But you fully participated in the arbitration – how can you now, at the enforcement stage claim that you were not properly notified of the commencement of proceedings?
The United States’ Court of Appeals was faced with this question in a recent challenge to the enforcement of an international arbitration award, which was granted against a US company. The position ultimately adopted by the Appeals Court signals a loud warning to parties seeking to enforce international arbitral awards under the New York Convention where more than one language is involved.
CEEG (Shanghai) Solar Science and Technology Co Ltd, instituted the proceedings by means of a request for arbitration to the China International Economic and Trade Arbitration Commission (CIETAC). CIETAC then in turn delivered a notice of commencement of the proceedings to LUMOS LLC, a US based Company. This notification was drafted in Chinese. LUMOS claimed that it did not appreciate the nature of the notification received from CIETAC (being written in Chinese) and as such took no action pursuant to the request. Due to LUMOS’s failure to enter an appearance to defend, an arbitrator was duly appointed by CIETAC after consultation with CEEG only.
Subsequent to and without knowledge of the appointment of the arbitrator, LUMOS delivered an offer to CEEG to settle the existing dispute. CEEG’s legal representative’s responded to LUMOS
(in English), making reference to the pending arbitral proceedings. Finally aware of the proceedings, LUMOS immediately took action to defend the proceedings. As a consequence, the tribunal granted LUMOS a two-month extension for the filing of its defence in the matter.
All then appeared to run according to plan.
The arbitral proceedings were concluded and the tribunal issued its award, finding against LUMOS. CEEG then sought to enforce the award in terms of both the New York Convention on the Enforcement and Recognition of Foreign Arbitral Awards and the US Federal Arbitration Act, in the US. The enforcement proceedings were opposed by LUMOS who then, for the first time, argued that because the notice of arbitration was presented in Chinese, it was deficient. Consequently, LUMOS argued, the composition of the arbitral tribunal did not comply with the arbitration agreement which then amounted to a ground for a refusal of the recognition and enforcement of the award under Article V(1)(b) and (d) of the New York Convention.
The US District Court ruled in favour of LUMOS, declaring that the notice was not reasonably calculated to apprise LUMOS of the proceedings. This was in light of the fact that all correspondence between the parties up until the commencement of the arbitration had been in English and that the agreements upon which the arbitral proceedings were based envisaged that the arbitration was to be conducted in the English language. The District Court held that LUMOS was thus deprived of an opportunity to participate in the appointment of the arbitrator and that the tribunal’s constitution was thus not in accordance with the arbitration agreement.
On 19 July 2016 the US Court of Appeals for the 10th circuit affirmed the decision of the District Court. The Appeal Court ruled that Article V(1)(b) of the New York Convention specifically provides justification for the refusal of the recognition of an award if “the party against whom the Award is invoked did not receive proper Notice … of the Arbitral proceedings”. According to the Court of Appeals, the notice must be “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections”.
Interestingly, the New York Convention does not require that a party complaining of a procedural irregularity needs to have suffered some form of prejudice occasioned thereby. LUMOS, as the Court of Appeals found, did suffer prejudice. It is not clear whether the Court would have reached the same conclusion had LUMOS been involved in the appointment of the arbitrator, notwithstanding the defective nature of the notice.
The New York Convention provides that the enforcement of an award may be refused under certain circumstances, one of which being that a party was not given proper notice of the initiation of proceedings or of the appointment of the arbitrator. A court at the enforcement stage has a clear discretion in this regard. While it may be reasonable to expect that a court will exercise this discretion against the background of actual prejudice suffered, there is no guarantee that this will occur in every jurisdiction. After all, the New York Convention does not require that prejudice be suffered.
For this reason, it is vitally important to ensure that all procedural requirements are properly adhered to, particularly with the commencement of the arbitral proceeding. Failure to do so may result in the granting of an award which is in reality, incapable of enforcement.