An Example of When All Are Not Equal Before the Law

Summary

Two recent decisions by the English Court have served as reminders that a party wishing to commence arbitration proceedings must take care to properly serve an arbitration notice.  Although the rules of service in arbitration proceedings may be less rigid than in court litigation it is still a crucial step and the consequences can be fatal to a party's claim if it is not done correctly. Care should be taken to check that whoever a notice of arbitration is to be sent to has authority to accept service.

Glencore Agriculture BV v Conqueror Holdings Ltd [2017] EWHC 2893 (Comm)

Background

Glencore sought to challenge an arbitration award on the grounds that the arbitration notice had been emailed to a "back office" junior employee who did not have the authority to accept service.

Conqueror had sent not only the arbitration notice to the junior employee but also a letter before action, correspondence relating to the appointment of arbitrators and various directions from the sole arbitrator that had been appointed. The arbitration had proceeded without any response from Glencore or acknowledgement of any of the correspondence regarding the arbitration.   In fact Glencore had been unaware of the proceedings until it received the arbitration award (which had been made in its absence) by post on 28 October 2016.

Glencore applied to the English High Court to set aside the arbitral award under section 72 of the Arbitration Act 1996 (AA). The issue before the court was whether the notice of arbitration had been validly served in accordance with s.76 AA and whether the employee had authority (whether express or implied) to accept service of the arbitration proceedings.

Can an arbitration notice be served by email?

As noted at paragraph 21 of the Judgment section 76 AA is less "circumscribed than the service provisions in the Civil Procedure Rules" in relation to the use of email.    Section 76 AA states that

(1) "the parties are free to agree on the manner of service of any notice or other document required or authorised to be given or served in pursuance of the arbitration agreement or for the purposes of the arbitral proceedings" 

(2) if or to the extent that there is no such agreement the following provisions apply

(3)  A notice or other document may be served on a person by any effective means."

The Judge said he agreed with the observations of Christopher Clarke J in Bernuth Lines Ltd v High Seas Shipping Ltd (The Eastern Navigator) [2006] 1 Lloyd's Reports 537 at paragraph [28] when he said:

".. arbitrations are usually conducted by businessmen represented by, or with ready access to lawyers. Section 76(3) , when providing that a notice could be served upon a person by any effective means was, in my judgment, purposely wide. It contemplates that any means of service will suffice provided that it is a recognised means of communication effective to deliver the document to the party to whom it is sent at his address for the purpose of that means of communication (e.g post, fax, or e-mail)."

Did the junior employee have authority to accept service?

The Judge referred to Sino Channel Asia Ltd v Dana Shipping and Trading PTE Singapore (see below) and the comment in that judgment that even if an employee has wide general authority to act on behalf of their employer that does not generally include authority to accept service of proceedings- this is a separate and distinct matter.

Authority to accept service could have been express or implied.  An individual could have implied authority to accept service if, for example its role was to manage the company's disputes and he/she was relatively senior.

Decision

The Judge held that based on the facts and circumstances in this case the junior employee clearly did not have implied authority and neither did he have express authority. He had sent 3 emails relating to the underlying matters/ dispute but this did not amount to anything more than a limited operational role.

The Judge concluded therefore that the arbitration notice had not been effectively served given the employee had never been presented as being authorised to accept service. As such Glencore was entitled to relief as the tribunal had never been properly constituted as a result of the defective service.

It is worth noting that the court distinguished between emailing an individual’s address, such as in this case, and emailing a generic business address, one for example that was offered in the course of pre action correspondence or set out in the arbitration agreement.  The latter step would lead to the sender having a legitimate expectation that the notice would come to the attention of a suitably authorised person and could constitute reasonable service. 

Sino Channel Asia Ltd v Dana Shipping & Trading PTE Singapore and another [2017] EWCA Civ 1703 

In Sino Channel the Court of Appeal overturned a High Court decision that service of a notice of arbitration by the Claimant on the Respondents' agent was defective as the agent had no authority to receive the notice of arbitration.  The Court of Appeal held that based on the rare circumstances of this case the agent had both implied actual and ostensible authority to receive the notice of arbitration.

Background

Dana, as the owner of a ship and Sino, as charterer of that ship entered into a contract of affreightment (COA).   The COA was negotiated on behalf of Sino by a third party, BX who had agreed with Sino that Sino would enter into the COA as a 'front' for BX.   Sino played no part in the performance of the contract and had no communications with Dana.  Dana only ever communicated with 'BX'.

A dispute arose in relation to the COA and Dana served an arbitration notice on BX. The notice was sent to the BX employee Dana had been communicating with in relation to the COA and whom Dana believed was the correct person to receive the notice.  As in Glencore, the Respondent neither responded nor participated in the arbitration and BX took no effective steps to defend the claim. An award was issued in Sino’s absence.

When Dana sought to enforce the award, Sino sought to challenge it under s72 AA on the basis that BX did not have authority to accept service on Sino’s behalf.

At first instance the High Court upheld Sino's claim.  Dana appealed to the Court of Appeal.

Considering this issue, the Court of Appeal considered whether BX had:

1. implied actual authority to receive service on behalf of Sino; and
2. ostensible authority to receive the notice on behalf of Sino.

In deciding the first issue the Court of Appeal held that the relevant consideration in deciding whether there was implied actual authority was the conduct between Sino and BX. The degree of integration between the two parties was remarkable in that while Sino had assumed all liability it had played no active role in the day-to-day execution of the contract. As a result of Sino’s disengagement it was not feasible that Sino could then insist that the notice to arbitrate be served on it.

Dealing with the second issue, the Court distinguished ostensible authority from actual authority as it presented a higher bar to overcome on the basis that the Court must approach this question with greater caution. The Court concluded that BX’s autonomy was likely to lead third parties to understand that BX were to be dealt with directly for all matters relating to the transaction pursuant to the contract.

The third issue to be concluded was whether Sino had ratified BX’s receipt of the notice. This, however, was not dealt with given the court’s conclusion on the first and second issue.

Decision

The Court of Appeal made it clear that it had found that BX had implied and ostensible authority based on the "most unusual" circumstances and the "most unusual relationship" between Sino and BX – however it will only be in the rarest of cases that an agent will be found to have anything other than express actual authority to accept service of an arbitration award.

Comment

When drafting an arbitration agreement, it is important to think about its practical application in order to avoid uncertainty later on. Having well thought-out clauses and the supporting procedural infrastructure will provide greater clarity and control should a dispute, such as the above, arise.  

Daniella Smith & Jack Cooper