B e f o r e :
LORD JUSTICE GROSS
LORD JUSTICE FLAUX
|| Sino Channel Asia Ltd
||- and -
||Dana Shipping & Trading PTE Singapore & Another
Michael Coburn QC (instructed by Bryan Cave) for the Respondent
Duncan Matthews QC and Matthew McGhee (instructed by Holman Fenwick Willan LLP) for the Appellants
Hearing date : 28 September, 2017
HTML VERSION OF JUDGMENT APPROVED
Crown Copyright ©
Lord Justice Gross :
- This is the judgment of the Court to which we have each contributed.
- The Appellants appeal against the judgment of Sir Bernard Eder, sitting as a Deputy High Court Judge, dated 20th May, 2016,  EWHC 1118 (Comm) ("the judgment"). Holding in favour of the Respondent ("Sino"), the Judge set aside the arbitration award of Mr Christopher Moss, dated 3rd February, 2015, corrected 15th June, 2015, awarding the First Appellant ("Dana") US$1,680,404.15, plus interest and costs ("the Award") and declared "that the arbitral tribunal was not properly constituted, and that the Award was made without jurisdiction".
- The disputed question was whether service of Dana's notice of arbitration ("the notice") on Beijing XCty Trading Limited ("BX") was effective, giving rise to three principal issues:
i) Did BX have implied actual authority to receive the notice on behalf of Sino? ("Issue I: Implied actual authority")
ii) Did BX have ostensible authority to receive the notice on behalf of Sino? ("Issue II: Ostensible authority")
iii) If the answer to Issues I and II is "no", did Sino ratify BX's receipt of the notice? ("Issue III: Ratification").
- The Judge gave the answer "no" to all of Issues I – III. On the appeal, the Appellants submit the Judge was wrong and that the correct answer to each of Issues I – III is "yes", though they need only succeed on any one of those Issues for the appeal to be allowed. Sino contends that the Judge was right on all the Issues.
- As the present case demonstrates, there is no shortage of variety in commercial transactions.
- It is common ground that Sino incurred liability as charterer, under a Contract of Affreightment, dated 9th April, 2013 ("the COA"), made with Dana, as owner. However, apart from Mr Jung Byung Dug ("Mr Jung"), the Director and apparently 100% shareholder of Sino, signing the COA in its name, Sino played no part in the negotiation and performance of the COA. Thus, Sino signed the COA on behalf of and "lent its name" to Mr Zhou Wen Li ("Mr Zhou"), the Director and owner of BX, a Chinese company, with a Beijing address. In short, Sino was "fronting" for BX.
- Strikingly, with one exception, all communications (after the signing of the COA), whether directly or via the brokerage channel – Lynx Freight & Trading SA ("Lynx") for Dana and Triton Shipping ("Triton") for Sino - were between Dana and a Mr Daniel Cai of BX ("Mr Cai"). The sole exception was a letter dated 1st November, 2013 ("the invitation letter"), after disputes had arisen under the COA, when Mr Zhou invited Mr Hodgins of Dana for talks in Hong Kong and Shenzhen with Mr Cai, in an attempt to resolve those disputes. Dana knew nothing of the fronting or that Mr Cai was a representative of BX, rather than an employee or representative of Sino. To the contrary, Triton (Sino's broker) had stated to Lynx that Mr Cai was Sino's representative or employee; indeed, Mr Cai was the only representative of Sino identified to Lynx and it was Mr Cai who dealt with all post-fixture matters, including the problems affecting the performance of the COA.
- In the event and as already foreshadowed, disputes arose under the COA and, on the 4th and 5th February, 2014, pursuant to cl. 55 of the COA, Dana sent the notice - directly and via the brokerage channel - that it had commenced arbitration and appointed Mr Christopher Moss as its arbitrator. The notice called upon Sino to appoint its arbitrator within 14 days and to notify Dana accordingly. The notice was sent to Mr Cai, the only individual with whom they had been in communication.
- Sino did not respond and did not participate in the arbitration. It appears that BX took no effective steps to defend the claim and, as recounted by the Judge, Mr Moss took on the role of sole arbitrator and made the Award. The Award was sent by hard copy, under cover of a letter dated 15th June, 2015, to Sino's address in Hong Kong and was received by Sino. Subject to questions of the authority of BX to receive the notice, this was the first Sino had heard of the arbitration.
- Against that background, on the 28th January, 2016, Sino applied for a declaration pursuant to s.72 (1) (b) and/or (c) of the Arbitration Act 1996 ("the Act") which 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 the court for a declaration ….or other appropriate relief."
As already recorded, Sino was successful before the Judge.
- We were most grateful to Mr Matthews QC, for Dana (who did not appear below) and to Mr Coburn QC, for Sino, for their excellent submissions.
- For present purposes, the facts can be briefly outlined, in good measure gratefully adopting the summary contained in the judgment. The facts themselves, as distinct from the inferences and conclusions to be drawn from them, were essentially undisputed. Further, as the position adopted by the Appellants before the Judge was that there was, in general, no need for oral evidence or disclosure, the Judge proceeded on the basis that the Sino documentary evidence of fact was to be accepted as true. The same premise has applied on this appeal.
- As set out in the judgment (at  and following), Mr Jung is Korean. In 2007, he set up Sino as his own trading company, registered in Hong Kong. In about 2009, Mr Zhou - whom Mr Jung had met in the course of his (Mr Jung's) previous employment – approached Mr Jung with a view to Sino providing BX with the same sort of letter of credit financial services as had been provided by Mr Jung's previous employers. Mr Jung agreed to do so. These "services" entailed BX arranging back-to-back sale and purchase contracts ("the sale and purchase contracts") – back-to-back save for a difference between the prices - to be concluded in the name of Sino, with Sino handling the financial (letter of credit) side of the transaction and BX handling the operational side. As between Sino and BX, Sino would be entitled to receive US$1 per metric tonne. Subject to this "commission", BX would be entitled to the difference between the buying and selling price. Mr Cai appears to have joined BX in around 2011/2012. As the Judge summarised Mr Jung's (documentary) evidence (at ):
" Mr Jung met him on a few occasions and exchanged a limited number of Skype messages with him. Mr Jung formed no particular impression of Mr Cai, except that he was Mr Zhou's subordinate and assisted him. Mr Jung dealt mainly with Mr Zhou, who spoke Korean."
- Pausing here, the sale and purchase contracts contained detailed notice provisions. A typical example, we were told, was that found in cl.15 of the Purchase Agreement dated 20th June, 2013:
" Buyer: Sino Channel Asia Ltd
Flat B, 5F, Wing Hing Comm. Bldg,
139 Wing Lok Street, Sheung Wan
15. Every notice or demand or other communication under or in connection with this Sales Contract shall be in writing and delivered at or sent by hand or registered airmail or by international courier or by email or facsimilie to the address mentioned in this agreement, referring the contract no and date herein. "
- The Judge came next to the COA (at  and following). In early 2013, Mr Zhou asked Mr Jung to enter into a COA in the name of Sino. This was unusual, as all previous sale and purchase contracts had been on C&F terms but Mr Jung was prevailed upon by Mr Zhou and did what he was asked. The COA appears to have been negotiated by the brokers - Lynx and Triton – and Sino was not itself involved in the negotiations. However, as the Judge continued (at ):
" …Mr Jung signed it and it bears Sino Channel's corporate stamp. Sino Channel fully accepts (and has never denied) that it became bound by the COA as the result of signing it."
- Augmenting the Judge's summary, Mr Jung's frame of mind appears clearly from his evidence. In his 5th affidavit, sworn on 26th January, 2016 in the Hong Kong enforcement proceedings (referred to by the Judge, at , now awaiting the outcome of the litigation in this jurisdiction), Mr Jung said this (at para. 18):
" ….Mr Cai was not authorised by the Respondent [i.e., Sino] to negotiate on the terms of the Charterparty [i.e., the COA]. I believe he might have been authorised by Mr Zhou….The Respondent was not involved in the negotiation and performance of the Charterparty. The Respondent only 'lent' its name to Beijing XCty and signed the Charterparty. That is all…."
As was common ground, it was clearly anticipated that BX, rather than Sino, would handle the day-to-day operation of the COA.
- The COA provided for the carriage of about 275,000 mt of iron ore from Venezuela to China, to be carried in five shipments over the period June to October 2013. Questions of governing law and arbitration were dealt with in cl. 55 of the COA:
" 55. Law and Arbitration
This Charter Party shall be governed by English Law and any dispute arising out of this Charter Party or any Bill of Lading issued thereunder shall be referred to arbitration of London, one arbitrator being appointed by each party, in accordance with the Arbitration Acts….or any statutory modification or re-enactment thereof for the time being in force. On the receipt by one party of the notification in writing of the appointment of the other party's arbitrator, that party shall appoint their arbitrator….[within]…fourteen days which the decision by the single arbitrator appointed shall apply. If two arbitrators properly appointed shall not agree they shall appoint an umpire whose decision shall be final. The arbitrators shall be commercial men conversant with shipping matters."
Although cl. 56 of the COA contained various provisions for the giving of (strictly) operational notices, the COA included nothing similar to cl. 15 of the sale and purchase contracts.
- It appears that no shipments were ever made under the COA, a matter attributed by Mr Jung (in his 1st Witness Statement in these proceedings, dated 28th January, 2016, at para. 14) to political instability in Venezuela. Efforts between Dana and, as it transpires, BX, to resolve the resultant disputes proved unavailing and Dana purported to commence arbitration.
- Dealing with Mr Cai, the Judge (at  and following) observed that at an early stage he had been identified by the brokers as "charterers' guy". Dana had obtained two email addresses personal to Mr Cai. One of those addresses, "email@example.com" was subsequently used for the notices and messages relating to the (purported) arbitration. The Judge underlined that "sina" in that email address had nothing to do with Sino; it is simply a Chinese internet service provider. It was common ground that Mr Cai presented himself to Dana as "Daniel of Sino Channel Asia" and, on the evidence, both Dana and Lynx had been informed by Triton that Mr Cai was "charterers' guy".
- The Judge helpfully summarised Mr Cai's response to the notices of arbitration as follows:
" 31. Mr Cai appears to have sent just three messages ….before ceasing communication altogether.
i) On 12 February 2014 he emailed Dana/HFW [i.e., Holman Fenwick Willan, Dana's solicitors, who were by then involved] to the effect it was not good to solve the dispute by arbitration and he would try to persuade 'someone important' (presumably Mr Zhou) to accept a new long term agreement.
ii) On 19 February 2014 he emailed Dana/HFW asking for an extension of time to appoint an arbitrator.
iii) On the same day he sent a fax to the arbitrator (Mr Moss) also asking for an extension of time to appoint an arbitrator.
32. The last of these messages calls for further comment. The fax purports to be on Sino Channel's paper and to bear its signature and stamp. However, as Mr Jung explains, it is in fact a fairly crude cut-and-paste job. Mr Cai evidently felt the need to pretend that his message was an official message from Sino Channel, endorsed by Mr Jung and duly stamped, when in fact it was no such thing."
- Insofar as it is relevant (see below), the Judge further observed (at ) that Dana could have commenced arbitration "straightforwardly" under s.76(4)(b) of the Act, by serving notice on Dana's registered and trading addressed in Hong Kong. Details of these addresses appeared from an "Infospectrum Rating Report", dated 8th April, 2013 ("the Infospectrum Report") commissioned by Dana in respect of Sino. Intriguingly, the Infospectrum Report also contained references to BX and Mr Zhou but as Mr Jung disputes those references, on the evidential premise on which these proceedings rest, they must be put to one side.
- For our part, Mr Jung's reaction to events as they unfolded is of interest and importance. As appears from Mr Jung's 1st Witness Statement:
i) After the signature of the COA, sometime in May or June 2013 (Mr Jung could not remember the specific date), he met Mr Zhou in Beijing. He asked him how the raw materials business was going and the COA came up for discussion. Mr Zhou said there were "some problems" but "he would deal with these and there was nothing to worry about". Though, as we know, he has always accepted that Sino was the party liable under the COA vis-à-vis Dana, Mr Jung says that he "did not pay too much attention" as he had not been required to handle the shipments.
ii) On or about the 30th June, 2015, Sino received the Award at its registered address in Hong Kong. According to Mr Jung, this was the first time he had any knowledge of the arbitration proceedings or the Award. He went on to say that he did not "fully understand" the Award or its ramifications as he assumed "that for any legal proceedings to have been started they would have had to have been notified to Sino". He sent the Award, which "appeared to relate" to the COA, immediately by email to Mr Zhou. He received no response and appears to have done nothing about it until he met Mr Zhou "some time later" in Beijing.
iii) On that later occasion, for which no date is given, Mr Jung asked Mr Zhou what the Award was about. Mr Zhou told him to "ignore it". Mr Zhou was dealing with it and it was not necessary for Mr Jung to do anything. On this occasion, it appears that Mr Jung discussed Mr Cai with Mr Zhou. According to Mr Zhou, Mr Cai had by then left BX; he had not been authorised to handle arbitration matters and had been acting without the authority of Mr Zhou or BX. Mr Zhou assured Mr Jung that "he would settle the Award". Mr Jung appears to have left matters there but recounts that he heard nothing further from Mr Zhou.
iv) In October 2015, through a banking contact in Hong Kong, Mr Jung came to realise that BX and Mr Zhou had not "taken care" of the Award "as they had promised". At this juncture, on the 29th October, 2015, Mr Jung emailed the arbitrator, introducing himself as director of Sino and saying the following:
" I received arbitration award from your company before.
but I ignored because it is not related to our company.
I didn't receive any official notice from you for beginning arbitration.
Sino Channel Asia Limited has no China representative.
Mr Cai is not representative of 'Sino' either.
Please send me full documentation for this case.
Especially, I need an evidence you sent to 'Sino' the official notice of beginning for this arbitration. Also I need a based contract for this arbitration.
and what is the evidence Mr Cai is representative of 'Sino'.
I will review those documentations and make you clear. "
v) News that enforcement proceedings were afoot in Singapore alarmed Mr Jung further, in that they might impact on Sino's ability to do business. Mr Jung accordingly asked Mr Zhou to sign a "Confirmation" that he (Mr Zhou) would be responsible for the liabilities under the Award. On the 3rd November, 2015, such a "Confirmation" was forthcoming, stating that Mr Zhou and BX:
" ….will take a full responsibility for claim of Dana…..court case.
Zhou…and …..[BX]…will solve the case and do not make any harm and damage to Sino…."
The "Confirmation" appears to have been signed Mr Zhou on his own behalf and on behalf of BX. Plainly, BX and Mr Zhou have not honoured these promises.
THE JUDGMENT UNDER APPEAL
- We turn directly to the Judge's conclusions on the three principal issues.
- As to implied actual authority (at  – ), the Judge recorded that there was little, if any, dispute on the applicable principles. The Judge was much influenced by the reasoning in the judgment of Gross J in The Lake Michigan  EWHC 3325;  2 Lloyd's Rep 141, as to the wide general authority of P&I Clubs and solicitors to deal with a case on behalf of a client not (without more) translating into authority to accept service of originating process.
- Building on The Lake Michigan:
" 45. ….Mr Coburn QC submitted that the position is a fortiori in the case of a person (whether employee, agent, sub-contractor or other third party) who is (as in the present case) in practice responsible for the performance of a party's substantive contractual obligations and/or is the sole or main contact point for contractual purposes; that one could not serve a notice of arbitration (or other originating process) on the Master of a ship; a repairman sent by his company; a relationship manager at a bank; a telephonist or driver of a minicab firm; a foreman; a subcontractor to whom an entire building project had been subcontracted etc.; and that it would be nothing to the point that each of these might have been the sole or main contact point, in practice handling the performance of the contractual obligations in question. This was….particularly important in a shipping context where it is routine for contractual obligations to be performed in practice by third parties e.g. a head owner performing a disponent owner's obligations, or a receiver performing a charterer's obligations to discharge."
- Although the Judge readily accepted that s.76 of the Act (see below) may operate more flexibly than the CPR court regime for service, a notice to commence arbitration was an important step, with "significant legal consequences beyond the performance of ordinary contractual obligations".
- For these reasons:
" 47. …it seems to me that Mr Coburn QC is right in his main submission 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."
The Judge was not dissuaded from this conclusion either by Triton's action in passing the notice of arbitration to BX or Mr Jung's reaction on receiving a hard copy of the Award.
"49. Thus, in the present case, while I accept that Beijing XCty and Mr Cai had a general authority to act on behalf of Sino Channel in connection with the COA, I am not persuaded that Beijing XCty or Mr Cai had any implied actual authority to accept notice of arbitration on behalf of Sino Channel."
- Turning next to ostensible authority (at  – ), there was, again, little, if any, dispute as to the applicable principles. The Judge recorded the various factual matters relied upon by Mr Karia QC (then appearing for Dana), which were not and could not be disputed by Mr Coburn. However:
"55. ….the main difficulty facing Mr Karia QC is similar to that which I have already considered in the context of the alleged implied actual authority. In summary, even taking all these stated facts at face value, I see nothing which constitutes an express representation by Sino Channel that Beijing XCty or Mr Cai had any authority to accept notice of an arbitration; nor that Sino Channel put Beijing XCty or Mr Cai in a position where the latter could hold themselves out to such effect and Sino Channel acquiesced in such activity. Any such representation could only arise by implication and, for reasons similar to those already considered…..I do not consider that such representation can be implied in the circumstances of the case."
- Finally, the Judge addressed ratification (at  – ). This issue was sub-divided into "positive ratification" and "silent ratification". Positive ratification referred to what Mr Jung did after receipt of the hard copy of the Award, the contention being that Mr Jung had ratified the authority of BX/ Mr Cai to receive the notice of arbitration. Silent ratification related to Sino's (alleged) "inaction and acquiescence" from the time of receipt of the hard copy of the Award until Mr Jung's email to the arbitrator (set out above), nearly 4 months later, after commencement of the enforcement proceedings.
- Taking "silent ratification" first and relying on Dallah Co v Ministry of Religious Affairs of Pakistan  UKSC 46;  1 AC 763, the Judge rejected Mr Karia's submission on the basis that there was no obligation on a person who denied being a party to an arbitration agreement to take any steps in advance of enforcement proceedings.
- "Positive ratification" required an unequivocal act and the facts fell far short of demonstrating that Mr Jung's conduct involved adopting or recognising what Mr Cai had done. Similarly, any agreement that BX would pay the Award was not necessarily inconsistent with Sino maintaining that the award was not valid or binding as against Sino; still less was it to be regarded as an unequivocal act so as to give rise to any relevant ratification by Sino.
ISSUE I: IMPLIED ACTUAL AUTHORITY
- (1) The rival cases: For Dana, Mr Matthews QC submitted that the Judge's reasoning had effectively and wrongly excluded implied actual authority to accept a notice of arbitration; there was no such exclusion in law. The question of implied actual authority hinged on the manner in which Sino had chosen to do business with BX. In the present case, BX had implied actual authority to accept the notice either as a matter of the general law of agency (in the absence of an express provision to the contrary, circumscribing such authority) or on the particular facts of the case. It made no difference that the notice was sent to Mr Cai rather than some other BX email address; as was clear from the evidence of the brokers, Mr Cai had been put forward by Triton, Sino's brokers, as the man to whom communications should be sent for business purposes. He was also the counterparty for discussions when efforts were made to resolve the incipient disputes; communications took place with Mr Cai, in effect as directed by Mr Zhou – evidenced (for example) by the invitation letter. Sino had played the most peripheral role in the COA and at the time expected all communications to go to BX. It was wholly unreal now to suggest otherwise. Had the notice been sent to Mr Jung, his response can realistically be gauged from his reaction as events unfolded; he would have left matters to BX/Mr Zhou to resolve.
- For Sino, Mr Coburn QC highlighted that Sino knew nothing about the arbitration or the Award until after receipt of the hard copy of the Award. It was a big stretch to say that Mr Cai had authority to accept the notice; it involved going even further than saying that Mr Zhou had authority to do so. The Judge's proposition was simple and correct: service of originating process is a serious and distinct matter. It is different from and not merely a continuation of prior correspondence or communications. The purpose of the notice was to bring the commencement of arbitration to the attention of those it affected. Had the notice been served on Mr Jung, it was implausible that it would have made no difference. He would not have allowed a very substantial claim to go undefended; the position was very different after the Award had already been published – by then it was too late. The main course of dealings between Sino and BX had been the sale and purchase contracts. Mr Cai would plainly not have enjoyed actual authority to accept service of originating process under those contracts (as demonstrated by cl. 15 in the example set out above). Nor would Mr Cai have had any such authority under the CPR court regime. There was no (good) reason why it should be different in respect of the COA. When it came to service of originating process, there was no room for laissez faire. As a general rule, it was "express authority or bust". Even having regard to the considerable degree of delegation here, someone handling other matters could easily be out of his depth when it came to dealing with the legal ramifications flowing from the service of originating process. The mere fact that Mr Cai had been the commercial point of contact did not confer upon him authority to accept service of the notice – any more than a waiter in a restaurant would have such authority. The Judge's conclusion gave rise to no practical difficulty; Dana had the necessary information to serve the notice on Sino at its registered address, which would have put the matter beyond argument.
- (2) The legal framework: On the appeal, the position is broadly the same as it was before the Judge: the dispute relates more to the application of the relevant legal principles, rather than to the principles themselves.
- The key inquiry as to actual authority goes to the relationship between principal and agent. In Hely-Hutchinson v Brayhead Limited  1 QB 549, at p.583, Lord Denning MR explained the matter this way:
" ….actual authority may be express or implied. It is express when it is given by express words….. It is implied when it is inferred from the conduct of the parties and the circumstances of the case….. Actual authority, express or implied, is binding as between the company and the agent, and also as between the company and others, whether they are within the company or outside it."
Lord Wilberforce (at p.587) referred to "what the actual circumstances of the relationship" between the agent and the principal may show; he included consideration of the authority the agent "took and was allowed to take" with "the consent and acquiescence" of the principal.
- Pausing here, first, it is indisputable that, as a matter of law, actual authority may be express or implied. Secondly, the focus in the case of implied actual authority is on the "actual circumstances" of the relationship between principal and agent, hence on what may be inferred from the "conduct" of the parties.
- Turning next to the Act, S.14 deals with the commencement of arbitral proceedings. So far as here relevant, it provides as follows:
" (1) The parties are free to agree when arbitral proceedings are to be regarded as commenced for the purposes of this Part and for the purposes of the Limitation Acts.
(2) If there is no such agreement the following provisions apply.
(4) Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter."
- S.76 deals with the manner of service of, inter alia, notices:
" (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.
(4) If a notice or other document is addressed, pre-paid and delivered by post –
(b) where the addressee is a body corporate, to the body's registered or principal office,
it shall be treated as effectively served.
(6) References in this Part to a notice or other document include any form of communication in writing…."
It can be seen that s.76 differs from the CPR court regime and is essentially permissive – in the manner and to the extent as appears from The Lake Michigan (supra), to which we next turn.
- The Lake Michigan concerned a time bar impacting upon the commencement of arbitration proceedings. Mr Coburn (and the Judge) relied on it for the observations in the judgment as to separate corporate personality, together with the limits on the authority, actual and ostensible, of a P&I Club to accept service, despite the wide authority it undoubtedly had in respect of a range of other matters. These observations formed part of the Court's ratio, albeit that the outcome in favour of the claimants hinged on the Court's power to extend time for the commencement of arbitration proceedings, contained in s.12 of the Act (irrelevant here).
- The first principal question was whether Baffin (the defendant) had been properly served in time. That question was answered "no". Dealing with the purpose underlying service, Gross J said this:
" 38. ….[it] is that the arbitration claim or court proceedings, as the case may be, should be brought to the attention of the intended respondent or defendant, within the permitted period of time…."
The judgment continued as follows:
" 39. ….the claimants were required to serve Baffin itself (or an agent with actual or ostensible authority to accept service) before the expiry of the applicable time limit. As far as it goes, Mr Olbourne [counsel for the claimants] was right to submit that section 76 of the Act was intended to operate more flexibly than the regime for service provided in respect of court proceedings by the CPR. So, by way of examples, notices commencing arbitration (sections 14 and 76 of the Act) should be interpreted broadly and flexibly rather than strictly or technically….. So too, section 76 is more flexible than the CPR as to mode or means of service…. But, crucially and even assuming in the claimants' favour that there are differences between the issuing of claim forms and the service of notices such as those of 6 and 12 March, this flexibility does not assist the claimants in satisfying the need to serve Baffin properly and within time. Separate corporate personality cannot simply be ignored. In short, nothing in the Act, authority or principle exempts an arbitration claimant from serving a notice commencing arbitral proceedings on the correct party.
40. ….Baffin's knowledge that the claimants were floundering, does not equate to good service. The requirement was that the claimants should serve Baffin before the expiry of the time limit; not that Baffin should be aware that the claimants were trying to do so…. "
- The second principal question was whether the P&I Club had actual or ostensible authority to accept service on behalf of Baffin. In that case, there was no question of actual authority (judgment, at ). Although the observations in the judgment which followed related to ostensible authority, it is convenient to consider them here. The claimants' contention was that, on the facts, Baffin had permitted it to be represented that the P&I Club had authority to accept service on its behalf. That submission was rejected:
"44. ….The fact that the Club was authorised by Baffin to deal with a wide range of matters, including the LOUs, settlement negotiations and extensions of time, did not give rise to a representation on the part of Baffin that the Club had authority to accept service of originating process. It simply does not follow: as is well-known, a Club might but need not have such authority. Although I do not rest my decision on it, the Club's position in this regard is at least broadly analogous to that of solicitors, where even a wide general authority to deal with a case on behalf of a client will not (without more) translate into authority to accept service of originating process….."
- Especially given the fact that one member of the constitution of this Court was the Judge in The Lake Michigan, we have reviewed the cited propositions with care. In the event, we endorse them and see no reason whatever to question or depart from them. Certainly, Mr Matthews did not seek to cast doubt on them. The real question here is whether The Lake Michigan is, or is not, properly distinguishable.
- Pulling the threads together on the legal framework as to implied actual authority, first, we cannot agree with Mr Coburn's submission that it is "express authority or bust", if advanced as a proposition of law. 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.
- Secondly and to an extent conversely, we are unwilling to accept Mr Matthews' submission that implied actual authority to accept service of originating process can be viewed simply as a matter of the general law of agency, absent an express provision to the contrary. The danger of such an approach is that too little attention would be paid to the particular context of the seriousness of service of originating process and too great a risk of elision from a wide general authority falling short of authority to accept service of originating process (The Lake Michigan, supra). We agree with Mr Coburn thus far: implied actual authority to accept service of originating process is a serious and distinct matter.
- Thirdly and accordingly, we take the view that there is scope for implied actual authority to accept service of originating process but the establishment of such implied actual authority requires an intense scrutiny of the particular, no doubt rare, facts from which it is said to arise. Such an approach facilitates practical justice, by its concentration on the actual circumstances of the relationship (Hely-Hutchinson v Brayhead, supra) between principal and agent, from which any inference of implied actual authority must be drawn.
- Fourthly, with respect to Mr Coburn's submissions and the Judge's conclusions, we think that The Lake Michigan is only of very limited assistance in the present case, apart from undisputed matters of general principle. Thus, the issue here goes to the conferring of implied actual authority on BX to accept service of the notice. If the answer is that BX lacked authority to accept service of the notice, there is no suggestion that separate corporate personality can be disregarded. If, per contra, BX did have authority to accept service of the notice, no question of separate corporate personality arises. So too, the limits on a P&I Club's or a solicitor's wide general authority are, in our experience, notorious. It does not follow that BX is in an analogous position or that any authority it enjoyed pursuant to the particular relationship with Sino, was similarly limited.
- (3) Discussion: This is a most unusual case and far removed from the examples listed by the Judge at  of the judgment. Differing with respect from the Judge, in our judgment, the correct inference to be drawn from the actual circumstances of the relationship between Sino and BX is that BX did have implied actual authority to accept service of the notice. In doing so, we underline that, given the level of agreement as to the primary facts and the working premise as to the evidence, this is not one of those cases where the Judge was in a better position than an appellate court to form a conclusion. Our reasons follow.
- The starting point must be the arrangements between Sino and BX, as they were in reality. These were remarkable. Though Sino has always accepted that vis-à-vis Dana it assumed liability under the COA by reason of signing the contract, Sino took no part, no role and no interest in the negotiation or performance of the COA. On the material available to us, Sino imposed no requirements upon BX as to either the terms of the COA or its performance. There were no safeguards and no notice requirements. It follows inevitably that, whoever had authority to accept service of any notice commencing arbitration, Sino was apparently content with complete passivity - a situation, aptly described as complete delegation, where it might be faced with unanswerable and substantial liability by reason of BX's breach/es of contract.
- The inescapable inference from Mr Jung's evidence is that Sino hoped or expected Mr Zhou/BX to protect Sino from losses incurred by way of its (Sino's) fronting of the COA. However, Mr Zhou's/BX's failure to honour any bargain made between BX and Sino cannot impact on the extent of any implied actual authority conferred by Sino on BX.
- Against this background of disinterest and passivity, we regard it as unreal to suggest that Sino at the time required the notice to be served on it, rather than on BX, who Sino (however imprudently) regarded as the party concerned with the COA. Sino's contemporaneous expectation, to be inferred from the actual circumstances of its relationship with BX, was that the notice would be served on BX. It was BX's business to deal with it as with every other aspect of the COA, not Sino's and BX thus had implied actual authority to receive the notice.
- In this regard, we view Mr Jung's response to events as telling and, ultimately, decisive. Thus, he paid no interest when he learnt from Mr Zhou of some difficulties in the performance of the COA. When he received a copy of the Award, his only reaction was to send it to Mr Zhou; he did not follow-up when he received no reply from Mr Zhou, until (apparently) a chance meeting some time later. When he then discussed the Award with Mr Zhou, he rested content with Mr Zhou's assurance that he/BX would settle the Award. When concerns as to enforcement disturbed Mr Jung's passivity, the action he took was entirely consistent with his approach hitherto: he looked to Mr Zhou/BX to take full responsibility for protecting Sino from any harm and damage.
- Testing Mr Jung's likely reaction had he received service of the notice against his known conduct, we are, with respect, wholly unable to accept Mr Coburn's submission that he would, at the least, have taken an active interest in ensuring that the Dana claim was properly defended in the arbitration. We entertain no real doubt that Mr Jung would simply have forwarded the notice to Mr Zhou and left him to deal with it. Any suggestion of Mr Jung taking a more active stance is belied by his conduct in respect of the COA throughout and is, in our view, fanciful.
- The position of Triton, Sino's brokers in respect of the COA, reinforces the view to which we are already inclined. For the reasons essentially articulated by Mr Coburn, we attach relatively little weight to Triton giving Mr Cai's details as the commercial point of contact. By itself, that does not significantly advance the matter. That said, when viewed as part of the picture of complete delegation to which we have already alluded, it should not be altogether discounted. But the real importance of Triton's stance emerges from its contemporaneous conduct when receiving the notice. As Sino's broker, Triton passed the notice to BX, not to Sino. As it seems to us, absent persuasive evidence to the contrary, this action on Triton's part gives rise to a very strong inference that BX had the necessary implied actual authority to receive the notice on behalf of Sino. The Judge was "initially much impressed" (at ) by Triton passing on the notice in this fashion but, on further consideration, involving in part at least a degree of speculation (as to an error on Triton's part), he came to the contrary view. With respect, we think that the Judge's first impression was right. In our judgment, the fact of Triton's conduct in passing on the notice to BX spoke volumes as to the true nature of the relationship between Sino and BX.
- Although Mr Coburn made some understandable forensic play with the fact that the notice was sent to Mr Cai rather than Mr Zhou, on the most unusual facts of this case, we do not think that anything turns on the difference in seniority between the two. There was no suggestion and can be no question that by the sending the notice to Mr Cai, it was not effectively served on BX, within s.76(3) of the Act. Whatever Mr Zhou said to Mr Jung in the second half of 2015 as to Mr Cai's authority, the contemporaneous reality is that Mr Cai was throughout the man with whom Dana was advised to communicate for COA purposes – a point strongly emphasised by the invitation letter (see above), when Mr Hodgins was advised to meet with Mr Cai at Mr Zhou's express direction.
- For completeness:
i) As already observed, it is correct that Dana had the necessary information to serve Sino straightforwardly pursuant to s.76(4)(b) of the Act and why that course was not followed (as a matter of "belt and braces", whatever else was done) remains something of a puzzle. That said, while the fact that Dana did not utilise s.76(4)(b) created room for the present dispute, it does nothing to furnish the correct answer to it.
ii) It is further nothing to the point that under the sale and purchase contracts, Mr Cai could not have been effectively served by virtue of the specific provisions of the notice clauses in those contracts (of which cl. 15, set out above, is an example). For whatever reason, the COA contained no equivalent provision.
- (4) Conclusion on Issue I: For the reasons given, we respectfully differ from the Judge. Making every allowance for the particular context of service of originating process, we have come to the clear conclusion that BX/ Mr Cai did have implied actual authority to receive the notice. That BX/ Mr Cai did not honour any promises made to Mr Jung as to protecting Sino from liability was a risk inevitably run by Sino by entering into a "fronting" arrangement of this nature – of which, as already underlined, Dana was wholly unaware. It follows that the arbitral tribunal was properly constituted and that the Award was made with jurisdiction. This conclusion is sufficient to decide the appeal in favour of Dana but, in deference to the arguments advanced, we go on to address Issues II and III, if considerably more briefly than would otherwise have been the case.
ISSUE II: OSTENSIBLE AUTHORITY
- (1) The legal framework: There is no, certainly no serious, dispute as to the applicable principles. As summarised by the Judge (at ), "…unlike actual authority, ostensible authority is a form of estoppel arising from a representation by the principal to a third party that the agent has authority to act in the matter on the principal's behalf." In Lord Denning's words, in Hely-Hutchinson v Brayhead (supra), at p.583:
" Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority….But sometimes ostensible authority exceeds actual authority…."
- In agreement with the Judge (at ), the foundation of ostensible authority is the representation of the principal and "it is generally trite law that an employee/agent cannot purport to create his own ostensible authority". However, though a communication is made directly (or immediately) by the agent, it may be inferred that the representation is that of the principal, arising from his conduct. As explained by Lord Pearson in Hely-Hutchinson v Brayhead (supra), at p.593:
"That may be shown by inference from the conduct of the board of directors [the principal] in the particular case by, for instance, placing the agent in a position where he can hold himself out as their agent and acquiescing in his activities, so that it can be said they have in effect caused the representation to be made. They are responsible for it and, in the contemplation of law, they are to be taken to have made the representation to the outside contractor. "
As expressed by the High Court of Australia, in Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451, at :
"The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation."
- Ostensible authority may also be seen as an aspect of risk allocation. In Gurtner v Beaton  2 Lloyd's Rep 369, at p.379, Neill LJ observed:
" The development of the doctrine has been based in part upon the principle that where the Court has to decide which of two innocent parties is to suffer from the wrongdoing of a third party the Court will incline towards placing the burden upon the party who was responsible for putting the wrongdoer in the position in which he could commit the wrong."
- (2) Discussion: Effectively, both Dana and Sino relied on the same factual bases as underpinned their respective arguments on implied actual authority and submitted that those facts supported the establishment of ostensible authority (Dana) or fell short of establishing it (Sino).
- Though, actual and ostensible authority are (as discussed) conceptually very different, the present case is one of those instances where they coincide. We have already concluded that the conduct of the relationship between Sino and BX was such, that, as between themselves, BX/Mr Cai enjoyed carte blanche, extending to implied actual authority to receive the notice. In our judgment, the reality of that most unusual relationship also formed the foundation of how BX/Mr Cai's authority appeared to others. The appearance given to Dana was that BX/Mr Cai were to be dealt with for all purposes, extending to receipt of the notice. Nor was this in any sense a holding out simply on the part of BX/Mr Cai. The holding out manifested itself in Sino's conduct of its relationship with BX, including the manner in which Triton acted in passing on the notice to Mr Cai. At the very least, Sino was responsible for and acquiesced in BX/Mr Cai's conduct with regard to the receipt of the notice. In reaching these conclusions, we have not lost sight of the contra-indications listed at  of the judgment – but these pale by comparison with the reality of the Sino-BX relationship; on any view, Dana cannot be faulted for missing them.
- Accordingly, here too, we differ, with respect, from the Judge and the view to which he came at  of the judgment. We would allow the appeal on Issue II as well. We are very mindful that ostensible authority calls for even more caution than implied actual authority in the context of the service of originating process; that said, we come to our decision with no regret in this most unusual case. The problem has arisen because Sino was let down by BX. But Sino was responsible for putting BX in the position it held with regard to the COA. Dana knew nothing whatever of BX. It is fair and just that Sino, rather than Dana, should bear the risk of BX's failure to honour its commitments.
ISSUE III: RATIFICATION
- We deal summarily with this Issue, which only arises if (contrary to our earlier conclusions) the Judge was right to reject Dana's case on both implied actual and ostensible authority. On that premise, we are wholly unpersuaded that Sino ratified BX's receipt of the notice.
- First, we can discern no unequivocal action, positively ratifying BX's receipt of the notice. Pressing Mr Zhou to honour the Award makes obvious practical sense but falls well short of abandoning a jurisdictional objection to the Award, always assuming that one otherwise existed.
- Secondly, the context is furnished by s.72 of the Act, which permits a party in Sino's position (on the hypothesis upon which this Issue arises) to take no action prior to enforcement proceedings. A consideration of this context reinforces our views on the absence of "positive ratification" and provides an unanswerable objection to "silent ratification" – which, with respect to Dana's submissions to the contrary, would cut entirely across the scheme of s.72.
- In agreement with the Judge on the question of ratification, had it mattered, we would have dismissed the appeal on Issue III.
- We would be grateful for the assistance of counsel in drawing up an Order, giving effect to our conclusions.