REUTERS | David Gray

Silence is not assent: English High Court sets aside arbitral award for lack of substantive jurisdiction

In the recent decision of MVV Environment Devonport Ltd v NTO Shipping GmbH & Co KG and others, the English High Court set aside an arbitral award issued by the London Maritime Arbitrators Association under section 67 of the Arbitration Act 1996 (AA 1996) on the basis that the arbitral tribunal lacked substantive jurisdiction over the dispute.

MVV Environment Devonport Ltd (MVV), a producer of electricity from waste products that produces a leftover residue known as “unprocessed incinerator bottom ash” (UIBA), had a contractual arrangement with RockSolid BV (RS) for the collection and transport to the Netherlands for disposal of the UIBA by RS (principal contract). Under the terms of the principal contract, the risk in and title to the UIBA passed from MVV to RS as soon as RS collected it at MVV’s plant in Plymouth.

RS would then arrange through a shipping agent (SS) to transport the UIBA by ship to the Netherlands for processing. Between 25 June 2015 and 12 January 2017, a total of 33 such shipments took place. The bills of lading for each of these shipments incorrectly identified MVV as the shipper and RS as the consignee. The bills of lading were habitually sent by SS together with other shipping documentation by email to a number of addressees, including MVV.

On 12 January 2017, a further shipment of UIBA was made on board a vessel chartered by RS from the defendant, NTO Shipping GmbH & Co (NTO), under a contract of carriage. The contract of carriage contained an arbitration agreement. As with the previous bills of lading, the bill of lading for this shipment incorrectly identified MVV as the shipper and RS as the consignee. The bill of lading incorporated by reference the terms and conditions of a “… charterparty dated 10.01.2017 including arbitration”, which was understood to mean the contract of carriage.

An explosion occurred on board the vessel, which resulted in the vessel’s chief engineer being injured and NTO suffering losses of approximately EUR 700,000. NTO claimed these losses from MVV under an alleged contract of carriage with MVV, evidenced by the bill of lading, and commenced arbitration proceedings against MVV on the basis that an arbitration agreement had been incorporated by reference into the bill of lading.

Issues before the court

The ultimate issue for the court was whether MVV was a party to the contract of carriage evidenced by the bill of lading. If not, it was common ground that there was no arbitration agreement and the tribunal had no jurisdiction. The court found that the determination of that issue depended on whether either RS or SS had:

  • Express authority.
  • Implied actual authority.
  • Ostensible authority to enter into a contract of carriage with NTO as agent for MVV.

The court’s findings on authority and jurisdiction

Express authority

The court found that there was no basis for contending that MVV had expressly authorised either RS or SS to enter into the contract of carriage on its behalf. In relation to RS, the court placed emphasis on the fact that the RS had not entered into an agency agreement, but rather was a principal to the contract between RS and MVV, under which RS had exclusive responsibility for transporting the UIBA from MVV’s plant to the Netherlands.

In relation to SS, there was no express contract between MVV and SS, and no implied agreement by MVV conferring authority on SS. SS had unilaterally and incorrectly named MVV as the shipper in the bills of lading, which were approved by RS not MVV. SS had not had any dealing or contact with MVV, other than the emails sent by SS attaching the shipping documentation, which were unsolicited, did not seek a response, and which MVV reasonably understood to be solely for information purposes.

HHJ Pelling QC stated (at paragraph 33) that:

“Thus the only conduct that [NTO] can rely on is [MVV’s] silence. However, assent is not to be inferred from silence, unless there is further indication that the putative principal acquiesces in the agency… Authority to enter into a contract on behalf of another is authority to commit that other to legal obligations to a third party without qualification and thus is not lightly to be inferred when there is no express agreement to that effect. Further, silence or inactivity is inherently equivocal and thus requires something else in the surrounding circumstances to negative that equivocality.”

Implied actual authority

The court also rejected the possibility of RS and SS having any implied actual authority to enter into the contract of carriage on MVV’s behalf. Implied actual authority requires someone to have been given some express authority to which the implied authority can attach. Since neither RS nor SS had been given any express authority, there was no way for either party to have implied actual authority.

Ostensible authority

Finally, the court considered whether MVV had, by its words and conduct to NTO, held out that SS was authorised to act as its agent. NTO claimed that SS’s circulation of the bills of lading on 33 previous occasions and MVV’s failure to object to it being listed as the shipper gave rise to ostensible authority for SS to enter into the contract of carriage on MVV’s behalf. This argument was dismissed by the court since NTO had no knowledge of the previous 33 bills of lading that SS had circulated prior to entry into the contract of carriage, and the bill of lading relating to NTO’s shipment would only have been issued after the contract of carriage had been entered into.

Jurisdiction

As a result of the court’s conclusions that RS and SS had no authority to enter into a contract of carriage with NTO as agent for MVV, the court held that MVV was not a party to the contract of carriage or the arbitration agreement and the tribunal was wrong to conclude it had jurisdiction over the dispute.

Commentary

The case is a rare example of a successful challenge to an arbitral tribunal’s jurisdiction under section 67 of the AA 1996. The case emphasises the fundamental requirement for parties to have consented to refer their disputes to arbitration and demonstrates the importance of paying close attention during contractual negotiations to ensure, when desired, that all parties to a business dealing are bound by an arbitration agreement.

The High Court has emphasised that a high threshold will need to be met in order to prove the existence of an agency agreement conferring the right to enter into contractual obligations with a third party on behalf of another. The case demonstrates that mere silence is not sufficient to confer assent and rather, a party will need to conduct itself in a way or take some other positive step that grants an agent authority to enter into contractual obligations on the party’s behalf.

Furthermore, the case shows that, whilst arbitral tribunals have the power to determine their own jurisdiction, section 67 of the AA 1996 can act as a powerful oversight tool and the English courts will not hesitate to take a robust and judicious approach in examining an arbitral tribunal’s jurisdiction.

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