Respondent’s Burden to Prove Lack of Notice

10.07.2014 Respondent’s Burden to Prove Lack of Notice

In a recent decision the Supreme Court of Ukraine confirmed that the respondent may not prevent enforcement of an arbitral award simply by claiming that it had not received notice. The decision also confirms that the respondent may not circumvent the general allocation of burden of proof mandated by the New York Convention by reframing its lack of notice objection into a public policy objection.

Facts of the Case

In November 2012 Rohren- und Pumpenwerk Bauer GmbH (“Bauer”), a major Austrian agricultural equipment producer commenced proceedings before a District Court in Kiev seeking recognition and enforcement of a Vienna International Arbitration Center award against PJSC Kompaniya Rise (“Rise”).

It appears from the courts’ decisions that Rise had initially taken part in the arbitration and lodged written submissions. However, on 3 June 2011 Rise’s counsel wrote to the tribunal to advise that it no longer represented Rise. Given that the hearing was to be held on 14 June 2011, the sole arbitrator adopted an order requesting Rise to participate in the hearing. Rise received the order on 7 June 2011.

The district court refused to recognise and enforce the award. It found that Bauer had failed to prove that Rise had received notice of the 14 June 2011 hearing. The court found that in these circumstances enforcement of the award would have been contrary to Ukrainian public policy. The appellate court upheld the court’s decision, although it found that the respondent may not rely on the alleged breach of public policy. The cassation instance court endorsed the appellate court’s decision.

Decision of the Supreme Court

The Supreme Court pointed out that the lower courts applied an incorrect standard, which requires the party seeking enforcement of an arbitral award to prove that the respondent received notice of the oral hearing in the arbitration.

The Supreme Court stressed that this rule does not apply to international arbitration. There, under Article V of the New York Convention the burden of proof is on the respondent to demonstrate that it was unaware of arbitration or was otherwise unable to present its case. In this respect the decision echoes a recent ruling of a three-judge panel of the Russian Supreme Commercial Court.

The Ukrainian Supreme Court referred the case back to the lower courts for reconsideration.

The facts of the case do in fact raise a number of delicate questions. First, how should the arbitrators deal with the withdrawal of a party’s counsel on the eve of a hearing? Indeed, moving forward with the hearing may in certain circumstances result in a party’s inability to present its case. Second, can the arbitrators assume that the party’s counsel advises the party of all the developments in the arbitration (including hearing dates) or should the tribunal send separate notices to the party? The problem becomes particularly acute where the party’s counsel withdraws.

The full text of the Supreme Court’s decision is available here (in Ukrainian).

Author: Sergey Usoskin

First published on CIS Arbitration Forum 


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