Get the procedural steps right when commencing arbitration
Sino Channel Asia Ltd v. Dana Shipping and Trade Pte Singapore and Dana Shipping and Trading SA  EWHC 1118 (Comm)
The Commercial Court has recently held that an arbitration award was made without jurisdiction and that the Tribunal was not constituted properly because a notice of arbitration was not validly served. This case provides a timely reminder to those entering into charterparties or other shipping contracts that provide for the arbitration of disputes to ensure that they comply with the requirements for commencing and giving notice of arbitration to the other side. While the formalities of service in arbitration proceedings are more flexible than the court regime for service, it is still necessary to ensure that a party is served properly.
The background facts
The case concerned the status of arbitration proceedings purportedly commenced by the First Defendant, Dana Shipping and Trading Pte Ltd Singapore ("Dana"), against the Claimant, Sino Channel Asia Limited ("Sino Channel") in connection with disputes arising under a contract of affreightment ("COA").
Dana’s dealings had been with a Chinese company called Beijing XCty Trading Ltd (“Beijing XCty”), which arranged back-to-back sale and purchase contracts that were concluded in the name of a related Hong Kong company, Sino Channel. The COA that Dana subsequently entered into, as the Owners, was with Sino Channel as the Charterers. An individual, C, who worked for Beijing XCty, had been involved in the negotiations with Dana. At various times, he had represented himself as acting for Sino Channel and/or Beijing XCty.
When disputes arose and Dana appointed an arbitrator, they e-mailed their notice of arbitration to C. In the usual way, the notice called on Sino Channel to appoint its own arbitrator. Subsequent notices and messages were also sent to C’s e-mail address. While C sent some messages in response, no arbitrator was appointed on behalf of Sino Channel. Dana purported to appoint their arbitrator as sole arbitrator. The sole arbitrator made an award in Dana’s favour, which was subsequently served on Sino Channel in Hong Kong.
Sino Channel alleged that this was the first they had heard of the arbitration. They argued that C had no authority to accept service of the notice of arbitration on their behalf and, therefore, service had been ineffective.
Dana sought to enforce the arbitration award against Sino Channel in Hong Kong. Those enforcement proceedings were, however, stayed pending the outcome of Sino Channel’s application to the English Court for a declaration that the Tribunal had not been properly constituted and that the award was not, therefore, valid and binding.
The Commercial Court decision
The Court found in favour of Sino Channel. There was a distinction between a wide general authority to act on behalf of an employer or principal in negotiating a contract and related matters on the one hand and having authority to accept service of a notice of arbitration on the other hand. While Beijing XCty and C did have general authority to act on behalf of Sino Channel in connection with the COA, they did not have an implied actual authority to accept notice of arbitration on behalf of Sino Channel.
Furthermore, and on the facts, the Court found that there was no express representation by Sino Channel to Dana that Beijing XCty or C had any authority to accept notice of an arbitration on their behalf. Nor, in the Court’s opinion, had Sino Channel put Beijing XCty or C in a position where they could hold themselves out as having such authority. Dana could not, therefore, rely on an argument that Beijing XCty or C had apparent authority to accept service on Dana’s behalf.
The Court also failed to find any ratification on the part of Sino Channel. The fact that they took no action for four months after being served with the award did not amount to an acceptance that the award was valid and binding. Furthermore, where a tribunal is not properly constituted, a party’s failure to participate in the arbitration proceedings cannot amount to a ratification of the award. Mere silence and inaction were not enough.
Parties to an arbitration agreement governed by English law are free to agree on how notices should be served. Parties to shipping contracts that provide for arbitration might wish to incorporate an express “notice” clause to avoid disputes as to whether or not a notice has been validly served.
A party serving notice of arbitration must ensure that it serves the notice on a person who is authorised to accept service. In this case, Dana was in possession of company reports on Sino Channel that contained sufficient information, including an e-mail address, that would have allowed them to effect valid service on Sino Channel.
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