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You've been served! — Giving proper notice of an arbitration is critical for enforcement of an award

Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477

The recent Federal Court decision of Beijing Jishi Venture Capital Fund (Limited Partnership) v Liu [2021] FCA 477 highlights the importance of giving notice of an arbitration in accordance with the agreement(s) governing the arbitration.

Under ss8(5) and 8(7) of the International Arbitration Act 1974 (Cth) (IAA), the Court may refuse to enforce a foreign award if a party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or if a breach of the rules of natural justice has occurred.

Background to the dispute

The applicant, Beijing Jishi Venture Capital Fund (Limited Partnership) (Jishi Fund) applied to enforce a foreign award under the IAA. The application was made against Mr James Liu (the first respondent and an undischarged bankrupt) and Mrs Elaine Liu (the second respondent and married to Mr Liu), and two companies they controlled (GHL and YE, the third and fourth respondents respectively).

The dispute arose from the failure of an initial public offering (IPO) of Yidi Fur Technology (Shanghai) Co Ltd (Yidi) in mainland China. In 2012, Jishi Fund entered into an agreement with eight other parties including Mr and Mrs Liu to invest in Yidi (Shareholders Agreement). After the IPO did not occur by June 2017 as required, Jishi Fund applied to the China International Economic and Trade Arbitration Commission (CIETAC) for arbitration pursuant to the Shareholders Agreement.

Attempts to give notice of the arbitration to Mrs Liu

The Shareholders Agreement relevantly provided that Mrs Liu's address for service was an address in Laverton North, Victoria (Laverton North Address), and also listed her email address.

In September 2017, Jishi Fund and Mr Liu executed a confirmation letter in relation to the rights of the Jishi Fund under the Shareholders Agreement (Confirmation Letter). The Confirmation Letter stated that Mr Liu had obtained full authorisation from Mrs Liu, and had the right to sign the Confirmation Letter on her behalf. The Confirmation Letter also stated that Mr Liu's address for service was an address at Qingpu Industrial Park, Shanghai (Qingpu Industrial Park Address). Mr Liu signed the letter on behalf of himself, Yidi, GHL, YE and two other companies. Mrs Liu did not sign the letter and Mr Liu did not purport to sign it on her behalf.

On 27 December 2017, Jishi Fund filed the arbitration application and provided CIETAC with three addresses for service of Mr and Mrs Liu: their current residential address and two former residential addresses. Attempts to serve Mr and Mrs Liu at these addresses were unsuccessful.

Around 20 April 2018, CIETAC sent the arbitration documents to Mr and Mrs Liu at the Qingpu Industrial Park Address. On 3 July 2018, the arbitral tribunal heard the dispute and deemed service on Mrs Liu at the Qingpu Industrial Park Address was effective. Mr and Mrs Liu and their companies did not appear at the arbitration.

On 14 November 2018, the arbitral tribunal made an award against Mr and Mrs Liu, GHL and YE of approximately $29.5 million, as well as a further award of $4.8 million against Mr Liu, GHL and YE.

Application by Jishi Fund for enforcement of the award against Mrs Liu

In September 2020, Jishi Fund filed its application in the Federal Court for enforcement of the arbitral award. The application was resisted only by Mrs Liu. The essence of the dispute was whether Jishi Fund could rely on the Confirmation Letter (and the Qingpu Industrial Park Address) to enforce the award against Mrs Liu.

Middleton J dismissed the application, holding that:

  1. Mr Liu was made aware of the arbitration against Yidi, however there was no evidence Mr Liu was ever made aware of the arbitration against him and Mrs Liu in a personal capacity. It could not be inferred that, by reason of Mr Liu's knowledge and the spousal relationship, Mrs Liu had actual notice of the arbitration or the appointment of arbitrators;
  2. the Shareholders Agreement contained Mrs Liu's appropriate address for service, which was the Laverton North Address and email. Mrs Liu never received any communications regarding the arbitration at that address or via her email;
  3. the arbitral tribunal found that the Confirmation Letter was not binding on Mrs Liu. Further it was not signed by Mrs Liu or on her behalf. The Qingpu Industrial Park Address was therefore not relevant to Mrs Liu;
  4. Mrs Liu had very little (if any) personal connection to the Qingpu Industrial Park Address, meaning certain provisions under the CIETAC rules regarding deemed service were not met;
  5. Mr Liu did not have implied authority to receive notice on behalf of Mrs Liu, or have authority to provide an address for service on her behalf. The right to receive proper notice is a personal right to be enjoyed directly and not through one’s spouse;
  6. it is a significant breach of natural justice and the requirement of arbitral due process for no proper notice to have been given to Mrs Liu

Implications

The above decision provides an important reminder that before a party commences any arbitration, it should ensure that proper notice is given to all parties in strict accordance with the provisions of the agreement(s) governing the arbitration. Failure to do so may mean any award made is unenforceable.[1]


[1] [Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.]