Azov Shipping Company v Baltic Shipping Company (No 2) [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J. |
| Judgment Date | 11 May 1999 |
| Date | 11 May 1999 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Colman J.
Vernon Flynn (instructed by Shaw & Croft) for the applicant.
Christopher Smith (instructed by More Fisher Brown) for the respondent.
The following cases were referred to in the judgment:
Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank LtdELR [1982] QB 84 (CA).
Central London Property Trust Ltd v High Trees House LtdELR [1947] KB 130.
Clarke v DunravenELR [1897] AC 59.
Combe v CombeELR [1951] 2 KB 215.
Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd (“The Amazonia”)UNK [1990] 1 Ll Rep 236 (CA).
Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co LtdELR [1993] QB 701.
Lokumal (K) & Sons (London) Ltd v Lotte Shipping Co Pte Ltd (“The August Leonhardt”)UNK [1985] 2 Ll Rep 28 (CA).
Low v BouverieELR [1891] 3 Ch 82.
Norwegian American Cruises A/S (formerly Norwegian American Lines A/S) v Paul Mundy Ltd (“The Vistafjord”)UNK [1988] 2 Ll Rep 343 (CA).
Rayner (J H) (Mincing Lane) Ltd v Department of Trade & IndustryELR [1990] 2 AC 418.
Taylor Fashions Ltd v Liverpool Victoria Trustees Co LtdELR [1982] QB 133.
Westland Helicopters Ltd v Arab Organisation for IndustrialisationELR [1995] QB 282.
Williams & Glyn's Bank plc v Astro Dinamico Compania Naviera SAWLR [1984] 1 WLR 438.
Woodhouse A C Israel Cocoa Ltd SA v Nigerian Produce Marketing Co LtdELR [1972] AC 741.
Contract — Arbitration — Authority — Estoppel — Whether applicant was party to agreement containing arbitration clause — Whether signatory to agreement had authority under Ukrainian law — Whether applicant estopped from denying that it was bound by agreement — Whether claims raised in arbitration subject of international convention and thus not justiciable — Arbitration Act 1996, s. 67.
This was an application by Azov Shipping Co under s. 67 of the Arbitration Act 1996 challenging an arbitrator's decision that Azov was bound by an arbitration agreement and that he therefore had jurisdiction.
A number of former Soviet shipping companies entered into an agreement for the general use of containers (“GUCA”) which provided for mutual compensation for the interchange of containers between them. The scheme would be administered by, “TCS”, a joint venture organisation which had co-ordinated overseas exchanges of containers and collected charges under the former Soviet regime. Azov was a shipping company registered in Ukraine. It had an agreement directly with TCS for tracing and control of its own containers together with a number of ad hoc agreements with various local agents. Azov was represented at negotiations which led to the GUCA but was unwilling to agree to the proposal that interchange balances should be calculated and paid in US dollars and that was reflected in an addendum to the draft agreement. Azov did not sign the GUCA although it signed a later addendum (No. 4) relating to the technical conditions of interchange procedure. One of the parties to the GUCA, Baltic Shipping Co, commenced arbitration against Azov under the arbitration clause in the GUCA. Azov denied that it was a party to the GUCA. The arbitrator decided that Azov was a party to the GUCA and that he therefore had jurisdiction. Azov applied under s. 67 of the Arbitration Act 1996 for the arbitrator's award on jurisdiction to be set aside, arguing that it never became a party to the GUCA and that its representatives lacked authority to bind Azov as a matter of Ukrainian law. Baltic argued that even if Azov's representatives lacked authority Azov had ratified the agreement or was estopped from denying it was bound. Azov further submitted that Baltic's claims in the arbitration were not to be adjudicated on by the arbitrator because they fell to be resolved between Ukraine and Russia under the terms of the Kiev Treaty of 19 November 1990.
Held, setting aside the arbitrator's award:
1. The evidence fell short of establishing that Azov either by its conduct at meetings or by the continued incidence of container interchanges sufficiently indicated its assent to be bound by the GUCA or therefore the arbitration agreement in it. It followed that Azov was not bound to arbitrate Baltic's claims for payment under the agreement. Azov did not become a party to the GUCA simply by signing addendum No. 4.
2. Under art. 6 of the Ukrainian Law on Foreign Economic Activity the court had a discretion to declare a contract invalid if it was not signed by two authorised signatories. Azov's representatives did not have actual authority to sign the agreement, but Azov could have ratified the agreement. If Azov's conduct up to and including the signature of addendum No. 4 amounted to assent to the GUCA, it was possible for its participation in interchanges thereafter to amount to ratification. Also if the effect of Azov's representative's signature of addendum No. 4 and other conduct was sufficient to indicate assent by Azov to be bound by the GUCA, he did have ostensible authority so to bind Azov. If Azov assented to be bound but its signature was invalid under Ukrainian law or because of lack of authority, it was open to Baltic to rely on an estoppel by representation, by virtue of Azov continuing to interchange containers, that Azov treated itself as bound by the GUCA.
3. The issues which arose for determination in the arbitration were between commercial organisations under an alleged commercial contract and did not involve determination of whether title to any particular container was vested in Russia or the Ukraine at any particular time so as to come within the intergovernmental agreements intended to deal with such questions. The issues raised by the claim by Baltic were accordingly justiciable by the arbitrator and the court.
Colman J:
Under s. 30 of the Arbitration Act 1996 an arbitral tribunal is given power to rule on its own substantive jurisdiction, and in particular whether there is a valid arbitration agreement, unless the parties agree otherwise. Under s. 31(4) of that Act, where one party challenges the tribunal's substantive jurisdiction at an early enough time and the tribunal has power to rule on its own jurisdiction, it may rule on the matter, either in an award exclusively relating to jurisdiction or in its award on the merits of the matter in dispute. By s. 30(2) any ruling on substantive jurisdiction may be challenged “by any available arbitral process of appeal or review or in accordance with the provisions of” Pt. I of the Act. Specific provision is made by s. 67 for a party to apply to the court challenging any award of an arbitral tribunal as to its substantive jurisdiction. Upon such application the court may confirm the award or vary it or set it aside in whole or in part (see s. 67(3)). The right to apply under s. 67 is not qualified by any requirement for the applicant to obtain the leave of the court. It is intended to reflect the principles that, whereas an arbitrator has a limited jurisdiction of a provisional nature in line with the internationally accepted doctrine of Kompetenz-Kompetenz, his determination cannot be conclusive between the parties because of the nature of the intrinsic issue, for his jurisdiction can only be founded on the very mutual assent which is in issue: see the Departmental Advisory Committee Report on the Arbitration Bill 1996, para. 137-139.
One of the procedural problems which can arise from the attempt to accommodate these two disparate concepts is well illustrated by what has happened in the present case. The parties first argued the issue of jurisdiction alone before Mr Donald Davies, amongst the most experienced of all London Maritime arbitrators. Azov, the respondents in the arbitration, argued that there was no arbitration agreement binding on them.
The hearing lasted several days and both sides called evidence. Mr Davis decided that Azov was bound by an arbitration agreement and that therefore he had jurisdiction.
His award is dated 30 January 1998.
Following his award Azov issued proceedings by way of application under s. 67 by which they applied for the award to be set aside. That involved the re-litigation of the whole issue, including the calling of factual witnesses by Azov and of expert witnesses on Ukrainian and Russian law by both parties. The hearing did not take place until more than 12 months after the award and lasted for five days. Although neither the parties nor the arbitrator have acted in any way whatever inconsistently with the 1996 Act, it is, with hindsight, regrettable that in a case involving as substantial an evidential investigation as this neither party made application to the court at the outset under s. 32 of the Act for the preliminary determination of the jurisdiction issue before the matter ever went to the arbitrator. Had this been done, there would have been a huge saving in time and costs.
In December 1992 an agreement was entered into by at least nine shipping corporations all of which had been state-owned and state-operated regional entities under the Soviet Union. The agreement was referred to as being about the general use of containers of International Standard ISC. I refer to that agreement as “the GUCA”. Under it the parties set up a system the main object of which was to provide for mutual compensation for the interchange of containers between them. Where one shipping company's container passed out of its possession into that of another company, hire would accrue due at a daily rate from the latter company to the former. The scheme would be administered by Transglobe Container Services (“TCS”), a joint venture organisation set up by the shipping companies and based in Hamburg, which, on the basis of interchange statistics which it would collate, would at the end of each month, calculate the amounts due in respect of container hire as...
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