In Tianjin Dinghui Hongjun Equity Investment Partnership v. Du, 2023 ONSC 1808, Justice Kimmel refused to recognize and enforce a $120 million arbitral award in a Shenzhen Court of International Arbitration (“SCIA”) arbitration seated in Shenzhen, China against two individual respondents, Mr. and Mrs. Du, who were resident in both Canada and China. She found that the Dus had not been given proper notice of the arbitration within the meaning of Article 36(1)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), being Schedule 2 to the International Commercial Arbitration Act, 2017, c. 2, Sched. 5. By extension, the Dus were also unable to present their case.
Background –The dispute arose pursuant to loan agreements and a secured guarantee under which the Dus guaranteed loans that the applicant made to a company indirectly controlled by Mr. Du and of which Mr. Du was the Chairman (the “borrower”).
Under the relevant agreements, the notice of arbitration could be sent to the Dus by courier to the borrower’s address, or by registered mail to a specified residential address, among other options. If sent by courier to the borrower’s address, the notice was deemed to have been received when the recipient signs to acknowledge receipt, or on the third working day after sending, if the recipient refuses to sign.
The Dus were required to give notice of any change in their address, failing which they would be liable for any effect or loss that may be caused by the change, unless the applicable law provides otherwise.
The SCIA served the notice of arbitration to the borrower’s address, where the borrower’s controller signed for it. It attempted unsuccessfully to serve the Dus personally and by registered mail at their residence, which it turns out had been sold.
The arbitration proceeded. The law firm that represented the borrower also purported to represent the Dus, and provided a power of attorney to that effect, which was signed by the borrower’s corporate representative, but not the Dus. The arbitral tribunal rendered its award, finding the Dus personally liable under the guarantee.
The Dus both brought separate proceedings before Shenzhen courts to set aside the arbitral award as against them, including on the basis that they did not receive proper notice. Both proceedings were dismissed.
Proper notice –Justice Kimmel first considered whether recognition and enforcement could be refused pursuant to Article 36(1)(a)(ii) of the Model Law on the ground that the Dus were not given proper notice of the appointment of the arbitrator or of the arbitral proceedings. Citing two earlier cases that curiously also involve a party with “Tianjin” in its name, she held that proper notice under the Model Law means “notice that is reasonably calculated to inform the party of the arbitral proceedings and give them an opportunity to respond.”
She noted that, under both Article 3 of the Model Law (see my commentary below about the relevance of Article 3 here) and the SIAC Rules, the notice provisions in the relevant agreements prevail.
Justice Kimmel recognized that the agreement allowed notice to be given to the individuals at the borrower’s corporate address, but found that proper notice had not been given through that means because the package was signed for by a corporate representative, rather than by the Dus themselves. She stated: “Since the [borrower] and [the representative] were not the intended ‘recipients’ of the packages addressed to the Dus and sent to the [borrower’s] address, the [representative’s] signature cannot be taken to be the signature of the recipient or an acknowledgement of receipt of notice of arbitration under the Loan Agreements.”
She found that notice had not been properly given at the residential address, since the package was returned undelivered. The fact that the Dus had not informed the applicant of its change of address did not matter: “[t]hat may have been problematic for the Dus had [the applicant] strictly complied with the contractual notice provisions, but it did not.”
Justice Kimmel also rejected the argument that the Dus had received proper notice through the law firm that purported to represent them, since that firm’s power of attorney was not signed by them, but rather by a corporate representative.
Effect of the decision of courts at the seat – The applicant relied on the Judicial Committee of the Privy Council’s decision in Gol Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners, 2022 UKPC 21 to assert that the proper notice question was covered by issue estoppel because the courts at the seat had already decided that same question. In Justice Kimmel’s view, no issue estoppel arose because the Chinese court had found that notice had been “deemed” to have been given pursuant to Chinese law, the SIAC Rules and the parties’ agreement, but there was no explicit decision as to whether the notice complied with the agreement. Similarly, the Dus were only “regarded” as having been represented by the law firm.
As part of her analysis of the effect of the decision of the courts at the seat, Justice Kimmel referred to the Ontario Rules of Civil Procedure as follows:
“ Under Ontario law, service reasonably calculated to bring notice of a proceeding to the attention of the intended recipient is codified in the alternatives to personal service provided for in r. 16.03 of the Rules of Civil Procedure […] The prescribed alternatives to personal service all require some form of acknowledgement of receipt (by the individual or their lawyer), or physical delivery to an adult person at the place of residence, followed by delivery by mail. In other words, service is reasonably calculated to bring the materials being served to the attention of the intended recipient. Other means of service can be validated under r. 16.08 in cases of actual notice or service evasion, neither of which has been demonstrated here.”
Inability to present case – It followed that the Dus were also unable to present their case. They testified that they were not instructing the law firm. Justice Kimmel found it significant that the law firm did not advance any defences specific to the individuals.
First, I’m going to go right ahead and call out the dragon in the room. Justice Kimmel’s reasons seem to refer to the current geopolitical climate in China when she considers the public policy issue raised:
“ I am not aware of any blanket public policy against enforcing arbitration awards rendered in China and this is not the appropriate case in which to engage in that analysis”.
Which begs the question: are some arbitral seats “safer” than others, and do arbitral awards rendered in seats perceived to be less “safe” receive greater scrutiny on recognition and enforcement applications?
This strikes me as a fascinating topic for empirical research.
Second, this is the first Canadian decision to refer to the Judicial Committee of the Privy Council’s decision in Gol Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners, 2022 UKPC 21, which provides a tour de force of the law with respect to recognition and enforcement of arbitral awards, as well as the effect of a negative set aside decision at the seat on subsequent recognition and enforcement applications elsewhere in the world. Readers may recall that I referred to this case in my commentary to the Costco Wholesale Corporation v. TicketOps Corporation, 2023 ONSC 573 (Case Note No. 721: Ontario – What does “unable to present his case” mean?).
The hearing in the Vento Motorcycles, Inc. v. United Mexican States set-aside application, in which I represent the applicant, took place before Justice Vermette on May 2, 2023. I referred Her Honour to Gol Linhas in some detail. Let’s see what Canadian courts make of this well reasoned new authority (see the Case Note on a procedural decision in the case: Ontario – Fresh evidence test the same on set aside applications on fairness grounds and judicial review applications – #572 ) Ontario – Fresh evidence test the same on set aside applications on fairness grounds and judicial review applications – #572 – Arbitration Matters.
Third, I find it perplexing that notice sent to the corporate address accepted by a corporate representative was not good enough. When individuals give a corporate address as an address for notices, isn’t it expected that, usually, someone else will be signing for the package (a receptionist or courier department, for example)? The point of giving a corporate address for notices is that the corporate headquarters is better equipped to receive and process correspondence and to make sure it gets to the addressee. If the parties had truly intended that the individuals could only be served at the corporate office if they were physically there to sign for the package personally – which seems unlikely at any given point in time, when we are talking about the Chairman and his wife – one would think the parties would have specified this explicitly in their agreement. And what about the lawyer’s representation that he acted for the Dus?
Fourth, what do the Ontario Rules of Civil Procedure have to do with an application to recognize and enforce an arbitral award in an arbitration seated in China pursuant to Chinese law contracts administered by a Chinese arbitral institution? Absolutely nothing at all, whatsoever, beyond setting out the procedure for the application itself.
The reference to Article 3 of the Model Law, concerning receipt of written communications, is equally inapposite. Article 3 only applies to arbitrations seated in Ontario, as Article 1(2) makes clear.
Fifth, the decision contains the term “service” 43 times. Yet in international arbitration, we usually speak of giving notice, not effective service, which is a concept associated with court proceedings. It is perhaps a semantic point, but sometimes it’s important to keep the terminology distinct to avoid confounding concepts that should not be confounded.
Sixth, Justice Kimmel seized on the terms “deemed” and “regarded” in the Chinese court decisions refusing set-aside. She was working from translations though. It would be interesting to have the views of anyone who can read the original Mandarin as to whether the language of the original bears out the analysis and the focus on those two terms.
Justice Kimmel’s decision is under appeal to the Ontario Court of Appeal. Stay tuned.