This article was first published in the China Business Law Journal, July / August 2016, Volume 7 | Issue 7
Improper service in arbitration proceedings has been commonly relied upon as a ground by PRC courts to set aside or refuse enforcement of arbitral awards made in China or overseas. What is less clear is when service is considered improper. PRC laws do not shed any light on the question. The rules of many arbitration institutions, although containing provisions on service, are not intended to address every situation that may arise in practice. As such, the answer rests completely within the discretion of the Chinese courts. An empirical analysis of PRC court decisions is thus necessary and important. This article reports the authors’ findings and discusses how a party can mitigate the risk of improper service. From the authors’ research of publicly available cases spanning 14 years, from 2002 to 2015, we found 111 Chinese awards (both domestic and foreign related) and 14 foreign awards of which enforcement was challenged on the ground of improper service. Among the 111 Chinese awards, 17 were set aside or denied enforcement by the court, accounting for a 15.3% success rate of the challenges on service in arbitration proceedings. Out of the 14 foreign awards, five (35%) were not enforced by the court. The statistics are astonishing, taking into account the PRC courts’ overall good track record of enforcing arbitral awards in the past 10 years.
The common causes for challenging the service process include the scenarios below. Most of the reasons for service failure are not attributable to the party upon whom service is sought.
Defective service process. Some Chinese courts regarded typographical errors on the delivery address made by the arbitration institution or the tribunal, albeit negligible, as a valid ground for challenging the arbitral award. Also, one award was set aside due to the absence of the courier’s signature on the return receipt, despite the fact that the mail was returned after being rejected by the recipient.
No reasonable second attempt. Many arbitration rules require a reasonable inquiry into the other addresses of a party if service at the first one fails. Free public record searches can count as a reasonable attempt. Failure to do so would result in the arbitral award being defeated. On the other hand, simply asking the other party to provide an alternative address may not be a sufficient effort in the view of some Chinese courts.
Intentionally hiding the valid address of the other party. If service at one address of a party fails, the opposing party must provide other valid addresses of the unserved party that are within its knowledge, failing which the validity and enforceability of the arbitral award is at risk. The burden of proving the opposing party has such knowledge is on the unserved party.
Receipt by a third party. If the arbitration documents are signed for by someone other than the parties themselves (for individuals), or the parties’ employees/ authorized attorneys (for legal entities), some courts would consider the service process to be ineffective, notwithstanding that the recipient and the party are closely connected. As for the authorized attorney, a formal power of attorney (POA) is required even before the service process starts. Otherwise, the lawyer’s acceptance of the mail may not be effective service even if he or she later receives a POA.
In 2003, the China Marine Arbitration Commission (CMAC) made an arbitral award arising from a dispute between Heilongjiang Hongchang International Freight Forwarding, FUSCO and Trans Marine in respect of a vessel charter contract. Hongchang applied to Tianjin Maritime Court, requesting that the award be vacated on the ground that it never received any arbitration documents from the CMAC and was deprived of the opportunity to present its case as it was not aware of the arbitration proceeding.
According to the CMAC, the arbitration documents mailed to Hongchang at its then registration address were all returned due to Hongchang’s change of address. The CMAC then asked FUSCO to provide an alternative address of Hongchang but received no useful response, so it treated the then registration address of Hongchang as its last known address.
The Tianjin court, however, was of the view that the CMAC failed to make a reasonable attempt as required under CMAC arbitration rules. The court held that after knowing Hongchang changed its address, the CMAC should have consulted with the local company registrar for Hongchang’s latest address, which was a reasonable and common practice. The CMAC’s failure to do so constituted a valid ground for setting aside the CMAC award.
STEPS TO CONSIDER
If a party wishes to protect itself from the consequences of improper service, we recommend that it should be mindful of the following steps.
Choose the right arbitration institution. Before choosing an arbitration institution, the parties should carefully read their rules to see if the institution has any peculiar requirements on service that they are not prepared to accept. It is advisable to choose reputable arbitration institutions such as the China International Economic and Trade Arbitration Commission, the Hong Kong International Arbitration Centre, and the Singapore International Arbitration Centre.
Carefully draft the arbitration clause. The parties may consider adopting a more detailed arbitration clause to include agreement on arbitrator appointments and specific requirements on service process, such as the time period, the address/person to be served, and confirmation of receipt.
Keep the other party informed. A party should notify the other party of any changes in its address and, if possible, provide all valid addresses to the other party. The purpose of doing so is to ensure a timely receipt of all arbitration documents and, if not, to hold the other party accountable for failing to provide the valid addresses to the arbitration institution or tribunal.
由第三方签收。如果一份仲裁文件由当事人（当事人为个人）或当事人的雇员/ 授权律师（当事人为法人实体）以外的第三方签署，即使收件人和当事方/ 当事人关系紧密，某些法院仍会认为送达无效。在向授权律师送达的情况下，授权委托书应在送达开始前就办理完毕，否则其签收仲裁文件的行为会被视为无效，即使其之后又收到了授权委托书。