Medivolve Inc. v. JSC Chukotka Mining and Geological Company, 2024 ONSC 2200, the Court refused Medivolve’s application to set aside an international arbitration award issued by a Moscow-seated tribunal, instead granting Chukotka’s application to recognize and enforce the award. Medivolve failed to appear at the arbitration and claimed that it had not been given proper notice or an opportunity to be heard. The Court found that Medivolve had proper notice of the arbitration within the meaning of Art. 36(1)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”). It had received actual notice, by email, of the pendency and status of the arbitration well before the award was rendered even though it changed offices (without notifying the opposing party).
Background to the dispute – In September 2020, Medivolve agreed to supply real-time COVID-19 PCR testing machines, PCR testing kits, and antibody testing kits to Chukotka for a price of about USD $2.07 million. Chukotka paid the purchase price.
In early 2021, Chukotka complained that the equipment was not working properly. Medivolve contended that any malfunction was due to Chukotka’s improper storage of the equipment, and was not Medivolve’s responsibility.
The parties engaged in unsuccessful negotiations, after which Chukotka sent to Medivolve a “Notice of Rejection of Goods” on April 29, 2021. The notice was sent by email and to Medivolve’s head office at the address stipulated in the supply agreement (the “Head Office”). At that time, Medivolve also had a different registered address under the Canada Business Corporations Act (the “Registered Office”). Chukotka’s notice demanded a refund of the purchase price. Medivolve did not deny that it received this notice but did not respond. On May 11, 2021, as the supply agreement required, Chukotka sent, by email, a pre-arbitration claim stating that it would refer the dispute to arbitration if Medivolve did not fulfil the claim within 15 business days.
The arbitration – On July 1, 2021, Chukotka commenced arbitration under the rules of the Moscow-based International Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (the “ICAC”).
In parallel with these events, in June 2021 Medivolve moved to a new office (“New Office”). Medivolve did not communicate the change to Chukotka or the ICAC and did not update its address in the corporate registry until October 12, 2021. Medivolve did, however, report its new address in a SEDAR material change report filed on July 16, 2021.
On July 9, 2021, the ICAC Secretariat sent a copy of Chukotka’s Statement of Claim to Medivolve’s Head Office and Registered Office. The courier was unable to deliver the correspondence and reported, “the consignee has not been found at the given address.”
On July 13, 2021, Chukotka sent a letter by courier to Medivolve’s Head Office and Registered Office stating that it had commenced arbitration and including a link to the Statement of Claim and 38 exhibits, among other information. A process server sent that letter by regular mail to Medivolve’s Registered Office, and Chukotka sent it to Medivolve by email on July 15, 2021. Although Medivolve did not receive any of the courier or mail shipments, the Court found at para. 15 that, “Medivolve received the letter and attached materials by email on July 15, 2021.”
The arbitration proceeded without Medivolve’s participation. The ICAC appointed an arbitrator and gave notice (again, to Medivolve’s out-of-date Head Office and Registered Office) of a hearing scheduled for October 15, 2021. The hearing went ahead without Medivolve, and, at Chukotka’s motion, on October 18, 2021, the panel hearing the case invited Chukotka to apply for reimbursement of arbitration expenses by October 29, 2021.
On October 18, 2021, the ICAC Secretariat sent this order in the usual way to the Head Office and Registered Office, without success. It was also sent to an email address listed in the supply agreement and to four other individuals with whom Chukotka had corresponded in the past. The record shows that Medivolve contacted a Moscow-based lawyer (“Gubkin”) in October 2021 and retained him in November 2021.
Gubkin attempted to intervene but ran into delays obtaining a power of attorney for Medivolve that satisfied the ICAC’s formal and substantive requirements. On December 23, 2021, the Tribunal hearing the case issued a final award finding that Medivolve had breached the supply agreement and ordering it to pay over USD 2.4 million to Chukotka.
The ICAC sent a copy of the award to Medivolve, which it did not receive. In February 2022, the ICAC advised Chukotka that the correspondence containing the award was not delivered to Medivolve.
On March 1, 2022, Chukotka sent a letter to Medivolve enclosing the award. This correspondence was sent to Medivolve’s New Office, and to the same email addresses used for the ICAC’s October 18, 2021, notice.
When Medivolve received this correspondence on March 1, 2022, it became aware of the award for the first time. In parallel, Medivolve was still working to procure a power of attorney for Gubkin, which took several months – the authenticated document was only received from the Russian consulate in Ottawa on May 30, 2022.
The set-aside proceeding in Russia – After receiving the award, Medivolve filed an action in the Arbitration Court of the City of Moscow to set it aside. The Russian court rejected Medivolve’s efforts to annul the award at the seat, finding that the notice provided to Medivolve was adequate under the ICAC’s rules on deemed notice.
The Ontario proceedings – Medivolve applied for an order setting aside the award pursuant to Art. 34 of the Model Law, which is Schedule 2 of Ontario’s International Commercial Arbitration Act, 2017, SO 2017, c 2, Sch 5 (the “ICAA”). Chukotka cross-applied for an order recognizing and enforcing the award under Art. 36 of the Model Law.
(1) The Medivolve application – The Court addressed Medivolve’s application first, finding that the set-aside power Art. 34 of the Model Law applies only when the seat of arbitration is in Ontario. Moreover, s. 5(3) of the ICCA excludes recourse to Ontario’s domestic Arbitration Act, 1991, S.O. 1991, c. 17, for international commercial arbitration awards. The Court also rejected Medivolve’s argument that the Court retained common law powers to set the award aside outside of either arbitration statute, stating, at para. 42, “[the ICAA and Arbitration Act, 1991] indicate an intention to occupy the field….” In dicta, the Court noted, at para. 43, that while it was “incline[d] to the view that the Court lacks jurisdiction to hear the Medivolve application, the Medivolve application is effectively denied in reaching the conclusion below on Chukotka’s application.”
(2) The Chukotka application – The Court rejected Chukotka’s argument that Medivolve was estopped from denying that it had proper notice of the arbitration because that issue had been decided, against Medivolve, in the award and by the Russian courts. The issue decided in the award, and in the Russian set-aside proceeding, was whether delivery of ICAC notifications to Medivolve complied with the ICAC rules for deemed delivery. The issue before the Court in Ontario was different, as the decision explained at para. 57: “whether ‘proper notice’ had occurred that satisfied the standard of ‘notice reasonably calculated to inform the party of the arbitral proceedings and give them an opportunity to respond’ which … is the standard applicable for the purposes of Article 36(1)(a)(ii) of the Model Law.”
On the merits of Chukotka’s application, the Court concluded, at para. 63, that Medivolve had received “proper notice” of the commencement of the arbitration by way of Chukotka’s July 15, 2021, email, and – “well in advance of the [award]” – by way of the ICAC Secretariat’s email on October 18, 2021.
This conclusion doomed Medivolve’s argument that, in the circumstances, “proper notice” required the ICAC to communicate by email after it became aware that deliveries to Medivolve’s Head Office and Registered Office had failed. The Court explained, at para. 76, “best practices might have suggested such a course of action, [but] in my view that is not the test for proper notice for the purposes of Article 36(1)(a)(ii) of the Model Law.”
Next, the Court dismissed Medivolve’s argument that it had been denied an opportunity to present its case. The Court observed, at para. 83, that the “evidence in the record does not provide a reasonable explanation for Medivolve’s failure to present a claim for relief that would have enabled it to present its case prior to the issuance of the [award].”
Lastly, Medivolve argued that the arbitral tribunal failed to treat the parties equally. One aspect of this claim was that the ICAC communicated with Chukotka by email, but sent most correspondence to Medivolve by courier to addresses where Medivolve had not been found. The Court found no inequality in this circumstance because Chukotka had asked the ICAC to send correspondence to it by email, and, as the Court observed at para. 95, “in the absence of a request from Medivolve for email communication, the Tribunal did not take any action that resulted in unequal treatment of the parties.” The Court also noted, at para. 96, that Medivolve’s allegation of unfairness was “properly addressed as a question of whether […] Medivolve received proper notice […] not as a question of whether Medivolve received unequal treatment from the ICAC.”
The Court, accordingly, granted Chukotka’s application and, “to the extent that the Court has jurisdiction”, denied Medivolve’s.
Contributor’s Notes:
First, this judgment is helpful for continuing the Ontario courts’ exploration of “proper notice” under Art. 36 of the Model Law, which the Ontario Superior Court of Justice also recently addressed in Tianjin v Du, 2023 ONSC 1808 (see Case Note No. 738 – Ontario – International award not enforced because of improper notice). In Tianjin, the Court refused enforcement of an international arbitration award, holding that proper notice under Art. 36 of the Model Law means “notice that is reasonably calculated to inform the party of the arbitral proceedings and give them an opportunity to respond.”
The test set out in Tianjin and applied in Medivolve is functional, rather than formalistic. In Tianjin, the contract allowed notice to be given to individuals at one party’s corporate address – which was done – but the Court found that this was inadequate because the individuals who signed for receipt were not the respondents in the arbitration. As the Arbitration Matters Case Note in Tianjin observed, the finding that notice was inadequate when provided in compliance with the contract, to a corporate address, and signed for by a corporate representative, is “perplexing”. Tianjin is currently under appeal.
The judgment in Medivolve rests on the factual finding that Medivolve received actual notice as of July 15, 2021, when it received Chukotka’s email enclosing the Statement of Claim and exhibits, and when Medivolve received an email notification from the ICAC on October 18, 2021. Those communications meant that Chukotka did not need to rely on the legal effect of deemed notice provisions under the supply agreement or ICAC Rules – the latter of which, as the Court found, “do not incorporate the agreement between the parties regarding the method of service or delivery in the Supply Agreement.”
Second, Medivolve highlights the importance of (1) care in contract drafting (including the selection of arbitration rules, which – like Article 3 of the ICC Rules – may have deemed notice provisions and/or incorporate contractual notice terms), (2) diligence in communicating address changes and communication preferences to contract counterparties, and (3) acting quickly and decisively to protect interests.
While the decision did not turn on what Medivolve failed to do, it is replete with barbs about how Medivolve reacted at various points in the arbitration. To highlight a few:
- Para 73: “In the present case, Medivolve alone failed to appear. It had notice of the commencement of the arbitration and the specific claim against it. It took no steps to ensure that it received the documents sent to it by both Chukotka and the ICAC, of which it was made aware by Chukotka in its email of July 15, 2021. It did not engage counsel when it was made aware of the arbitration, nor did it contact the ICAC to inquire about its process.”
- Para. 81: “Medivolve made the decision not to engage a Russian Lawyer to represent it in the arbitration or to contact the ICAC for information regarding the procedure before the ICAC.”
- Para. 83: “The evidence in the record does not provide a reasonable explanation for Medivolve’s failure to present a claim for relief…”
- Para. 86: “There is no evidence that Medivolve ever requested an opportunity to present its case in the period after it was advised of the status of the arbitration on October 18, 2021, or that it ever advised the Tribunal that it did not participate in the hearing of October 15, 2021 because it was not aware of the time and place of the hearing.”
- Para 87: “Looking at the evidence from July 15, 2021 onward in its totality, the evidence reveals, at best, a lack of urgency and, quite possibly, a careful attempt to avoid acceding to the jurisdiction of the ICAC.”
With the last bullet point in mind, this case underlines that strategic non-participation in an arbitration can be a dangerous game. One must wonder what would have happened here if, for example, Medivolve had advised Chukotka of its new office address in June 2021 or had sent a letter directly to the ICAC in October 2021 asking for a stay of proceedings to enable it to engage duly authorized Russian counsel.