In Zavod Ekran OAO v Magneco Metrel UK Ltd1 , the English Commercial Court has provided some interesting commentary as to what constitutes giving a defendant “proper notice” of arbitration proceedings under the English Arbitration Act 1996. There is little previous English authority in this area, but it is treated by the English courts as a question of fact.2 The onus of proof lies with the party claiming that enforcement of an arbitral award should be refused on the basis it was not properly notified of the proceedings.
In this case, the fact that the notice of arbitration and accompanying documentation had been served on an English defendant in a foreign language was not sufficient proof that it had not been given proper notice of the arbitration proceedings. Accordingly, the English Commercial Court upheld an order granting leave for a New York Convention arbitral award against the Defendant to be enforced. This legal update explores the considerations of the English Commercial Court in arriving at a broad interpretation of the requirement for “proper notice” to be given.
Background to the parties and the dispute
Zavod Ekran OAO (the “Claimant”) is a Russian glass manufacturing company based in Siberia, and Magneco Metrel UK Ltd (the “Defendant”) is an English manufacturer of refractory products (materials which retain their strength at high temperatures). In 2013, the parties entered into a contract drafted in both English and Russian text, pursuant to which the Defendant agreed to provide the Claimant with materials for one of the Claimant’s furnaces (the “Contract”).
A dispute arose as a result of problems with the furnace wall, which showed signs of damage and led to a major leak of molten glass. The Claimant alleged that the goods supplied by the Defendant were of poor quality, whereas the Defendant asserted that the damage was caused by the Claimant’s failure to correctly operate the dry-out procedure.
The Award and grounds for refusal of enforcement
Pursuant to the Contract, as the dispute could not be settled, the Claimant referred the case to arbitration at the International Commercial Arbitration Court (“ICAC”) at the Russian Chamber of Commerce and Industry in Moscow on 22 December 2015. Following a hearing in May 2016 in which the Defendant did not participate, the Tribunal issued an arbitral award on 13 July 2016 in the Claimant’s favour, in the sum of US$270,233 plus costs (the “Award”).
The 157 signatory states to the New York Convention are required to reciprocally recognise and enforce foreign arbitral awards issued in other contracting member states. The Award made in the Russian Federation is a New York Convention award. Pursuant to section 101 of the English Arbitration Act 1996 (the “Act”), the English courts may grant leave for New York Convention awards to be enforced in the same manner as a court order or judgment, and cannot refuse to recognise or enforce them except in the limited circumstances set out in section 103.
The Claimant applied to the English Commercial Court for an order granting leave for the Award to be enforced, and such order was granted by Mr Justice Males on 16 January 2017. In the instant proceedings, the Defendant applied to set aside that order on the basis that it had not been given “proper notice” of the arbitral proceedings, which is one of the limited circumstances in which the recognition or enforcement of an award may be refused. The test the Defendant had to satisfy, which is set out in section 103(2)(c) of the Act, is that it was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case.
The English Commercial Court’s interpretation of “proper notice”
The Defendant asserted that it did not have proper notice of the arbitral proceedings in this dispute, as:
• The Claimant had not sent a letter before action threatening arbitration;
• There was not the kind of chain of correspondence between the parties with threats of arbitration culminating in express notice that the dispute is about to be referred to arbitration that one might normally expect;
• The cover letter from ICAC dated 14 January 2016 enclosing the notice of arbitration and annexed documents, as well as subsequent letters notifying it that arbitrators had been appointed, were almost entirely in Russian and it had not received translations;
• It had not been notified in English of the requirements to appoint an arbitrator and a reserve arbitrator within 15 days and to file a defence within 30 days; and
• It did not know the significance of ICAC and believed the documents were a repeat of the Claimant’s previous complaints.
Mr Justice Blair was not convinced by the Defendant’s arguments, and refused to set aside the Award for the following reasons:
• The package containing the claim form and annexed documents had been accompanied by an airway bill showing that the shipper was the “Commercial Arbitration Court” in Moscow;
• The cover letter enclosing the arbitration claim form contained a heading in English stating that it had come from “THE INTERNATIONAL COMMERCIAL ARBITRATION COURT AT THE CHAMBER OF COMMERCE AND INDUSTRY OF THE RUSSIAN FEDERATION” and there was no other reason for ICAC to be writing to the Defendant;
• The email address on the cover letter included the English word “arbitration”;
• The cover letter was one page, and it was reasonable to expect that the Defendant could have easily arranged to have it translated (and would therefore have known of the requirements for it to appoint an arbitrator and file a defence); and
• It was relevant that the Contract provided for arbitration in Moscow under Russian law, the language of the arbitration was to be Russian and the dispute related to the performance of the Contract in Russia.
In light of this, Mr Justice Blair found that whilst the Claimant could have done more to alert the Defendant to the commencement of the arbitration, and the ICAC could have flagged in English the importance of dealing with its notifications, the cover letter was likely to have brought the relevant information to the Defendant’s attention. Therefore, the Defendant was unable to satisfy the legal test that it had not been given proper notice of the arbitration proceedings or proper notice of the appointment of the arbitrator, and had not been able to present its case in the arbitration.
In his judgment handed down on 1 September 2017, Mr Justice Blair stated that the mere fact that a notice of an arbitration is received in England in a language other than English should not in itself affect the validity of the notice, though it may do so, depending on the circumstances. The judge considered that if the letter had stated in English that it was a “notice of commencement of arbitration” or “in the matter of an arbitration”, it would clearly have constituted sufficient notice. The decision shows that the English Commercial Court is prepared to interpret the notification requirement broadly when it comes to recognising and enforcing New York Convention awards.
In order to avoid uncertainty as to whether “proper notice” of an arbitration has been given to a defendant, parties in international disputes should ensure that translations are provided when serving arbitral proceedings, even though the failure to do so was not fatal in this case. This applies even in circumstances where the underlying contractual documents specify that the arbitration is to be conducted in a language not used by one of the parties. This decision serves as another reminder of the high bar that must be reached by a party opposing enforcement of an arbitral award under the New York Convention, as the English courts will only refuse enforcement in rare circumstances.