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08 February 2017
Two recent London decisions have highlighted problems that can be encountered in starting an arbitration.
The first decision concerned an issue with identifying whether a non-signing counterparty is bound by the agreement containing the arbitration clause. The second decision concerned the question of which parties are authorised to accept service of arbitration notices.
In the first decision, London Maritime Arbitrators Association Award 13/16, a claim was made under a booking note for the shipment of a project cargo. A booking note is designed to be a precursor to a bill of lading, containing both an agreement with the charterers or freight forwarders for booking space on the vessel and an agreement on the terms of the bill of lading to be issued by the shipowners for the cargo once loaded. These terms include the standard liner bill definition of the counterparty as the 'merchant' to include the named merchant, but also include the shipper, receiver, consignee, holder of the bill of lading and cargo owners.
Once issued, the bill of lading normally supersedes the booking note ‒ hence the need for the definition of 'merchant' to cover whoever might be the lawful holder of the bill of lading. Indeed, normally shipowners' claims are made under the bill of lading. However, in this case, the bill of lading was issued after the accident to the project cargo, which was loaded under the booking note. Moreover, the bill of lading was issued with the correct weight of the project cargo, while the booking note had misdescribed the weight and this, according to the shipowners, had caused the accident. Why the shipowners issued the bill of lading with the corrected weight is not mentioned and it is unknown whether the mate's receipts – on which the bill of lading would have been based – recorded the correct weight, although this was not picked up until after the accident. In any event, the shipowners' case for misdescription of the cargo rested on the booking note which, by chance, had still not been superseded at the time of the accident.
The shipowners' position was further complicated because they wanted to claim against both:
However, when the shipowners served their claim, the shipper objected, claiming that it was not a party to the booking note. The shipowners argued that it was a party, by reason of it being the shipper; the named merchant's representative; and the intended counterparty to the bill of lading anticipated by the booking note. However, the tribunal rejected the shipowners' argument, affirming that nothing in the booking note made the shipper a party to it and that, absent a contract with the shipper, the tribunal had no jurisdiction to hear the claims – even the potential claims in tort for the misdescription. This is perhaps key to the shipowners' strained attempt to bring the shipper into the arbitration, as the alternative forum for tort claims would have been their domicile, Romania.
The case serves as a reminder that for any non-signing counterparty to be bound by the signature of another counterparty, it must give actual or ostensible authority for that counterparty to sign on its behalf. In this case, simply defining the term 'merchant' to include the shipper, naming the shipper as the merchant's representative and agreeing that the contract would be superseded with another including the shipper proved insufficient.
The second case, Sino Channel Asia Ltd v Dana Shipping and Trading Pte Singapore (2016) EWHC1118, was an appeal to the High Court in London from a London arbitration award concerning an assumption about who to serve with notice of arbitration.
A contract of affreightment had been made between the shipowners and the charterers, via their brokers. In the course of the negotiations, Mr Cai was represented by the charterers' brokers as a representative of the charterers and was the brokers' point of contact with the charterers. Unknown to the shipowners, Cai did not work for the charterers, but another company that was working with the charterers on the operational aspects of the contract. As such, when it came to serving a notice of appointment of arbitrator for breach of the contract, the notice was sent on the shipowners' behalf to the charterers' brokers and Cai. The notice sent to the charterers' brokers was forwarded by them to Cai as well. Accepted evidence showed that Cai did not pass either arbitration notice on to the charterers; instead, he tried to resolve matters without success and left the shipowners to obtain a default award against the charterers.
The first that the charterers knew about the arbitration was when they received a copy of the award by post. Questioning Cai's company, they were told that Cai had acted without authority and that the company would settle the award. However, no settlement took place, at which point the charterers questioned the legitimacy of an award obtained without their knowledge. The question was whether Cai had been authorised to receive the arbitration notice on the charterers' behalf.
First, regarding actual authority, it was accepted that the charterers had not authorised Cai or his company to act in arbitrations for them; nor could such authority be implied from Cai's general authority. To accept service of arbitration notices, like court claims, requires actual or ostensible authority for such service.
Regarding ostensible authority, the charterers had given no representations that Cai or his company could use to show that the charterers had acquiesced in receiving the arbitration notice or in any such representation being made by Cai or his company. Admittedly, the charterers' brokers had forwarded the notice to Cai, suggesting his authority to receive it, but the judge decided that the brokers were probably keeping to a line of communication previously established without considering the issue of authority.
The judge therefore agreed with the charterers that they had not been properly served with the notice of appointment of the arbitrator, and that this invalidated the award (after dismissing further arguments that it had been ratified by the charterers' response or non-response once served).
This decision underlines the problems that can follow from assuming that parties in the chain of communication for a contract are authorised to accept service of arbitration notices. This also applies to protection and indemnity clubs and lawyers, as without obtaining confirmation that they are authorised to accept service there is a risk that service on them will not be recognised. However, an agent or broker will usually pass the arbitration notice to its principal and actual receipt of the notice by the principal will then be regarded as effective; although in this case, even the broker sent the arbitration notice to the wrong party. This could all have been avoided if the notice had been sent to the charterers direct.
For further information on this topic please contact Robert Joiner at Wikborg Rein's Singapore office by telephone (+65 6438 4498) or email (email@example.com). Alternatively, please contact Rob Jardine-Brown at Wikborg Rein's London office by telephone (+44 20 7367 0300) or email (firstname.lastname@example.org). The Wikborg Rein website can be accessed at www.wr.no.
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