A successful s67 challenge: Silence did not confer authority to enter into an arbitration agreement

A challenge under section 67 Arbitration Act 1996 (Section 67) in the case MVV Environment Devonport Ltd v NTO Shipping GmbH & Co. KG MS ‘MV Nortrader’¹ was one of the few successful challenges to an arbitral award which we have seen before the English courts in recent years. In this case, the challenge succeeded because the court found that an alleged agent’s authority to enter into an arbitration agreement could not be inferred from the alleged principal’s silence; a further indication of the alleged principal’s acquiescence to the agency relationship, and thus authority contractually to bind the principal, was required.

Background facts

The claimant (MVV) contracted with RockSolid BV (RS) for the transport by RS of certain waste products to the Netherlands for treatment, recycling and disposal by RS (the IBA Contract).

The defendant, NTO Shipping GmbH & Co KG MS, chartered a vessel to RS for these purposes.

In the course of shipment there was an explosion aboard the vessel, and the defendant claimed losses it sustained as a result from MVV. This claim was brought under a contract of carriage allegedly evidenced by a bill of lading. The bill of lading incorporated an arbitration agreement by reference.

MVV challenged the jurisdiction of the tribunal on the basis that it was not a party to the contract of carriage. The tribunal concluded it had jurisdiction and MVV subsequently challenged the award on jurisdiction pursuant to Section 67.

In his judgment, Judge Pelling QC identified the key issue in the case as being “whether [MVV] was party to the contract of carriage evidenced by the Bill of Lading”. It was undisputed that MVV did not itself enter into the contract of carriage, but the court was required to determine whether MVV was bound by the contract nonetheless, due to an alleged agency relationship with RS or its shipping agent (SS).

Was there an arbitration agreement?

In order for there to be a binding arbitration agreement, it is necessary that either the parties agree directly between themselves to enter into an arbitration agreement, or that an authorised representative of a party enters into an arbitration agreement on a party’s behalf.

In this case, it was necessary for the court to determine “whether SS (or RS) was actually expressly or impliedly authorised by the claimant or had ostensible authority to enter into a contract of carriage with the defendant on its behalf and in its name”. If an agency agreement were found to exist, the claimant would be bound by the contract of carriage and the arbitration agreement (which was incorporated into the bill of lading by reference). The court held there was no such express, implied or ostensible authority giving rise to an agency relationship as:

• The IBA Contract was not an agency agreement granting RS authority to enter into any contract on behalf of MVV and there was no evidence of any other express or implied agreement to that effect.
• Similarly, there was also no express contract between MVV and SS which would grant SS authority to enter into an arbitration agreement on MVV’s behalf.
• There were also no facts supporting the existence of ostensible authority.
• MVV’s silence upon receipt of emails attaching bills of lading in which it was named as shipper were insufficient to imply that MVV consented to being a party to the arbitration agreement contained therein. The judge emphasised that “assent is not to be inferred from silence, unless there is further indication that the putative principal acquiesces in the agency”. The surrounding facts did not provide any such indication.

The validity of an arbitration agreement entered into by an agent of the principal was also considered in the recent Court of Appeal decision in the case Filatona Trading Ltd and Ors v Navigator Equities Ltd and Ors², which we discussed here. However, in that case the person seeking to enforce the arbitration agreement (Mr Chernukhin) was found to be a ‘disclosed principal’ entitled to rely upon the arbitration agreement. In contrast, in the present case, there was nothing in the surrounding circumstances that indicated that a principal-agent relationship existed between MVV and either RS or SS.

How frequently are challenges to arbitral awards before the English courts successful?

Successful challenges to arbitral awards before the English courts are few and far between. The most recent Commercial Court statistics are from the year 2018-2019 and show:

• A decrease in section 69 applications to appeal an award on a question of law, from 87 in the previous year to 39, of which none were successful.
• A more dramatic fall in section 68 applications to challenge an award on the basis of serious irregularity, from 71 in the previous year to 19. The report did not state how many had succeeded, only that very few succeed.
• The report noted there were only four hearings of jurisdictional challenges under Section 67 with no indication of whether any of these was successful.

The statistics above and those from earlier years demonstrate that few Section 67 challenges are actually issued. Section 67 challenges could be seen as a last resort as they cannot be made until a final award on jurisdiction has been made by the relevant tribunal, which may have been successful and eliminated the need for a Section 67 challenge. If the jurisdictional challenge before the tribunal is unsuccessful, in some cases parties may consider their case is insufficiently strong to warrant the time and expense of a Section 67 challenge.

The case discussed above is one of the few cases which has reached the courts and resulted in a successful challenge to an award under Section 67, due to the particular circumstances of the case, which did not support a conclusion that MVV was bound by the arbitration agreement in question.

Conclusion

This case demonstrates that an agent must have clear authority to enter into an arbitration agreement in order for it to be binding upon the principal. While the English court has not required that such authority be expressly documented in writing, and the conduct of the parties and surrounding circumstances will be taken into account, silence alone will not confer authority on a purported agent to enter into an arbitration agreement. For that reason, the English court upheld the challenge under Section 67 in this case.

¹[2020] EWHC 1371 (Comm)
²[2020] EWCA Civ 109