Service of Arbitration Notices
Marc Wilkins, Senior Associate, Fenwick Elliott
Service of notices - getting it right
In issue 23 of International Quarterly, we looked at the decision in Glencore Agriculture BV (formerly Glencore Grain BV) v Conqueror Holdings Ltd1 which highlighted the importance of ensuring arbitration notices are served on individuals within an organisation who have authority to accept service.
The case of Sino Channel Asia Ltd v Dana Shipping and Trading PTE Singapore & Another2 also highlights the importance of getting it right when it comes to the important step of serving a notice of arbitration. This case raised questions in relation to the implied actual and/or ostensible authority of a third party to receive originating process.
This case concerns arbitration proceedings commenced by Dana against Sino in relation to disputes which had arisen under a contract of affreightment (COA) entered into between Dana as owner and Sino as charterer. Whilst the COA addressed procedural matters regarding disputes such as in relation to the appointment of arbitrators (clause 55), and contained various provisions for the giving of (strictly) operational notices (clause 56), there were no provisions setting out any express requirements relating to the service of originating process (e.g. a notice of arbitration). Therefore, the service of notices was governed by section 76 of the Arbitration Act 1996.
The question of whether service of the arbitration notice by Dana had been effectively given did not arise until after the arbitral tribunal had issued its award in favour of Dana, which it sent directly to Sino's registered office in Hong Kong. Sino's challenge to the jurisdiction of the arbitral tribunal arose by virtue of the fact that its receipt of the award was the first time Sino had been made aware of the arbitration proceedings or the award. This was because the notice of arbitration had not been served upon Sino, but instead was served by email on a third party, a man named Daniel Cai who was an employee of a company called Beijing XCty Trading Ltd (BX). So what was BX's involvement in the COA and why was BX and not Sino the recipient of the arbitration notice?
Essentially, Sino and BX had an arrangement whereby Sino agreed to sign the COA and front the transaction, with the operation of the COA being left to BX. Sino had not intended to (nor did it) play any part in the negotiations or performance under the COA. Therefore, following execution of the COA, all communications were between Dana and BX. Apparently, Dana knew nothing of this "fronting" arrangement or that Mr Cai was an employee of BX rather than an employee or representative of Sino. In fact, Mr Cai presented himself as "Daniel of Sino Channel Asia" and was referred to by Sino's brokers as "Charterers guy". Therefore, following failed attempts (by Dana and Mr Cai) to resolve disputes which had arisen under the COA, Dana commenced arbitration proceedings by emailing a notice of arbitration to Mr Cai.
Save for three emails which were sent by Mr Cai to Dana and the arbitrator appointed by Dana following receipt of the notice, neither Mr Cai nor anyone else from BX was engaged in the arbitration process. An award was made in favour of Dana and sent to Sino at its registered address in Hong Kong. When the award was not honoured, Dana sought to enforce it through the Hong Kong court. Those proceedings were subsequently stalled pending the decision of the UK court.
The court proceedings
In summary, Sino applied to the High Court in London for a declaration that the award was made without jurisdiction and was of no effect, and for an order setting aside the award accordingly, pursuant to section 72(1) of the Arbitration Act 1996. Dana defended the proceedings on the basis that Mr Cai of BX had implied actual authority and/or ostensible authority to receive the arbitration notice on behalf of Sino.
At first instance, the judge found in favour of Sino, holding that whilst BX had a general authority to act on behalf of Sino in connection with the COA, it did not have implied actual authority or ostensible authority to accept the arbitration notice on behalf of Sino. Accordingly, the judge concluded (1) that Sino was entitled to a declaration that the arbitral tribunal was not properly constituted and accordingly that the award was made without jurisdiction, and (2) that Sino was entitled to an order setting aside the award.
However, the Court of Appeal took an entirely different view. Overturning the judgment, they held that BX had both implied actual authority and ostensible authority to accept service of Dana's arbitration notice on behalf of Sino, and that the arbitral tribunal was therefore properly constituted and the award was made with jurisdiction.
In relation to its consideration of whether BX had implied actual authority, the Court of Appeal said that the starting point must be the arrangements between Sino and BX, which they said were "remarkable". The Court noted that Sino took no part in and had no interest in the negotiation or the performance of the COA, and 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 said the inescapable inference from Sino's evidence was that Sino hoped or expected that BX would protect it from losses incurred by way of its (Sino's) fronting of the COA, and concluded that "Against this 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, who Sino (however imprudently) had regarded as the party concerned with the COA". The Court went on to say that "It was BX's business to deal with it as with every other aspect of the COA, not Sino's and BX thus had implied actual authority to receive the notice".
As to the second question, i.e. whether BX had ostensible authority, the Court of Appeal said of the "most unusual" relationship between Sino and BX that it "formed the foundation of how BX/Mr Cai's authority appeared to others" and that "[t]he appearance given to Dana was that BX were to be dealt with for all purposes, extending to the receipt of the arbitration notice". The Court noted that the holding out was not simply on the part of BX, but "manifested itself in Sino's conduct of its relationship with BX". Finally, it noted that Sino had been responsible for putting BX in the position it held with regard to the COA. Accordingly, the Court of Appeal held that BX had ostensible authority to receive the arbitration notice.
Whilst, ultimately, Dana was successful in defending Sino's challenge to the jurisdiction of the tribunal and the validity of its award, a great deal of time and cost was no doubt incurred in the process. One cannot help thinking it could have been avoided had the parties ensured the COA contained clear provisions in relation to the giving of notice in the event of a dispute, or if Dana had simply served the arbitration notice on Sino's registered office as well (Dana had details for one of Sino's two directors, and Sino's registered and trading address in Hong Kong).
It should also be borne in mind that the Court considered this to be a most unusual case, and the decision reflected what the Court considered to be "remarkable" arrangements between Sino and BX. Had the circumstances of this case not been quite so unusual, the Court of Appeal may have arrived at a different conclusion, leaving Dana in the very unsatisfactory position of having an arbitrator's award that it was not able to enforce against Sino.
This case therefore serves as another useful reminder of the importance for contracting parties to be clear on which entities and/or individuals involved in a contract have authority to accept service of originating process, and in circumstances where there may be some doubt, to adopt an appropriate "belt and braces" approach, such as ensuring that whatever else is done, the notice is also served by the methods set out in section 76(4) of the Arbitration Act 1996, which are deemed to constitute effective service. Doing so may help to avoid questions being raised as to the validity of notices. It may also prevent situations where otherwise legitimate claims become time-barred due to the significant period of time that may elapse between first issuing notice and the final outcome of any jurisdictional challenge.