NO ENFORCEMENT WITHOUT NOTICE: FEDERAL COURT OF AUSTRALIA DECLINES TO ENFORCE AN AWARD FOR FAILURE TO GIVE PROPER NOTICE OF THE ARBITRATION

In a recent post, we considered the careful and considered approach taken by Australian courts in striking the balance between a pro-enforcement stance and critical due process safeguards when enforcing foreign arbitral awards.

In Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477, the Federal Court of Australia maintained this balance by declining to enforce an award against an award debtor who had not been served in accordance with the arbitration agreement or the chosen institutional rules, and therefore had not been given proper notice of the arbitration.

Background

In 1991, Mr Liu and Mrs Liu started a sheepskin and fabric product business in Australia, which over time was run through various companies registered in Australia (the Yidi Group). Between 1998 and 2015, the business operated from a factory in Laverton North, Victoria (the Laverton North Address).

From around 2011, the business attracted outside investment, resulting in two key agreements with the Beijing Jishi Venture Capital Fund (Limited Partnership) (Jishi Fund):

• In August 2012, a Shareholders Agreement was executed between Jishi Fund, Mr Liu and Mrs Liu;
• In September 2017, a Confirmation Letter (relating to the rights of Jishi Fund under the Shareholders Agreement) was executed between Jishi Fund, Mr Liu, and various entities in the Yidi Group. Mrs Liu was not a party; it was not signed by her or on her behalf.

Both the Shareholders Agreement and Confirmation Letter contained arbitration clauses referring disputes to CIETAC arbitration. For the purposes of notification and service:

• the Shareholders Agreement indicated Mrs Liu’s contact details as the Laverton North Address and her email address;
• the Confirmation Letter specified a business factory address of the Yidi Group in Shanghai (the Qingpu Industrial Park Address) as Mr Liu’s contact details.

Clause 18.1 of the Shareholders Agreement provided that “the service of documents to either party can be made in the manner specified in this Agreement or other ways required by the applicable law or court rules”. It further specified that notices or communication under the Agreement were to be sent by personal delivery, courier, fax or email. The “applicable law” was Chinese law and the CIETAC Arbitration Rules.

Disputes arose and Jishi Fund commenced CIETAC arbitral proceedings in December 2017. Jishi Fund provided CIETAC with three addresses for Mr and Mrs Liu: a former residential address in Shanghai, a former residential address in Victoria, and their residential address in Victoria at the relevant time. However, Jishi Fund did not include the Laverton North Address.

In accordance with the CIETAC Arbitration Rules, CIETAC attempted service to the three addresses, but service miscarried; the notice of arbitration was “returned for wrong address”. After being informed of this by CIETAC in April 2018, Jishi Fund provided CIETAC the Qingpu Industrial Park Address for service. Subsequently, CIETAC sent the arbitration documents by notarised service to Mr and Mrs Liu at the Qingpu Industrial Park Address.

In July 2018, the arbitral tribunal was constituted. The tribunal accepted that effective service had taken place. The respondents to the arbitration (including Mr Liu, Mrs Liu and two Australian-registered entities in which Mr Liu or Mrs Liu were respectively a director) did not appear. The tribunal ultimately issued an award in Jishi Fund’s favour.

Enforcement proceedings in the Federal Court

Jishi Fund sought enforcement in Australia against Mr Liu, Mrs Liu, and the two Australian-registered entities. However, only Mrs Liu opposed enforcement. Summary judgment for enforcement was obtained against the other award debtors.

Mrs Liu opposed enforcement, relying on sections 8(5)(c), 8(7)(b) and 8(7A)(b) of the International Arbitration Act 1974 (Cth) (the International Arbitration Act). She submitted that she had not been given proper notice of the arbitration or the appointment of arbitrators. In the Court’s view, Mrs Liu’s submissions turned on two questions:

• whether the Court ought to accept Mrs Liu’s evidence that she had no actual notice of the arbitration or the appointment of arbitrators; and
• whether in any event, with regard to the objective circumstances, Mrs Liu was afforded proper notice of the arbitration and the appointment of arbitrators.

Whether Mrs Liu had actual notice

The Court accepted Mrs Liu’s evidence that she was not aware of the arbitration until she and Mr Liu were served with the originating application for the enforcement proceedings in October 2020. The Court also declined to infer, merely by reason of Mr Liu’s knowledge of the arbitration and the spousal relationship, that Mrs Liu had actual notice of the arbitration or the appointment of arbitrators.

Whether, in any event, Mrs Liu was afforded proper notice of the arbitration or the appointment of arbitrators in accordance with the parties’ agreement

The Court also accepted that Mrs Liu never received any communications regarding the arbitration at the Laverton North Address or at her email address in accordance with clause 18.1 of the Shareholders Agreement.

Accordingly, the next key question was whether Jishi Fund could rely on the Confirmation Letter and the Qingpu Industrial Park Address, since CIETAC had sent the arbitration documents by notarised service to Mrs Liu at that address. Jishi Fund argued that this sufficed as the contractual notice provision was located not in the Shareholders Agreement but in the Confirmation Letter. The Court rejected this argument because the Confirmation Letter was not signed by Mrs Liu or on her behalf; it did not have the effect of fixing the Qingpu Industrial Park Address as Mrs Liu’s address for service.

In addition, the Court found there was no evidence that service had taken place under the alternative methods in Article 8 of the CIETAC Rules (such as delivery to the parties’ arbitration agents, or delivery to the addressee’s business premises, registered premises or other addresses).

Other relevant circumstances

Jishi Fund submitted that Mrs Liu had failed to notify of any change to her address, in breach of the Shareholders Agreement, and should bear the consequences of this failure. The Court did not accept the argument, noting that Jishi Fund did have current contact details for Mrs Liu at all relevant times:

• Jishi Fund included Mrs Liu’s then residential address in the CIETAC Arbitration Application;
• the Shareholders Agreement specified Mrs Liu’s email address (active at the relevant times); and
• Mr Liu had duly advised Jishi Fund of the relocation of the business premises from the Laverton North Address to Mitcham.

The Court further held that:

• Jishi Fund’s subjective belief that the Qingpu Industrial Park Address was correct was not relevant to the question of whether Mrs Liu was given proper notice;
• even though Jishi Fund provided three alternative addresses and service miscarried through no apparent fault on its part, this too was not relevant to the question of whether Mrs Liu was given proper notice;
• Mr Liu was not an agent of Mrs Liu for the purpose of receiving notice in China; and
• the Court ought not exercise its residual discretion to enforce the award, noting that proper notice is a “fundamental requirement to the integrity of the arbitration.”

Accordingly, the Court dismissed the application to enforce the award against Mrs Liu.

Comment

Australian courts will hold parties to the requirement to give proper notice in arbitration. In this particular case:

• the Court was slow to infer actual notice to Mrs Liu in the absence of compelling evidence, rejecting suggestions that a spousal relationship was sufficient to meet that evidentiary threshold;
• the Court emphasised that Mr and Mrs Liu had to be given notice that the arbitration was against them in their personal It was not sufficient merely to give notice of an arbitration against companies of which they were directors;
• the requirement to provide Mrs Liu proper notice was no less strict merely because Jishi Fund was not at fault for the miscarriage of service. Inherent in this is a suggestion by the Court that Jishi Fund should have provided CIETAC other contact details after service miscarried. This reflects an approach that places the onus on the award creditor to ensure sufficient notice, lest challenges to enforcement be entertained.

This decision also reiterates the primacy of the agreement between the parties, and that Australian courts will hold parties to the procedures contemplated in the arbitration agreement and the importance of not viewing procedural elements such as service as unimportant.

Collectively, this case and Hub Street Equipment Pty Ltd v Energy City Qatar Holding Company [2021] FCAFC 110 illustrate a coherent approach by Australian courts to the balance between an enforcement-friendly stance and due process safeguards, which reinforces Australia’s position as a reliable jurisdiction for arbitration.

For further information, please contact Leon Chung, Partner, and Guillermo Garcia-Perrote, Senior Associate, or your usual Herbert Smith Freehills contact.