November 2, 2017

Arbitration - Sino Channel v Dana Shipping (Court of Appeal)

Court of Appeal rules that arbitration notice was effectively served when served on agent of a party

The first instance decision in this case was reported in Weekly Update 19/16. The defendant appointed an arbitrator and emailed a notice of the arbitration to an individual (Mr Cai), who was not an employee of the other party to the purported arbitration (the claimant in this action). However, Mr Cai had been handling the contract in question (and was the main contact point for the claimant) and there was a close relationship between his company and the claimant. After an award was handed down in favour of the defendant, the claimant applied to court pursuant to section 72 of the Arbitration Act 1996 for a declaration that the tribunal had not been properly constituted. Eder J held that even where an employee or agent has a wide general authority to act on behalf of his employer/principal, such authority does not (without more) generally include an authority to accept service of a notice of arbitration. On the facts, Mr Cai did not have any implied actual authority or ostensible authority to accept service. The Court of Appeal has now allowed the appeal from that decision.

The Court of Appeal held that "As a matter of context and fact, we understand that authority to accept service of originating process requires close scrutiny but are unable to accept that there is no room as a matter of law for implied actual authority in a suitable and, no doubt, rare case". Here, the relationship between the claimant and Mr Cai had been "remarkable" and the claimant had been "apparently content with complete passivity". Since it was Mr Cai's business to deal with all aspects of the contract with the claimant, he had implied actual authority to receive the notice of arbitration.

Furthermore, there was also ostensible authority for Mr Cai to accept service. The appearance given to the defendant was that Mr Cai was to be dealt with for all purposes, including receipt of the notice. Accordingly, there had been a representation by conduct from the claimant that he had such authority.

COMMENT: The Court of Appeal's decision here seems a sensible one, given the highly unusual facts of the case. The judge's conclusion that there had been no valid service of a notice of arbitration had had the unfortunate effect that the party which participated in arbitral proceedings and obtained an award in its favour had wasted time and money pursuing an arbitration which was said to have never been validly commenced.