How Do you Du? COVID Lockdowns and Adequate Notice of Arbitration
TDH v Du,  ONSC 1808, clarifies two issues relating to enforcement of arbitral awards under the UNCITRAL Model Law: the threshold for adequate notice of arbitrations in the context of COVID lockdowns, and the different res judicata effects of foreign proceedings enforcing an arbitral award directly versus those enforcing a court decision that previously recognized the award.
The decision in Tianjin Dinghui Hongjun Equity Partnership v Du, 2023 ONSC 1808 (“TDH v Du”) sheds light on two issues relating to enforcement of foreign arbitral awards under the Model Law: adequate notice of arbitration during COVID lockdowns and the res judicata effect of foreign court proceedings relating to arbitral awards.
The dispute arose from loans extended by TDH to Chinese companies controlled by Sha Du and Ran Du, who are married to each other. The Dus had signed a guarantee in TDH’s favour by which they assumed personal liability for those loans. In July 2020, TDH commenced arbitration at Shenzhen Court of International Arbitration (“SCIA”) against the corporate debtors and the Dus personally, alleging nonpayment. An award was issued in TDH’s favour, which TDH sought to enforce in Ontario, where the Dus are citizens and own property.
Early in the COVID pandemic, the Dus decided to stay at their home in Toronto. They also had a residence in Beijing (which was sold prior to the proceedings, unbeknownst to TDH) and a corporate office in Beijing, which was listed in the loan agreements as the Dus’ address for service. Notice of the arbitration was delivered to the corporate entities and to the Dus at that office, after attempts at personal service in Beijing were unsuccessful. A law firm entered an appearance in the arbitration for both the corporate entities and the Dus, but the power of attorney it presented to represent the Dus was signed by a corporate officer, not by the Dus themselves. The SCIA arbitration proceeded without any evidence or appearance from the Dus.
In August 2021, the tribunal issued an award in TDH’s favour. TDH then sought and received (on an ex parte and prima facie basis) an order from a Chinese court recognizing the award.
When the Dus became aware of the award, they applied to the Shenzhen Intermediate People’s Court (“the Shenzhen Court”) to set it aside for lack of notice. The Shenzhen Court dismissed this application, finding that the Dus were notified of the arbitration based on notice to the corporate entities they controlled.
The ONSC held that the Dus did not receive adequate notice of the arbitration. First, under the security guarantee, notices delivered by mail were deemed to be received only when “signed by the recipient”. The Dus never signed to indicate receipt of any arbitration documents, and the Court found that there was no evidence the corporate officer who did sign had authority to receive service for the Dus in their personal capacity.
Second, the Court found that the pandemic context mattered. While the Dus never changed their address for receipt of notice (which was required by the security guarantee—something the Court seems to have missed), they were in contact with the principal of TDH through WeChat messages, and told him that they would be staying in Canada indefinitely. TDH never informed the SCIA of this, and documents sent to the Dus’ residential address in Beijing were returned as undeliverable.
TDH argued that the adequacy of notice was res judicata, having been decided by the Shenzhen Court in the set-aside application. However, the ONSC held that the Shenzhen court had not determined whether the Dus received adequate notice for the purposes of the Model Law. Applying Chinese law, the Shenzhen Court had held that the arbitration documents were “deemed” to have been served on the Dus based on service to the corporate entities they controlled. (There is reason to question whether the Court’s understanding of Chinese law is accurate, since it considered the law in translation and without extensive briefing as to its meaning.)
The Dus also argued for an issue estoppel in their favour based on court proceedings in Hawaii, where enforcement was also sought by TDH. However, the Hawaii proceedings were to enforce the Chinese court order recognizing the award, rather than for recognition of the award itself, and the case was decided under the Hawaii Recognition Act, not under the US Federal Arbitration Act. Accordingly, the court found that the Hawaiian enforcement decision could not create an issue estoppel for an Ontario court application in respect of a foreign award under the Model Law.
From an arbitration lawyer’s perspective, TDH v Du is a mixed bag. While enforcement was refused, there is no indication of hostility to arbitration, and the judgment displays a good understanding of the international arbitration system and the New York Convention and Model Law. Nevertheless, repeated references to “service” instead of “notice”, and to the standard for notice under the Ontario Rules of Civil Procedure, indicate that the Ontario court may have inappropriately relied on litigation concepts and standards.
TDH v Du suggests three main takeaway lessons:
- Counsel should consider the impact of the pandemic on notice of arbitrations, and should consider whether requirements as to notice (whether contractual or otherwise) were strictly observed during pandemic lockdowns.
- Adequacy of notice under the law of the seat does not guarantee a finding of adequate notice in enforcement proceedings. If the rules of the seat differ from those under the Model Law, an enforcement court may consider the issue anew.
- When enforcing an award that has been recognized and enforced within the seat of arbitration, parties may choose to seek recognition and enforcement of the award itself or of the court order recognizing it. However, the two are not identical, and this choice may affect one’s ability to rely on the enforcement proceedings in other jurisdictions.
Joshua Karton Q.Arb. is an Associate Professor of Law at Queen’s and an independent arbitrator. His research and practice focus on commercial law and dispute resolution, especially international commercial and investment arbitration.