both of which were dealt with by BX. Following execution, all communications concerning the COA passed between Dana and BX (either directly or through the broking channel).

No shipments were ever made under the COA, resulting in a dispute. Efforts between Dana and BX to resolve the dispute were unsuccessful, and Dana purported to commence arbitration by sending a notice of arbitration to BX.

Sino took no part in the arbitration proceedings. Sino claimed they only came into knowledge of the arbitration when they received a copy of the Award (against Sino in the amount of USD 1,680,404.15 plus interest and costs) at their registered address in Hong Kong.

Sino applied to the High Court for a declaration under section 72 of the Arbitration Act that the arbitration tribunal was not properly constituted, and the Award was made without jurisdiction. In their application, Sino contended that Dana's notice of arbitration was not effective, with BX not having either implied or express actual authority or ostensible authority to receive the notice on behalf of Sino. Sino also contended that they had not ratified BX's receipt of the notice of arbitration.

High Court decision

The High Court set aside the arbitration award in favour of Dana, holding that BX did not have either implied actual authority or ostensible authority to receive the notice of arbitration on behalf of Sino.

The Judge, Sir Bernard Eder, held that whilst BX had a "general authority to act on behalf of Sino in connection with the COA", he was not persuaded that BX "had implied actual authority to accept the notice of arbitration on behalf of Sino". In respect of ostensible authority, the Judge held that he saw "nothing which constituted an express representation" by Sino that BX had authority to accept service of a notice of arbitration, and such a representation could not be implied from the circumstances of the case.

The Judge also held that Sino had not ratified the Award, holding that there was no "unequivocal act" by Sino which could give rise to ratification, and there was no obligation on a person who denied being a party to an arbitration agreement to take any steps in advance of enforcement proceedings.

Court of Appeal decision

The Court of Appeal (Gross LJ and Flaux LJ) overturned the High Court judgment, holding that BX had both implied actual authority and ostensible authority to accept service of Dana's arbitration notice on behalf of Sino.

In respect of the implied actual authority, the Court of Appeal held "the correct inference to be drawn from the actual circumstances of the relationship between Sino and BX is that BX did have implied actual authority to accept service of the notice". In reaching this conclusion, the Court of Appeal focused on the arrangements between Sino and BX (which the Court described as "remarkable") and noted that Sino took no part, no role and no interest in the negotiation or performance of the COA. The Court also stated that "Sino was apparently content with complete passivity – a situation, aptly described as complete delegation, where it might be faced with unanswerable and substantial liability by reason of BX's breach/es of contract".

The Court of Appeal inferred from the evidence that Sino hoped that BX would protect Sino from losses incurred by way of Sino's fronting of the COA, but stated that a failure by BX to honour any bargain between itself and Sino could not impact on the extent of any actual authority conferred by Sino on BX. The Court of Appeal concluded that against "the background of disinterest and passivity we regard it as unreal to suggest that Sino at the time required the notice to be served on it, rather than on BX".

The Court of Appeal also held that BX had ostensible authority to accept service of the arbitration notice, stating that "Sino was responsible for putting BX in the position it held with regard to the COA", and that the appearance given to Dana was that BX "were to be dealt with for all purposes, extending to receipt of the notice".

On the question of whether the notice had been ratified (a moot point following the Court of Appeal's finding that BX had authority to accept service of the notice on behalf of Sino), the Court of Appeal stated that they were "wholly unpersuaded" that Sino ratified BX's receipt of the notice, and that they could not discern any "unequivocal action, positively ratifying BX's receipt of the notice". The Court of Appeal also noted that under section 72 of the Arbitration Act 1996, a party does not need to take any action prior to enforcement proceedings to challenge whether a tribunal has been properly constituted, and, on this basis, concluded that there could not have been "silent ratification" of BX's receipt of the arbitration notice by Sino.

This case demonstrates the critical importance of ensuring that arbitration notices are served properly on contractual counterparties. Whilst, in this case, the Court of Appeal held that an agent had authority to accept service of an arbitration notice on behalf of a principal who was "fronting" the contract, it is important to bear in mind that this judgment overturned the decision of the High Court, which had reached the opposite judgment in setting aside an Arbitration Award for USD 1,680,404.15 plus interest and costs.

Importantly, the Court of Appeal based their decision on the "remarkable" arrangements between Sino and BX, and stressed this was a "most unusual case". As a result, in another dispute of this type, unless similar facts are present, it may be difficult to rely on this case as a binding authority to contend that an agent has authority to accept service of an arbitration notice, as the facts may be distinguishable.

In circumstances where, under section 72 of the Arbitration Act, a party who takes no part in arbitration proceedings may challenge, at the time of enforcement, whether a Tribunal has been properly constituted, it is prudent that a party serving a notice of arbitration adopts a "belt and braces" approach, and serves the notice to their counterparty at their registered address (as well as any agent they are otherwise corresponding with) bearing in mind any notice provisions in the contract.

Finally, this case is an important reminder that companies "fronting" a contract on behalf of another company risk liability for their contractual counterparty, and would be wise to ensure that they have robust indemnity provisions covering any liability that may arise from the party they are fronting for.