Trina Solar (US), Inc v Jasmin Solar Pty Ltd [2017] FCAFC 6

This case is important because it shows how an Australian Court might deal with the question of non-signatories or non-parties. Albeit, the Court was concerned with an application for leave to serve a party outside of Australia, and not a stay application where a party had brought court proceedings in the face of an arbitration agreement.

Here the Australian Court applied the law of the forum (ie Australia) as opposed to the governing law of the arbitration agreement (ie New York) to answer the question of whether the non-signatory was or was not a proper party to the agreement.

This case also shows that, not only an arbitral tribunal, but also a court at the seat (in this instance a Court in New York) or a court in another jurisdiction where a proceeding may be brought raising questions which arguably fall within the scope of a putative arbitration agreement might differ in the application of law to the question.

The Australian case involved the application for leave to serve court process outside the jurisdiction. The principal issue was whether the Court should use its residual discretion to refuse leave.

The argument by the US respondent that the Court refuse leave to serve overseas was made on the premise that any such proceeding would inevitably be stayed in favour of arbitration. This was objected by the Australian party seeking to serve process in the US as it argued that it was not a proper party to the arbitration agreement. By the time the application was made, the arbitrator of the underlying arbitration between the parties had already ruled that the Australian party was a proper party bound by the arbitration agreement.

Given the surrounding facts and the non-party question, this case is not one which can be analysed separately from its overall background and context so I will proceed to analyse it in this fashion.

Jasmin Solar Pty Ltd (“Jasmin”), argued that it was not a party to the arbitration agreement between JRC Services LLC (“JRC”) and the US incorporated respondent Trina Solar (US) Inc (“Trina”). Jasmin sought leave to serve Trina in the US as it alleged that Trina made misrepresentations that induced Jasmin to seek to obtain supply of solar panels from Trina.

Trina had entered into a supply agreement with JRC, which contained an arbitration agreement providing for arbitration in New York according to New York law. Most of the product supplied to JCR was forwarded on to Jasmin.

In opposing the application, Trina argued that Jasmin was a proper party to the arbitration agreement for which an arbitration was already underway and asked that the Australian court exercise its residual discretion to refuse leave to serve process out of the Australian jurisdiction as any litigation would inevitably be stayed in favour of that arbitration.

The arbitration agreement for the ongoing arbitration was found in the contract for supply, concluded in November 2012 between JRC and Trina. Trina argued that Jasmin was a proper party because JRC, an intermediary related (sister) company to Jasmin, was its agent.  

The primary Judge, Edelman J, in his decision of December 2015 allowing service out of the jurisdiction (seeJasmin Solar Pty Ltd v Trina Solar (US)  [2015] FCA 1453), noted that the arbitrator had already rejected Jasmin’s jurisdictional objection that it was not a party to the contract and Jasmin had already ceased its participation in the arbitration in order to maintain its jurisdictional objection. In terms of service of process in Australia, Judges maintain residual discretion to refuse leave to serve out even if the preconditions in r 10.43(4) of the Federal Court Rules 2011 (Cth) are satisfied. More controversial is the Judge’s analysis of the question of whether Jasmin was not a proper party to the arbitration agreement and the application of the law of the forum (ie Australia) to this question to consider whether the proceeding would nonetheless be likely to be stayed in favour of arbitration upon any future application for a stay. Edelman J concluded that Trina’s argument that JRC was not Jasmin’s agent and Jasmin was therefore not a proper party to the arbitration agreement.

There was an issue whether evidence of agency may have been inadmissible as the contract expressly provided that it did not confer any rights on any person not named in the agreement and the available evidence was in any case not cross-examined given that this was merely an application to serve process. Even if evidence were admissible to contradict the agency relationship so as to make Jasmin a party to it, Edelman J was of the opinion that the evidence did not clearly establish a relationship of agency as there were internal deficiencies and tensions within the key document upon which Trina relied on to prove the agency relationship (an agency agreement of August 2012), namely the fact that it was signed by the agent rather than the principal.

The contentious part for our purposes here is the application of Australian law in order to determine whether a company is a party to a contract containing a submission to arbitration in New York. Although this decision would not be determinative as to issues concerning a stay of proceedings either in Australia or in the US, Edelman J admitted that his conclusion that Jasmin is not a party to the contract for supply and in turn the arbitration agreement contained in it, based on the law of the forum, leads to the possibility that the same issues could be re-litigated in New York, applying a different law.

In theory, the application of the law of the forum to determine whether a party was a proper party to a contract seems logical (as will be developed and explained below) as this question is underpinned by the ultimate question of whether there is a binding arbitration agreement between the relevant parties. One might understandably ask why the law of the disputed arbitration agreement be applied to determine whether there is an arbitration agreement between such parties in the first place. However, other jurisdictions have nevertheless opted to apply the substantive law of the relevant arbitration agreement in order to determine whether a party is a proper party to the arbitration agreement rather than the law of the forum. It seems that there may not be one finite correct and reconciled approach.

To illustrate my point, I briefly digress to discuss an English case published in 2015 (see Egiazaryan v OJSC OEK Finance [2015] EWHC 3532 (Comm) (04 December 2015)). This case illustrates the application of the law of the arbitration agreement to the issue of a non-party/non-signatory. Here, the UK Court, in its capacity as the supervisory court, applied the applicable law of the arbitration agreement (ie English law) to find that a party was a proper party to the arbitration agreement.

However, sometimes it is not as simple as looking at the applicable law of the arbitration agreement. Rather, sometimes courts might (in contrast to Edelman J’s analysis) apply the substantive/governing law of the arbitration agreement and in doing so, courts might encounter conflict of law provisions within that applicable law which send them to apply another law entirely. In this sense, the correct application of the governing law might actually be to apply another body of law to the relevant question. In the referred to English case, that question was whether a parent could be deemed liable for its subsidiary’s arbitration contract.

In this UK case example, the supervisory court was asked if the City of Moscow was a proper party to the arbitration agreement. Under English law, applying relevant conflict of law principles to the question of whether a parent could be liable for a contract signed by its subsidiary and therefore liable to the arbitration agreement contained within, a Court must look to the law of the place of incorporation of the non-named party parent company. In this case, the place of the incorporation of the parent company was Russia. Applying the law of the arbitration agreement (ie English law), the English Courts, applying English conflict of law principles, found that Russian law applied to determine the question of whether the parent party was a proper party to the arbitration agreement. This was answered in the affirmative under Russian law as under Article 105 of the Russian Civil Code, a parent is jointly and severally liable on a contract as a whole including the liability to perform any arbitration agreement.

Going back to the Australian case and Edelman J’s decision in 2015 in particular, his application of the law of the forum to determine party-hood is not necessarily accepted practice in other jurisdictions. Edelman J nonetheless stated that “it might be expected to be only in extremely rare circumstances that the laws of different countries would reach different conclusions of the very basic question of whether a person has become a party to an agreement” (also at paragraph 166 of his decision) which does not seem to be the case (although it would make everyone’s lives more easy in dealing with non-signatory questions if it were).

More interesting however his Honour’s logic that follows. Edelman J then states that “if such different conclusions exist then it is hard to see why a person who says that they are not a party to a contract should have applied the different law of a foreign jurisdiction to which the person says he or she never consented” (also see paragraph 166).

There is obvious logic as to why a Court may be hesitant to apply the applicable law of the arbitration agreement in deciding whether that party was a party to the arbitration agreement given that if it did not in fact consent to be bound by the arbitration agreement in the first place, how could it be held to have agreed for the party-hood question to be determined by the substantive governing law of the arbitration agreement?

Greenwood J granted leave to Trina to appeal from the interlocutory judgment of Edelman J Subsequent decisions in 2016 have confirmed Edelman J’s decision (see Greenwood J’s decision of Trina Solar (US), Inc v Jasmin Solar Pty Ltd [2016] FCA 159). Given that the arbitrator in New York had decided that the question was to be dealt applying New York law, Trina argued that the primary judge erred in his application of the law of the forum and wanted to put on evidence that under New York law Jasmin would not be a party with the proper application of New York law to the question of agency. Allsop CJ determined that the appeal be confined to a question of law, the application of Australian law in determining the question of party-hood, noting that by this stage the arbitrator had already, in addition to deciding that New York law was applicable, decided that Jasmin was liable under the award (see Trina Solar (US), Inc v Jasmin Solar Pty Ltd (No 2) [2016] FCA 399). The arbitrator held that JCR had both apparent and actual authority to sign the agreement on Jasmin’s behalf. Allsop CJ noted that should the appeal court find an error in applying Australian law to the question, then the question would arise as to whether it should consider evidence as to New York law.

The Full Federal Court of Australia (“FCFCA”) dismissed the appeal and held that it was not an error of law to apply the law of the forum in refusing to exercise its residual discretion (see Trina Solar (US), Inc v Jasmin Solar Pty Ltd [2017] FCAFC 6). Specifically, FCFCA was asked to exercise its residual discretion as the primary judge’s discretion was allegedly miscarried.

Dowsett, Greenwood and Beach JJ each delivered a separate judgment (although Dowsett J largely concurred in the reasons of Beach J). Greenwood J relied on the possibility that the final award may be refused enforcement under section 8(5)(b) of the International Arbitration Act 1974 (Cth) (“IAA”) to justify the decision to refuse to exercise residual discretion. Section 8(5)(b) of the IAA provides that any enforcement proceedings, the court may refuse to enforce if the arbitration agreement was not valid under the law expressed in the agreement. Greenwood J stated that the binding nature of the arbitral award subsists for purposes that do not involve enforcement, however the FCFCA could not be satisfied that the court of the forum would conclude that the arbitration agreement were valid in the face of an apprehended contest.

Beach J considered the same question of section 8(5)(b) of the IAA stating that if the Final Award were enforceable by Trina and Jasmin failed to resist enforcement in Australia on that ground then it is conceivable that any stay application may be granted on the basis that a Final Award is as a matter of statutory application under section 8 of the IAA binding on Jasmin. However, Beach J then stated that conversely if Jasmin successfully resisted enforcement under section 8(5)(b), then any application for a stay may be refused with no need to further consider choice of law. He concluded that such questions are best left to a stay application.

Beach J also held that it was unnecessary for Edelman J to have been so definitive in his application of the law of the forum because he was merely refusing to exercise his residual discretion, stating “his Honour needed only to have gone so far as to say that the law of the forum was reasonably or strongly arguable as the appropriate choice of law to justify the refusal to exercise the residual discretion to refuse leave” and “even if one was to conclude that his Honour expressed himself too definitively…then I would not in any event exercise the residual discretion any differently to his Honour” (see paragraph 122).

In dismissing the appeal, the FCFA ignored the elephant in the room being the litigation on the very question of whether Jasmin was a proper party happening in the New York Courts.

By the time that the 2017 the Federal Court decision was handed down there was already a US District Court of Southern District of New York decision refusing to vacate the award against Jasmin which also applied New York law to the question (see Trina Solar US, Inc v JRC-Services LLC and Jasmin Solar Pty Ltd (D NY, 16-CV-2869 VEC). However, the judges of the FCFCA did not seem to know the result of this judgment at the time of writing their decisions.

Let us return to the most recent decision by the US District Court of Southern District of New York, handed down on 13 January 2017 merely days before the Australian decision was published on 25 January 2017. The US District Court conducted a de novo review of the question of jurisdiction over the purported non-party, Jasmin. Under New York law “it is black letter law that an agent binds his principal when he enters into a contract within the scope of his authority” (see Hidden Brook Air, Inc. v Thabet Aviation Int’l Inc., 241 F. Supp. 2d 246, 260 (S.D.N.Y. 2002) (“Hidden Brook”). An agent may have actual authority which may be express or implied or apparent authority. An agent will have actual authority where the agent has the power to do an act or conduct a transaction on account of the principal because of the principal’s manifestation to him (see Minskoff v American Exp. Travel Related Servs. Co., 98 F. 3d 703, 708 (2d Cir. 1996) (“Minskoff”)). On the other hand, apparent authority “arises from the written or spoken words or any other conduct of the principal which, reasonably interpreted, causes [a] third person to believe that the principal consents to have [an] act done on his behalf by the person purporting to act for him” and “these representations… need not be made through actual contact between the principal and third party” (Hidden Brook at paragraph 260 and Minskoff at paragraph 760).

The US District Court noted the clear tensions in the agreement of August 2012, such as the fact that JRC signed the agency agreement rather than the principle, but found that JRC had actual authority to sign the arbitration agreement (but not also apparent authority in contrast to the arbitrator’s decision).

Further the agency agreement was to expire in July 2015, well after the supply agreement was signed by JRC in November 2012. It was also in that same document that Jasmin guaranteed payments by JRC. However, after the expiration of that document, Jasmin never provided a new guarantee to Trina. Notable to the decision to render Jasmin liable under the rules of agency is the fact that, although there were issues with the agency agreement (notably the agent signed it not the principal), Matthew Starr (Jasmin’s managing partner) provided Richard Carson (JRC’s CEO and owner) with a Jasmin email and signature block which he used in his following communications with Trina.

Further, Jasmin remained intimately involved throughout the negotiations with Trina (Starr and Carson edited the drafts of the contract under negotiation together throughout) and clearly the solar panels that JRC and Jasmin sought to purchase from Trina were intended for Jasmin’s use and needed to be tailored to its needs. Towards the end of the negotiating period, Starr even instructed Trina that it should inform him of any major issues immediately.

Also, under the estoppel theory, a company “knowingly exploiting an agreement with an arbitration clause can be estopped from avoiding arbitration despite having never signed the agreement” (see MAG Portfolio Consultant, GMBH v Merlin Biomed Grp. LLC, 268 F. 3d 1060, 1064 (2d Cir 1993)). Here, Jasmin benefited directly from the PV Module Sales Contract, being a contract for the sale of goods. Such goods were purchased in accordance with Jasmin’s specifications and delivered directly to Jasmin. Therefore whatever financing agreement existed between JRC and Jasmin to pay for the panels, the solar panels were intended for Jasmin’s use. Jasmin was seen as benefiting from the contract which was thus held to be enforceable against Jasmin.

As things presently stand, the Australian judgments are at odds with the US District Court’s judgment which refuses to set aside the award against Jasmin. The award is thus capable of being enforced in Australia.

The Australian judgment of 25 January 2017 seems effectively be futile. Futile because it may have no practical effect. As Jasmin was held to be a proper party, any proceeding involving the Australian Consumer Law claims between Jasmin and Trina firstly, could not be stayed in favour of the arbitration as it had well ended (there was no ongoing arbitration anymore) and in any case any such litigation would need to be dismissed given that the claims could have been decided within the arbitration itself which Jasmin, in order to maintain its jurisdictional objection, decided not to continue participating in.

The 2017 decision can therefore at most, give us insight into the way that an Australian judiciary might treat the question of non-parties (ie applying the law of the forum). Jasmin is in no position to litigate its misrepresentation claims under Australian Consumer Law (“ACL”) unless it could be successfully argue that such matters are not arbitrable, meaning incapable of resolution by arbitration. However chances of success would appear slim since it has been held that such matters are in fact arbitrable (see Comandate Marine Corp v Pan Australian Shipping Pty Ltd (2006) 157 FCR 45Casaceli v Natuzzi SpA (2012) 292 ALR 143 and Amcor Packaging (Aust) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253). In any case, it would be interesting to see how a tribunal would deal with this question of admissibility vis-à-vis ACL claims in an arbitration where the governing law is not Australian.

This would have been a fine opportunity to see the misrepresentation claims under ACL in play during an arbitration if Jasmin had not ceased to participate, based on its objection of jurisdiction that it was a non-party, and rather reserved its rights and continue participating to ensure its case was heard to its full extent. However, in anticipation for the next case which touches such issues, we can ponder the above questions on party-hood.