Big Ben at night and Westminster bridge with red and blue car light trails

Introduction

The English Commercial Court, in its recent judgment in MVV Environment Devonport Ltd v NTO Shipping GMBH & CO KG (MV Nortrader) [2020] EWHC 1371 (Comm), set aside a final award on jurisdiction (pursuant to section 67 of the English Arbitration Act 1996), holding that the tribunal had erred in ruling that a party to the arbitration agreement had the requisite authority to enter into the said agreement as agent for another.

Challenges against English seated arbitrations seldom succeed. The threshold for success is set high and judges are reluctant to interfere with final arbitral awards, unless such interference is absolutely necessary. The present case demonstrates a rare example of the latter.

The judgment is also a useful reminder of the essential principles of English law relating to express, implied and ostensible authority of agents to enter into contracts on behalf of another, i.e. the principal.

Facts and dispute

The claimant MVV Environment Devonport Ltd (“MVV”) is in the business of converting waste products to energy in the form of electricity. It contracted with RockSolid BV (“RS”) to dispose its processed waste, known as unprocessed incinerator bottom ash (“UIBA”), whereby RS would transport the UIBA to its plant in the Netherlands and for its treatment, recycling and disposal (the “IBA Contract”). RS received a monthly payment from MVV based on the weight of UIBA removed each month.

The Court noted at the outset by way of observation that the IBA Contract “was not an agency agreement but was a principal to principal contract“. RS was under an obligation to collect the product with its own vehicles from MVV’s plant, the risk in and title to the UIBA passed from MVV to RS as soon as it was loaded on the latter’s vehicles by its drivers at MVV’s plant, and the payment due from MVV to RS was based on a contribution to the latter’s transportation and storage costs.

Once loaded on RS’s lorries, the UIBA was transported by RS via road to Victoria Wharf in Plymouth, where the material was then stored in bunkers, prior to it being shipped on a ship to be chartered by RS for carriage to its plant in the Netherlands.

Although RS was responsible for arranging the shipments to its plant in the Netherlands, the bills of lading (33 in total, excluding the one in question) consistently identified MVV as the shipper, rather than RS, with RS being identified as the consignee. It seems that this was (erroneously) thought to be required by certain European legislation concerning the cross-frontier movement of waste in respect of the first shipment, and that the same template was used for later shipments. This was corroborated with the fact that MVV had no communications with the shipping agency appointed by RS (Sanders Stevens Limited (“SS”)) or consulted by the latter, which would have been the case had it been the actual shipper. As the Court explained, “there was no contractual or other legally relevant relationship between [SS] and [MVV]“.

The dispute arose from an explosion on board the vessel “MV Nortrader” in January 2017, which caused injuries to the Chief Engineer. The defendant carrier, NTO Shipping GMBH & CO KG (“NTO”), suffered losses in excess of EUR 700,000. NTO claimed that MVV was responsible for that loss, on the basis of the alleged contract of carriage, and commenced arbitration proceedings. It is noteworthy that none of the 33 bills of lading issued for the previous voyages had been issued by NTO or its related entities, they involved different carrier(s).

MVV denied liability, essentially on the basis that it was not a party to the contract of carriage (containing the arbitration agreement), as alleged, and challenged the arbitral tribunal’s jurisdiction. However, the tribunal concluded that it had jurisdiction. MVV therefore commenced its challenge against the tribunal’s final award on jurisdiction before the Commercial Court.

Issue for the Court

The ultimate issue before the Court was whether MVV was party to the contract of carriage (containing an arbitration agreement) evidenced by the relevant bill of lading, and therefore bound by the arbitration agreement therein. This turned on the issue whether either RS or SS had either express or implied actual or ostensible authority to enter into a contract of carriage as agent for MVV.

If MVV was not a party to the contract of carriage, the tribunal would naturally lack jurisdiction as against MVV in respect of the claim.

Judgment

The Court did not consider MVV’s identification as the shipper in the bill of lading to be in any way determinative in deciding whether it was a party to the contract of carriage. That was simply a continually repeated mistake premised on an inaccurate understanding of European legislation concerning the cross-frontier movement of waste.

Although a bill of lading is one’s starting point in determining the parties to a contract of carriage, which would ordinarily be the persons named in the bill of lading as shipper and carrier, that is not an incontestable rule and a person identified as a party to a contract of carriage (evidenced by a bill of lading) is entitled to show that it has been wrongly identified as such.

Accordingly, the Court had to determine whether RS (or SS – appointed by and acting under RS’ instructions) was actually expressly or impliedly authorised by MVV or had ostensible authority to enter into a contract of carriage with NTO on MVV’s behalf.

Express authority

The Court ruled that there was “no, even arguable, basis” to hold that MVV had authorised either RS or SS to enter into a contract of carriage on its behalf.

The act of RS unilaterally including MVV’s name as shipper on the very first bill of lading, when asked for approval by SS, did not have the effect of conferring express actual authority on SS to enter into a contract on MVV’s behalf, unless RS was itself authorised by MVV. It was not. Further, there was no express contract between MVV and SS.

Ruling out the possibility of an implied agreement between MVV and SS, the Court emphasised that there was nothing to support a reasonable inference that MVV had conferred actual authority on SS. There was no contact of any sort between the two, with the exception of certain emails sent by SS purely for information purposes.

Finally, the Court gave short shrift to the idea that MVV’s silence could be interpreted as assent to the agency relationship. In doing so, it explained that:

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 doctrine of implied actual authority differs from express actual authority in the sense that the former is actual authority that is inferred from the conduct of the parties and the circumstances of the case. The Judge referred to Lord Denning MR’s lead judgment in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, where his Lordship had explained that:

…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.

The Court held that neither RS or SS were given implied actual authority to enter into a contract of carriage on behalf of MVV for the carriage of UIBA. First and foremost, implied actual authority can arise only in cases where the relevant person (i.e., agent) has been given some express authority to which the implied authority is appurtenant. This was not the case in the case at hand as RS had no actual authority of any sort to act as MVV’s agent. As noted above, the IBA Contract between MVV and RS was considered not to be an agency agreement. Second, and in any event, the Court noted that implied actual authority cannot arise from silence; silence is incapable of giving rise to implied actual authority without more.

Ostensible authority

Ostensible authority exists in one to contractually bind another where the latter, by words or conduct, represents or permits it to be represented that the former has authority to act on its behalf, to the same extent as if the former had the authority that it was represented to have, even though it had no such actual authority. The third party must generally have relied and acted on or altered its position as consequence of the representation in order to hold the principal liable.

In the circumstances, the Court held that NTO had not relied or acted on any representation to the effect that SS or RS were acting as agents for MVV. The previous 33 bills of lading that identified MVV as the shipper were unknown to NTO before the contract of carriage was entered into, which contract came into existence before and was merely evidenced by the bill of lading issued in respect of the relevant voyage. Accordingly, MVV did not confer ostensible authority on SS to bind MVV in respect of the contract of carriage (containing the arbitration agreement).

Conclusion

For the above reasons, the Court concluded that SS did not have either express or implied actual authority from MVV to enter into a contract of carriage with NTO or at all, and that MVV did not confer ostensible authority on SS to do so either. MVV was not therefore a party to the contract of carriage (containing the arbitration agreement). The tribunal consequently lacked substantive jurisdiction as against MVV, as a non-party to the arbitration agreement.