International Relief and Development Inc v Ladu [2014] FCA 887

On an application to enforce a foreign arbitral award in the Federal Court, the respondent unsuccessfully sought to resist enforcement on the grounds that he had not received “proper notice” of the original arbitration proceeding.

The facts

The applicant (“International R&D”) employed the respondent (“Ladu”) as a Project Manager in South Sudan.  International R&D became concerned about Ladu’s conduct, including in relation to alleged “procurement improprieties” and “ill-gotten gains” in the amount of $70,000, and terminated his contract of employment.  Ladu thereafter issued court proceedings in South Sudan for damages for unlawful termination of employment but the proceedings were dismissed given that the dispute resolution clause in his contract provided for arbitration in Arlington, Virginia, USA. 

International R&D invoked the arbitration clause and notified Ladu’s lawyer in South Sudan (and a company of which Ladu was a director) of the impending arbitration proceedings, by numerous emails and hand-delivered letters to Ladu’s lawyer.  The arbitrator, on his appointment, also sent correspondence to Ladu’s lawyer notifying him of the arbitration and the availability of videoconference facilities for the hearing.  However, Ladu (and his lawyer) did not respond to any correspondence and the arbitration hearing took place in his absence.

The arbitrator made an award in International R&D’s favour in the amount of US$213,780.  Ladu did not pay and, following a successful enforcement application, the award was registered as a judgment in the United States District Court.

Proper notice

The International Arbitration Act 1974 (Cth) (IAA) provides that a foreign arbitral award may be enforced in the Federal Court of Australia as if the award was a judgment or order of that court: s8.  International R&D sought to enforce the award in the Federal Court and Ladu resisted on the footing that he had not been notified of the original arbitration proceeding.[1]

Section 8(3A) (together with 8(5)(c)) of the IAA provides, among other things, that the court may refuse to enforce a foreign award if the person against whom the award was made proves that he or she was not given “proper notice” of the appointment of the arbitrator or of the arbitration proceeding or was otherwise not able to present his or her case.  Similarly, sections 8(7)(b) and 8(7A)(b) provide, among other things, that a court may also refuse to enforce an award if there has been a breach of the rules of natural justice in connection with the making of the award.

The key issue at trial was whether Ladu had been given “proper notice” of the arbitration hearing.

Ladu ran his case on the basis that he had not received actual notice of the arbitration and therefore the issue of what is meant by the words “proper notice” in section 8(5)(c) of the IAA was not given detailed consideration.  The Court stated that the defence of failing to receive proper notice of a hearing to avoid enforcement is to be construed narrowly and a pragmatic approach is to be taken to what is meant by “proper notice” consistent with the fact that arbitration is intended as an efficient, impartial, enforceable and timely method by which to resolve disputes and that awards are intended to provide certainty and finality [183].

The Court stated that where actual notice is given, that will satisfy the requirement for proper notice [172].  Ultimately the Court found that Ladu, who bore the onus of proof, had not shown, on the balance of probabilities, that he was not given actual notice of the arbitration proceedings.  In particular, the Kenny J said:

“Mr Ladu has not shown that [his lawyer] did not receive these notices either personally … or via email and inform Mr Ladu accordingly.  …[International R&D] was not obliged to show that in the absence of Mr Ladu’s consent to [his lawyer] accepting service, [his lawyer] in fact passed the relevant communications to Mr Ladu.  As indicated earlier, this approach is an overly technical one…contrary to the statutory direction in s 39 of the IAA.”

Comment

Importantly, the Court had significant regard to s 39(2) of the IAA in determining the operation of s 8 which deals with the enforcement of foreign awards and the issue of “proper notice”.  Section 39(2) applies to s 8 (by operation of s 39(1)) and to a wide range of other provisions of the IAA.  Where it applies it provides:

“The court or authority must, in doing so [ie for example, in determining whether proper notice has been given], have regard to:

  • the objects of the Act; and

  • the fact that:

    • (i) arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and

    • (ii) awards are intended to provide certainty and finality.”

The Court’s approach was, with respect, entirely consistent with the object of the IAA.

It was also consistent with the broader policy of ensuring that international arbitration awards are, subject to a narrow range of exceptions, enforceable in Australia.