During the last session of this December’s ICC conference in Moscow panelists discussed “guerrilla tactics” in arbitration. Means to avoid being served with a proper notice and sending an unauthorised agent to represent a party to arbitration featured prominently among the guerrilla techniques.
A recent decision of the Federal Commercial Court for the Povolz’e Circuit reaffirms the importance of verifying powers of those purporting to represent a party to arbitration and ensuring that the notice of arbitration and other documents are served on an appropriate representative of the party. Indeed, the court refused to enforce an LCIA award holding that there was no evidence that a person who took steps in the proceedings on behalf of the respondent had been authorised to do so or was a respondent’s employee.
Facts of the Case
In 2010 Autorobot-Strefa Sp. Z.o.o. agreed to sell certain equipment to LLC Sollers-Elabuga. The latter apparently failed to pay some amounts due under the contract and the seller commenced LCIA arbitration in August 2011.
While the arbitration clause provided for a three-person tribunal, the parties subsequently agreed in an email exchange that a sole arbitrator should be appointed. Significantly, in the course of this exchange a person purporting to represent the respondent requested that all subsequent correspondence should be directed to his postal address.
The respondent then failed to participate in the arbitration and to submit a response. The sole arbitrator rendered an award in favour of the claimant in April 2012 ordering the respondent to pay c. EUR 1.4 mln plus interest and costs.
In March 2013 the Tatarstan Republic Commercial Court refused to enforce the award and in December 2013 was upheld by the Federal Commercial Court for the Povolz’e Region.
The courts held that the respondent had not received proper notice of the arbitration and therefore was unable to present its case. They dismissed confirmations of delivery issued by a courier company used by the LCIA. An individual that the respondent claimed was not its employee signed these confirmations. Furthermore, the claimant failed to establish that this individual was properly authorised to receive correspondence on behalf of the respondent and that the confirmations bore no seal or stamp of the respondent.
An Unauthorised Representative
The courts also noted that the LCIA sent only some initial communications to the respondent’s postal address indicated in the contract. All subsequent correspondence was sent to an address of a “Sollers Group” in Moscow.
The claimant argued that a representative of the respondent had requested the LCIA to send all correspondence to this address. However, the courts were not persuaded by this argument. Once again they held that the claimant had failed to establish that the individual in question had been authorised to represent the respondent to represent it in the arbitration.
Implications of the Decisions
The described decisions highlight two important considerations that parties, arbitral institutions and arbitrators should bear in mind.
First, proper evidence of the party’s representative’s authority should be sought. No undue reliance should be placed on the circumstantial evidence of such authority and a formal power of attorney remains the best evidence.
Secondly, when the respondent fails to participate in arbitration extra care should be exercised to obtain the best evidence of proper service. Some courier companies approach the process of delivering correspondence rather informally and do not check whether the individual confirming delivery is properly authorised to do so. To ensure unimpeachable evidence further means of service (including registered mail and personal delivery) should be considered.
Author: Sergey Usoskin