Supreme Court of California (ROCKEFELLER TECHNOLOGY INVESTMENTS (ASIA) v. CHANGZHOU SINOTYPE TECHNOLOGY CO., LTD). A European reading of the ruling
A bit more than a month ago, the Supreme Court of California rendered its decision on a case concerning the (non-)application of the 1965 Hague Service Convention. The case has been thoroughly reported and commented before and after the ruling of the Supreme Court. I will refrain from giving the full picture of the facts; I will focus on the central question of the dispute.
The parties are U.S. and Chinese business entities. They entered into a contract wherein they agreed to submit to the jurisdiction of California courts and to resolve disputes between them through California arbitration. They also agreed to provide notice and “service of process” to each other through Federal Express or similar courier. The exact wording of the clause in the MOU reads as follows:
“6. The Parties shall provide notice in the English language to each other at the addresses set forth in the Agreement via Federal Express or similar courier, with copies via facsimile or email, and shall be deemed received 3 business days after deposit with the courier.
“7. The Parties hereby submit to the jurisdiction of the Federal and State Courts in California and consent to service of process in accord with the notice provisions above”.
An agreement between the companies was eventually not reached, which was reason for Rockefeller to initiate arbitration proceedings. All materials were sent both by email and Federal Express to the Chinese’s company address listed in the MOU. The latter did not appear. The arbitrator awarded Rockefeller the amount of nearly 415 million $. The decision was sent to Sinotype by e-mail and Federal Express.
In accordance with the Civil Procedure Code of the State of California [§ 1285. Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award…], Rockefeller petitioned the award to be confirmed. The same ‘service’ method was used by the petitioner, i.e. e-mail and Federal Express. Again, Sinotype did not take part in the proceedings.
At a later stage, Sinotype became active, and filed a motion to set aside the default judgment for insufficiency of service of process. In particular, it asserted that it did not receive actual notice of any proceedings until March 2015 and argued that Rockefeller’s failure to comply with the Hague Service Convention rendered the judgment confirming the arbitration award void. The motion was denied by the Los Angeles County Superior Court; the Court of Appeal reversed; finally, the Supreme Court reversed the appellate decision.
The first instance court confirmed that the Service Convention was in principle applicable, however, the agreement between the parties to accept service by mail was valid and superseded the Convention. The Court of Appeal reversed the judgment, stating exactly the opposite, namely that the Service Convention supersedes private agreements. In light of China’s opposition to service by mail, the agreed method of communication was considered inadequate for the purposes of the Convention. The Supreme Court held yet again the opposite, because the parties’ agreement constituted a waiver of formal service of process under California law in favor of an alternative form of notification; hence, the Convention does not apply.
I place myself next to the commentators of the case: It is true that the Service Convention does not apply in the course of arbitration proceedings. There is convincing case law to support this view from different jurisdictions in different continents (example here). However, in the case at hand, the issue at stake was the use of a method not permitted by the Convention in court proceedings. It was lawfully agreed to send all documents by e-mail or FedEx during arbitration. Nowadays, this has become standard procedure in international commercial arbitration. However, a multilateral convention may not succumb to the will of the parties. If a contracting state refuses to accept postal service within the realm of litigation, the parties have no powers to decide otherwise. The best option would be, as already suggested, to oblige a party to appoint a service agent. This enables service within the jurisdiction, as already decided by the U.S. Supreme Court in the Volkswagen Aktiengesellschaft v. Schlunk case. In a similar fashion, the CJEU consolidated the same position in the Corporis Sp. z o.o. v Gefion Insurance A/S case, following its ruling in the case Spedition Welter GmbH v Avanssur SA.
Finally, returning to the EU, postal service would not require any agreement between the parties; Article 14 of the Service Regulation stipulates service by mail as an equivalent means of service between Member States. In addition, service by e-mail is scheduled to be embedded into the forthcoming Recast of the Regulation under certain requirements which are not yet solidified.
Very interesting case. Thanks Apostolos. The Service Handbook has dealt with a topic similar to the one at stake here: whether parties may include in their contract a clause for service, whereby they agree that a judicial or extrajudicial document can be served on either of them by electronic means. State practice differs on this regard (see Annex 8 of Service Handbook paras 100 and 101).
There is one case that upheld such clauses in New York and also labelled it as waiver of service: Alfred E. Mann Living Trust v. ETIRC Aviation (N.Y. App. Div. 2010), which was between parties in the USA and the Netherlands. This is not a small detail because the Netherlands did not object to Article 10(a) of the Service Convention whereas China did object.
Perhaps one question would be what constitutes a waiver of service, and whether this interpretation is stretching the concept too much, given that documents still need to be sent abroad.
I agree with Ted Folkman that the -probable- US understading that the Service Convention only applies to “formal service of process” is way too narrow.
But regardless of whether the decision of the CA court is wrong or right, the enforcement of such judgment in China given its objection to Article 10(a) of the Serv Conv may be mission impossible.
Apostolos, thank you for your perspective on the case. One point that I think needs attention is that even if you and Mayela and I, and all the other critics of the decision, are right, it seems beyond doubt to me that if a defendant fails to plead insufficient service of process as an affirmative defense at the first opportunity, then the issue is waived. I do not know how to solve that problem, since the difficulty from the perspective of the state that has objected under Article 10 is the same whether the waiver is ex ante or ex post.
TXS Mayela and Ted!
I wouldn’t have anything against an agreement on service by specific means, falling however within the Convention’s alternatives, and acceptable by the contracting states involved. If I’m not wrong, this is the situation reflected in the case you refer to.
If Rockefeller had followed the conventional path, service of process would have been achieved at some point I guess. And even if it wouldn’t have been the case, I think that the laws of California or the FRCP provide a solution equivalent to service by publication.
The exequatur issue is surely a different chapter of the story. Beyond the question of service, I would speculate a possible public policy issue popping up: 414 Million $ for failing to conclude an agreement is at odds with my understanding of damages; but I can be wrong of course.
You raise a very interesting point which takes us to the rules of Civil Procedure, hence, forum regit processum. From my point of departure, if the defendant appears without raising the issue of insufficient service, then indeed the issue is waived.
However, if I’m not mistaken, Sinotype did not enter an appearance before the court. Hence, the issue is not waived, and an application to set aside the default judgment would be possible pursuant to the laws of my origin.