Novasen SA v Alimenta SA [2011] EWHC 49 (Comm)

Liisa Lahti

Liisa Lahti was asked by Lexis Nexis to write a case report on the recent arbitration case Novasen SA v Alimenta SA [2011] EWHC 49 (Comm).

This article was first published by LexisNexis and can be found at http://lexisweb.co.uk/groups/dispute_resolution/blog/archive/2011/02/06/novasen-sa-v-alimenta-sa.aspx

In Novasen SA v Alimenta SA [2011] EWHC 49 (Comm), Novasen ("N") entered into a contract for the sale of a cargo of oils with Sogescol ("S"), on FOSFA terms and including a FOSFA arbitration clause. N failed to deliver the oil. Alimenta ("A") claimed to be the undisclosed principal of S and thus entitled to enforce the contract. A commenced arbitration proceedings against N. The arbitrators found that there was a contractual relationship between A and N.

N appealed asserting want of jurisdiction. N argued (amongst other things) that the arbitrators did not have jurisdiction to decide on the issue given that when contracting with N, S had acted outside of the scope its authority as agent for A because it had agreed to a change in the contract price.

HHJ Mackie QC, sitting as a judge of the Commercial Court, dismissed the appeal.

The decision is important as it considers the effect of the doctrine of separability of arbitration clauses (s 7 of the Arbitration Act 1996) in a situation where one party acted as agent to an undisclosed principal and there is an allegation that the agent acted outside of the scope of its authority.

The judge decided that there was an arbitration agreement in existence between A, as the undisclosed principal, and N even though A’s agent S was said to have acted outside of the scope of its authority when agreeing a change in the contract price. Therefore whether S had acted within the scope of its authority was a question for the arbitrators.

In coming to this decision the judge applied Fiona Trust v Privalov [2008] 1 Lloyd’s Rep 254 which establishes that (1) the parties to a contract are presumed to have intended that any dispute arising out of the relationship into which they had entered or purported to enter to be decided by the same tribunal, including questions concerning the validity of their agreement with each other and that (2) the principle of separability means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the separate arbitration agreement.

Importantly, the judge came to this conclusion despite recognising that the situation in Novasen was different from the situation in Fiona Trust because in Fiona Trust there had been no dispute about who the parties to the contract were. The judge stated that the issues of authority and A’s power to intervene were closer to the question of authority in Fiona Trust than to the contrasting example of a situation where someone's signature has been forged so that there is neither a sale contract nor an arbitration agreement.

This reasoning is in line with Lord Hoffmann’s statement in Fiona Trust (at paragraph 18) that in order to attack the validity of an arbitration agreement as well as the validity of the main contract it "would have to be shown that whatever the terms of the main agreement or the reasons for which the agent concluded it, he would have had no authority to enter into an arbitration agreement."

Furthermore N argued (among other things) that it would have refused to enter into a contract with A had it known the true position given previous dealings between N and A. The judge did not accept, as a matter of fact that N had decided not to contract with A and stated that in any event the matter had not been communicated to N or to S. In coming to this decision the judge stated that the sale of a commodity on a standard form of contract is a classic example of an "ordinary commercial contract" where, in accordance with the rule established by Diplock LJ in Teheran-Europe Co. Ltd v S.T. Belton (Tractors) Ltd [1968] 2 QB 545 (at p. 555), an agent can assume that the other party is willing to contract with anyone on whose behalf the agent may have been authorised to act. Therefore the case provides a useful reminder that if there are counterparties with whom a trader does not wish to contract it should clearly notify the counterparties to its contracts of this.