Initiation of arbitration and appointment of arbitrators

The importance of notifying the correct party

The Commercial Court has recently set aside an arbitration award under Section 72 of the Arbitration Act 1996 finding that the respondent had not been given proper notice of the arbitration.

The dispute concerned a contract of affreightment (“COA”) between Dana Shipping & Trading PTE Singapore as owners (“Owners”) and Sino Channel Asia Ltd as charterers (“Charterers”).

Charterers were a Hong Kong registered company. Mr Daniel Caix was the owner of a Chinese company, Beijing XCity. Charterers entered into an arrangement with Beijing XCity whereby Charterers would provide Beijing XCity with letters of credit and Beijing XCity would then arrange sale and purchase contracts, that were concluded in Charterers name.

The COA was fixed via brokers (one on each side), who appear to have dealt exclusively (for Charterers), with Mr Caix. Owners’ brokers were informed by Charterers’ brokers that Mr Caix was “Charterers’ guy” and he presented himself as “Daniel of Sino Channel” with business cards giving Charterers’ Hong Kong address. All post-fixture correspondence was with Mr Caix. Unknown to Owners, Charterers delegated all responsibility for performance of the COA to Beijing XCity.

Ultimately, Charterers (via Beijing XCity) failed to perform the COA and in 2014, Owners commenced arbitration in London. The notice of arbitration was sent via email to Mr Caix with a copy also being forwarded via broking channels. Brokers confirmed that this was passed on to Charterers, however, it later became apparent they had merely forwarded the notice to Mr Caix. Mr Caix acknowledged the notice of arbitration, requesting more time to appoint, however, this was the last that was heard from him leading to the appointment of the arbitrator appointed by Owners as sole arbitrator. Charterers failed to participate in the arbitration proceedings and Owners obtained an Arbitration Award in their favour, in the amount of approximately USD 1.7 million plus interest and costs. A copy of the Award was sent to Charterers’ registered Hong Kong address in June 2015.

In November 2015, Owners commenced enforcement proceedings in Hong Kong, which prompted Charterers’ principal, Mr Jung, to write to the Arbitrator informing him that Charterers had not received notice of the arbitration and had no information concerning the arbitration.

In January 2016, Charterers commenced proceedings in the Commercial Court under the Arbitration Act 1996 Section 72(1). The Hong Kong enforcement proceedings were stayed pending the outcome of said proceedings.

Commercial Court Decision
Section 72(1) of the Arbitration Act 1996 provides as follows:

(1)   A person alleged to be a party to arbitral proceedings but who takes no part in the proceedings may question

(b) whether the tribunal is properly constituted; or
(c) what matters have been submitted to arbitration in accordance with the arbitration agreement

By proceedings in court for a declaration or injunction or other appropriate relief

Although it was common ground that Charterers had entered into the COA with the intention that Bejing XCity would perform the entire contract, the Court agreed that Mr Caix did not have authority (whether implied or ostensible) to accept service of proceedings on behalf of Charterers. Although Mr Caix may have held himself out as being an employee of Charterers and/or having authority to accept service of arbitration, Charterers themselves had not made any such representations.

There was a distinction between a wide general authority to act on behalf of a principal and authority to accept service of proceedings. Charterers may have effectively delegated all responsibility for the subject COA, this does not (without more) include an authority to accept service of proceedings.

Nor was the Court convinced by an argument that Charterers had ratified Mr Caix’s conduct by way of their failure to take any steps to dispute it after receiving the Award. Ratification required an unequivocal act. There was no evidence that Charterers had done anything to adopt the actions of Mr Caix. Charterers were entitled to wait until enforcement action was commenced before challenging the Award under Section 72 of the Arbitration Act. There was no time limit on when such a challenge must be brought.

The Court found in favour of Charterers and the arbitration award was set aside.

Impact of the Decision
The factual scenario behind this dispute was distinct, with Charterers lending their name to a third party and entering into a contract, in respect of which they intended to have no involvement whatsoever. Being so fact specific, the general applicability of the decision may be limited. However, the Judgment comes as a warning in the present climate where e-mail is relied on as the primary form of communication. Ultimately, the situation was avoidable, either by including clear notice provisions in the contract and/or, where there is any doubt as to who notice should be served on, sending a copy of the notice to the registered office.