Sino Channel Asia Limited -v- Dana Shipping and Trading PTE Singapore and another [2017] EWCA CIV 1703
Details
Introduction
The Court of Appeal has held, in the rare circumstances of this case, that a third party company had both implied actual authority and ostensible authority to accept notice of arbitration.
Factual background
From around 2009, Sino had an arrangement with a third party Chinese company, BX, to provide services related to back-to-back sale and purchase agreements, concluded in the name of Sino, with BX handling the entire operational side and Sino handling the financial (letter of credit) side of the transactions. The agreements contained detailed notice provisions clearly directing that all notices and communications had to be sent or served on Sino at its address in Hong Kong.
In 2013, BX persuaded Sino to enter into a contract of affreightment (the COA) as charterer, with Dana, as owners but, apart from signing the contract, Sino had nothing further to do with the COA. In short, Sino was fronting for BX. Significantly in this case, all communications (with one exception), including communications with each party’s brokers, after the signing of the COA were between a Mr Cai of BX and Dana directly. However, Dana knew nothing of the fronting arrangement or that Mr Cai was a representative of BX rather than an employee or representative of Sino. In fact, Mr Cai presented himself to Dana as ‘Daniel of Sino Channel Asia’ and Dana’s brokers described him as ‘charterers’ guy’. Notably, the COA did not contain any equivalent notice provisions as had been provided for in the sale and purchase agreements.
Disputes arose under the COA and Dana purported to commence arbitration proceedings in early February 2014 by sending a notice of arbitration to one of the email addresses provided by Mr Cai, and to Sino’s brokers, who also passed the notice to Mr Cai. In response, Mr Cai sent just three messages to Dana and their solicitors. BX took no further steps to defend the claim.
Over the course of 2014 and 2015, the two owners and directors of the respective companies met and discussed the COA. In the course of these meetings, Mr Zhou, of BX, told Mr Jung, of Sino, that there were problems with the COA but that there was nothing to worry about and that he would deal with them. When Sino was sent the award at its registered address in June 2015, Mr Jung sent it to Mr Zhou who reassured him again that he would settle it. When he realised that enforcement proceedings were underway, over 18 months after the notice, Mr Jung contacted the arbitrator as director of Sino asking for documentation, following which Mr Jung persuaded Mr Zhou to sign an agreement that BX would take full responsibility for the claim.
When BX failed to honour that agreement, Sino applied to the High Court for a declaration pursuant to section 72 (1)(b) and/or (c) of the Arbitration Act 1996 (‘the Act’) that the tribunal was not properly constituted and the award was made without jurisdiction. Sino was successful at first instance and Dana appealed.
Legal issues
The disputed question was whether service of Dana’s notice of arbitration on BX was effective, giving rise to three principal issues. These were whether BX had either implied actual authority or ostensible authority to receive the arbitration notice on behalf of Sino. If not, the third issue was whether Sino had ratified BX’s receipt of the notice.
The Court of Appeal allowed the appeal on both issues of authority, finding that, based on the very unusual facts of this case, BX had both implied actual authority and ostensible authority to receive the notice, and therefore the arbitration award was enforceable against Sino. However, the Court was wholly unpersuaded that Sino had positively or silently ratified BX’s receipt of the notice and dismissed the appeal on the third issue.
Implied actual authority
On the first issue of implied actual authority, the Court of Appeal reviewed the reasoning of Lord Justice Gross (Gross LJ) in the leading case of “THE LAKE MICHIGAN” [2009] EWHC 3325, assisted by the fact that one of their number was Gross LJ (as he is now referred to) himself. Sir Bernard Eder, at first instance, had relied on the examples in that case to compare Sino’s relationship with BX to the wide general authority that P&I Clubs and solicitors have in dealing with a case on behalf of a client. Whilst the Court of Appeal fully endorsed the reasoning in “THE LAKE MICHIGAN” - that such a wide authority does not translate into authority to accept service of originating process - the case was of limited assistance. The Court agreed that authority to accept service of originating process was a serious matter and distinct from a general authority, however wide, but was unable to accept Sino’s arguments that there was no room as a matter of law, for implied actual authority in a ‘suitable and, no doubt, rare case’.
Gross LJ went on to distinguish “THE LAKE MICHIGAN”, emphasising the specific facts in the current case, which were accepted as true based on Sino’s documentary evidence. The arrangements here were far removed from the examples listed by the first instance judge and BX was not in an analogous position to solicitors or P&I clubs with a similarly limited authority. Describing the arrangements between Sino and BX variously as ‘striking’ and ‘remarkable’, such arrangements were nevertheless the starting point in deciding the reality of the relationship for inferring authority.
Against the background of Sino’s complete disinterest and passivity, the inescapable inference from those arrangements was that Sino expected BX to protect Sino from losses incurred by way of Sino fronting the COA. It followed that Sino’s contemporaneous expectation was that the notice of arbitration would be served on BX, as it was BX’s business to deal with this as with every other aspect of the COA: in this regard, Mr Jung’s response to events was both telling and decisive.
Ostensible authority
Even though actual and ostensible authority were conceptually very different, the present case was one of those instances where they coincided. The appearance given to Dana was that BX/Mr Cai enjoyed carte blanche and was to be dealt with for all purposes, including receipt of the notice of arbitration from Dana. The holding out manifested itself in Sino’s conduct of the relationship with BX, including the manner in which its brokers acted in passing their copy of the notice to Mr Cai. Any indications to the contrary paled by comparison with the reality of the Sino-BX relationship, and it was fair and just that Sino should bear the risk of BX’s failure to honour its commitment to protect Sino from liability.
The Court allowed the appeal on this issue as well, whilst being very mindful that ostensible authority called for even more caution than implied actual authority in the context of the service of originating process.
Ratification
Given the findings on the first two issues, the issue of ratification was easily dismissed. The Court could discern no unequivocal action by Sino, positively ratifying BX’s receipt of the notice.
Further, a consideration of section 72 of the Act, which permitted a party in Sino’s position to take no action prior to enforcement proceedings, reinforced the Court’s views on the absence of ‘positive ratification’ and provided an unanswerable objection to ‘silent ratification’ which otherwise would cut entirely across the scheme of section 72.
Comment
It is notable how far their Lordships went to distinguish the facts of this case, singling it out as a rare case, on two occasions, and describing the circumstances as ‘most unusual’ no less than four times. The effect is that the findings in “THE LAKE MICHIGAN” are not displaced.
Interestingly, Dana had the necessary information to serve Sino direct pursuant to section 76(4)(b) of the Act (by serving notice on Sino’s registered and trading address in Hong Kong). The Court described this as remaining ‘something of a puzzle’ namely, why that course of action was not followed (as a matter of ‘belt and braces’, whatever else was done), which would have made this dispute redundant.
The above underlines the importance of claimants ensuring that they effect service of arbitration notice by all applicable means under section 76 of the Act and, of course, in accordance with the contractual provisions. In any event, the principles in “THE LAKE MICHIGAN” continue to apply to almost all third party agency arrangements, requiring express authority for receipt of such notices.
This article originally appeared in the December 2017 edition of shipping case digest. Other articles include:
ST Shipping and Transport Pte Ltd -v- Space Shipping Ltd (The “CV STEALTH”) [2017] EWHC 2808 (Comm)
