Avoiding Defective Service in Arbitration

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A recent High Court decision provides a timely reminder that parties to an arbitration agreement must take care to ensure that arbitration proceedings are properly served to avoid an award being set aside or refused enforcement due to defective service.

In Sino Channel Asia Ltd v Dana Shipping and Trading PTE Singapore & Anor [1], the English High Court set aside the award under section 72 of the Arbitration Act 1996 (“the Act”) and ruled that the award was made without jurisdiction because the claimant served its notice of arbitration on an agent of the respondent who was not authorised to accept service.

Service under the Act

Section 76(1) of the Act allows the parties 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…” Parties can therefore select institutional rules which set out requirements for commencing arbitration and properly notifying the other party.

Most institutional rules require a request for arbitration to be filed at the institution and to be delivered to the opposing party together with requirements as to the acceptable method for delivery. For example, Article 4 of the 2014 LCIA Rules specifies that notices may be served by hand, by post or by courier at an address designated for that purpose. If no address has been designated, the address used by the parties in their previous dealings will be sufficient. Importantly, the LCIA Rules only permit service by email where an email address has been specifically designated for that purpose. Service made in compliance with these rules will be deemed effective.

If the arbitration agreement is silent and the parties have not adopted institutional rules, section 76(4) of the Act provides that a document or notice will be deemed effectively served if it is addressed, pre-paid and delivered by post:

(a)    to the addressee’s last known principal residence or, if he is or has been carrying on a trade, profession or business, his last known principal business address, or

(b)      where the addressee is a body corporate, to the body’s registered or principal office…

The Facts and Decision

In Sino Channel, the claimant, Dana Shipping (“Dana”) entered into a contract of affreightment (“COA”) with the respondent, Sino Channel whereby Sino Channel acted as charterer for the carriage of iron ore from Venezuela to China. Although the COA was agreed between these parties, Sino Channel operated its business in conjunction with a Chinese incorporated affiliate, Beijing XCty, which was responsible for the operation of the charter. An employee of Beijing XCty, Mr Daniel Cai, was the main point of contact.

A dispute arose because Beijing XCty failed to organise shipments of iron ore. Under the terms of the COA, disputes were to be referred to ad hoc arbitration in London, which would be triggered on the receipt “by one party of the notification in writing of the appointment of the other party’s arbitrator …“; after which the recipient party would then have 14 days to appoint its arbitrator “… failing which the decision of the single arbitrator appointed shall apply …“.

Dana initiated the arbitration by email and appointed an arbitrator. This was forwarded to Sino Channel’s brokers, Triton, but there was no evidence that this email was subsequently forwarded to Sino Channel itself. The court considered that it would in fact have been sent to Mr Cai, who had been described by Triton as the “charterer’s guy”.

Mr Cai responded by requesting an extension of time to appoint an arbitrator. However, he then ceased all communication. As Sino Channel had no knowledge of the arbitration, it did not appoint its own arbitrator. The sole arbitrator eventually issued an award in favour of Dana. The award was subsequently sent by post to Sino Channel’s registered office in Hong Kong – being the first time Sino Channel had notice of the award.

Sino Channel applied to have the award set aside under section 72 of the Act. The issues before the court were whether Mr Cai/Beijing XCty had actual, implied or ostensible authority to accept service of the request of arbitration on Sino Channel’s behalf and/or whether Sino Channel had ratified the award by its subsequent conduct.

The court held that, although Beijing XCty/ Mr Cai generally acted in the capacity of agent, the scope of this agency did not encompass the authority to accept service of legal proceedings. There needed to have been more specific authority from Sino Channel. Neither possessed actual implied authority and, as there had been no express representation, they could also not be said to possess ostensible authority.

As to ratification, although the court accepted that an act of a third party that was carried out without authority could subsequently be ratified by silence or omission, the court did not agree that a non-participating party to an arbitration could be said to have ratified its award by its silence and inaction, particularly as the regime in the Act allows a party to reserve its position until the opposing party seeks to enforce the award. The court was also unpersuaded that upon learning of the award’s existence, Sino Channel could be said to have subsequently ratified Mr Cai/Beijing XCty’s authority to accept service of the request for arbitration. Sino Channel had requested an explanation of the arbitration proceedings from Beijing XCty, but this could not amount to the unequivocal act necessary for ratification.

Comment

Although the court recognised that section 76 of the Act operates more flexibly than the corresponding provisions of the Civil Procedure Rules, the decision highlights the need for caution when serving documents in arbitral proceedings. Caution is particularly necessary when serving documents on a representative of the opposing party. It is important to check that the representative has specific authority to accept service as agent on behalf of his principal. The fact that the representative may act in an agency capacity more generally for the same principal is not sufficient basis to effect valid service.

In addition, the decision demonstrates the serious legal consequences that can arise if service is defective including, as in this case, the setting aside of the arbitral award. Special care should therefore be taken where there is no contractual procedure for service of notices or it is not clear whether documents can be served validly at a particular address. In this case, for arbitrations seated in England and Wales, the safest course of action is to follow section 76(4) of the Act and send the notice of arbitration by pre-paid post to the respondent’s registered office. Ironically in Sino Channel, Dana sent a hard copy of the award to Sino Channel’s registered office in Hong Kong in exactly this way. Had Dana taken the same steps in relation to its request of arbitration, it might well have been in a position to enforce a valid award.

[1] [2016] EWHC 1118 (Comm) (20 May 2016)

This post was prepared with the assistance of Eleanor Scogings in the London office of Latham & Watkins.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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