A question of authority

Legal case acts as a reminder that authority should not lightly be inferred
 

By Lewis Moore et al, Hill Dickinson
 

MVV Environment Devonport Ltd (the claimant) converts waste products to energy. Its processes create a waste product known as unprocessed incinerator bottom ash (UIBA). The claimant disposes of about 60,000 metric tonnes of UIBA each year under a contract with RockSolid BV (RS) for the transport of the UIBA to RS’s treatment plant in the Netherlands (the IBA Contract). Under the IBA Contract, RS collects the UIBA in its own vehicles from the claimant’s plant. The risk in and title to the UIBA passed from the claimant to RS as soon as it was loaded onto RS’s vehicles by RS’s drivers. The claimant had no commercial or proprietary interest in the UIBA thereafter.
 

The UIBA was then transported by RS to Victoria Wharf in Plymouth where the material was stored prior to shipment under a contract between RS and Victoria Wharves Limited, which provided that RS arrange the shipment of the UIBA to its treatment plant in the Netherlands. RS appointed a shipping agent (SS) to co-ordinate its shipping service requirements. Between 25 June 2015 and 12 January 2017, a total of 33 shipments took place and for each of these shipments the claimant was identified as the shipper in the bills of lading and RS as the consignee. On each occasion, SS would send a copy of the shipping documentation to a variety of different addressees, including the claimant.
 

On 12 January 2017, RS chartered the MV Nortrader (the vessel) from NTO Shipping GmbH & Co (the defendant) to carry a consignment of 2,333.169 tons of UIBA from Victoria Wharf to the Netherlands. As with all 33 bills of lading previously issued by SS, the bill of lading for this shipment (the bill of lading) named the claimant as the shipper and RS as the consignee. The bill of lading incorporated by reference the terms and conditions of the voyage charterparty between RS and the disponent owners of the vessel.
 

On 13 January 2017, an explosion occurred on board the vessel as a result of which her chief engineer was injured and the defendant suffered losses. The defendant commenced arbitration proceedings and claimed its losses from the claimant based on the contract of carriage evidenced by the bill of lading. The claimant denied the claims and challenged the tribunal’s jurisdiction on the basis that it was not a party to the contract of carriage and it had been wrongly identified as the shipper in the bill of lading. The tribunal concluded that it had jurisdiction and the claimant applied to the Commercial Court for an order setting aside the tribunal’s final award as to its substantive jurisdiction under section 67 of the Arbitration Act 1996.
 

Legal issues
 

The Commercial Court was asked to determine whether the claimant was party to the contract of carriage evidenced by the bill of lading. If it was not then it was common ground between the parties that the claimant was not a party to the arbitration agreement and the tribunal had no jurisdiction. The main question that arose was whether RS or SS had either express or implied actual or ostensible authority to enter into a contract of carriage with the defendant as agent for the claimant.
 

The starting point is that the parties to a contract of carriage evidenced by a bill of lading are the persons named in the bill of lading as respectively shipper and carrier.
 

However, the contract of carriage is always concluded before the bill of lading, which evidences its terms, is actually issued. Therefore, the judge held, following the general principles established in Cho Yan Shipping Company Limited -v- Coral (UK) Limited [1997] 2 Lloyds Rep 641, that a party 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 a party to the contract of carriage.
 

The judge proceeded to consider whether RS or SS had either 1) express or 2) implied actual or 3) ostensible authority to enter into a contract of carriage with the defendant on behalf of the claimant.
 

1. Express authority
 

Pelling QC sitting as a judge of the High Court found that there was no basis for contending that the claimant had authorised either RS or SS to enter into a contract of carriage on its behalf in relation to any UIBA collected by RS from the claimant’s plant pursuant to the IBA Contract.
 

The judge found that as between RS and the claimant, it was clear that exclusive responsibility for transportation of all UIBA from the claimant’s plant to RS’s plant in the Netherlands rested with RS. He held that the IBA Contract was not an agency agreement but a principal to principal agreement for the disposal of the UIBA by RS for a fee. The IBA Contract did not authorise RS to enter into a contract of carriage on behalf of the claimant.
 

Similarly, there was no express contract between the claimant and SS and there was no implied agreement between the claimant and SS by which authority to enter into a contract of carriage was conferred on SS. There was no contact of any sort between the claimant and SS apart from the emails that SS sent on 33 previous occasions attaching shipping documents, including bills of lading that named the claimant as the shipper of the UIBA. Therefore, the only conduct the defendant could rely on was the claimant’s failure to object to being named as shipper upon receiving these emails.
 

The Court held that assent was not to be inferred from the claimant’s silence, unless there was further indication that the claimant acquiesced in the agency. The judge commented that authority to enter into a contract on behalf of another is not lightly to be inferred when there is no express agreement to that effect.

2. Implied actual authority
 

The judge proceeded to consider whether RS or SS were given implied actual authority to enter into a contract of carriage on behalf of the claimant for the carriage of the UIBA. Implied actual authority can arise where someone has been given some express authority to which the implied authority relates, Freeman & Lockyer -v- Buckhurst Park Properties (Mangal) Limited [1964] 2 QB 480 applied. Neither RS nor SS had any actual authority of any sort from the claimant to which the alleged implied authority to enter into a contract of carriage with the defendant could attach.

The defendant’s case depended on the proposition that implied authority can arise from silence, namely from the claimant’s failure to object upon receiving any of the 33 prior bundles of shipping documents that included bills of lading naming the claimant as shipper of the UIBA. The judge found that ‘silence is incapable of giving rise to implied actual authority without more’ and he commented that the actual circumstances of the relationship between the claimant and SS clearly negatived the suggestion that the claimant had impliedly authorised SS to enter into contracts of carriage on its behalf. 

3. Ostensible authority

In his judgment, Pelling QC also considered whether the claimant by its words and conduct to the defendant, had held out SS as being authorised to act as its agent. The defendant contended that the claimant had clothed SS with apparent authority to enter into a contract of carriage on its behalf because SS sent copies of bills of lading concerning the shipment of UIBA on 33 previous occasions, and in each case the claimant did not complain about being described in the bills of lading as the shipper. The judge said that this was unarguable as the defendant had no knowledge of the 33 emails sent to the claimant before the relevant contract of carriage.

Therefore, the judge concluded that neither RS nor SS had either express or implied actual or ostensible authority to enter into a contract of carriage with the defendant on behalf of the claimant. The claimant’s application under section 67 of the Arbitration Act 1996 to set aside the tribunal’s award was granted.

This Commercial Court decision stands as a reminder that authority to enter into a contract on behalf of another is authority to commit that other to a legal obligation to a third party without qualification and is not lightly to be inferred. Therefore, authority cannot arise from silence alone.

This article was written by Hill Dickinson’s Lewis Moore, partner; Toby Miller, legal director; Chris Primikiris, senior associate; Beatrice Cameli, associate; and Mariel Kagiorgi, paralegal. The case covered was MVV Environment Devonport Ltd -v- NTO Shipping GmbH & Co. KG MS “NORTRADER” MV “NORTRADER” [2020] EWHC 1371 (Comm).