PEC Ltd v Asia Golden Rice Company Ltd

For an arbitration agreement to bind a principal, the purported agent must have actual or apparent authority to conclude the underlying contract, unless a separate arbitration agreement is established. Implied actual authority may arise from a course of dealing, including where the principal is a government undertaking, but formal limits, hierarchical structures and the nature and scale of previous transactions are important evidence. There is no absolute rule of Indian law preventing such an inference for a government entity. Apparent authority requires a representation by the principal or someone authorised to represent it, together with reliance. A prior course of dealing will not ordinarily establish authority for a materially larger or differently concluded transaction. Authority to negotiate or communicate approval does not necessarily include authority to conclude the contract or communicate acceptance.

Asia Golden Rice Company Limited claimed that PEC Limited had agreed to buy 25,000 metric tonnes of rice in May 2008. The alleged agreement arose from telephone discussions and a written contract signed by PEC’s Chief General Manager. It contained a clause providing for London arbitration under GAFTA 125.

PEC denied that either the intermediary who negotiated the transaction or its Chief General Manager had authority to bind it. A GAFTA First Tier Tribunal found that the contract had been concluded and that it had jurisdiction. PEC brought proceedings under section 67 of the Arbitration Act 1996. The central issues were actual authority, implied authority, apparent authority, and authority to communicate acceptance of the written contract.

1. Section 67 application. The proceedings were a new hearing of the jurisdiction issue, rather than an appeal from the GAFTA Tribunal. The court was not bound or restricted by the Tribunal’s reasoning or conclusion.
2. Contract and arbitration agreement. The telephone conversations on 15 May 2008 objectively concluded the sale and purchase contract. The parties’ established practice of using GAFTA arbitration, together with their reference to terms being “as usual”, was sufficient to establish an arbitration agreement.
3. Actual authority. Under Indian law, authority may be express or implied and may be inferred from circumstances and the ordinary course of dealing. There is no hard rule preventing a government entity from conferring implied authority by conduct. However, a formal hierarchy and specified limits may make such an inference difficult. The Board had not rescinded the relevant limits, and the previous transactions did not establish that the Chief General Manager had authority to enter into a contract of materially greater value and different scale.
4. Apparent authority. PEC had not represented that the intermediary had authority to conclude contracts of this kind. Previous transactions were materially smaller and had been concluded through a different process. They were more readily explained as ratifications of particular contracts than as a general representation of authority. The court would have reached the same conclusion under Indian law. The issue was governed by English law because the parties’ prior dealings had selected English law and arbitration, and fairness did not require departure from that general principle.
5. Communication of acceptance. Authority to negotiate, administer transactions or communicate approval did not amount to apparent authority to communicate PEC’s acceptance of a new written contract. The intermediary had no such authority.
6. The purported agents lacked actual and apparent authority. PEC was therefore not bound by the Purchase Agreement and had not entered into the alleged arbitration agreement.

The GAFTA First Tier Tribunal awarded against PEC and held that it had jurisdiction. GAFTA 125 provided no appeal on jurisdiction. PEC therefore brought a new jurisdiction hearing under section 67 of the Arbitration Act 1996. The Commercial Court concluded that the Tribunal lacked jurisdiction because no binding contract or arbitration agreement had been made by PEC.