California Supreme Court To Review $414M Award Axed Over Bad Service

By October 4, 2018 October 16th, 2018 No Comments
California Supreme Court

The California Supreme Court will be reviewing whether a lower court was correct to reverse a $414 million arbitral award to an American partnership after the Chinese company involved claimed they were not properly served. The review of this particular case highlights the increased scrutiny over the use of the Hague Convention in countries where postal service is not considered valid. Based on the final ruling, companies with international contracts may want to reconsider how they are written to address service of process.

In the case of Rockefeller Technology Investments (Asia) VII v. Changzhou Sinotype Technology Co., Ltd., the two parties entered into a business agreement. As part of the agreement, a contract was signed in which the companies agreed that in the event of a dispute between them, the parties would provide notice in English via Federal Express or another type of courier.

Many companies who do business internationally include similar workarounds in their contracts to avoid the cumbersome requirements of service via the Hague Convention or Letters Rogatory. While the Hague Service Convention was created as a means to make service between countries easier, it is still a relatively complicated process that has a timeline of up to six months and can involve significant costs, including those involved with translation. Establishing how the parties involved agree to accept service creates a clause where companies can limit their litigation costs and avoid the delays typically caused by international service.

This type of clause is at the heart of what California’s highest court will decide on.

The initial arbitral award was won after the defendant failed to show up to a arbitration dealing with a business deal to market international fonts. The award was then confirmed in a California trial court where the defendant again did not show up.

When the defendant moved to have the award dismissed due to improper service, the judge involved denied the request as the defendants had privately agreed to be served by mail. However, the Hague Service Convention, as agreed to by China, does not allow its citizens to be served by mail or permit them to agree to such terms. Based on this the California Court of Appeals then subsequently reversed the ruling, with the judges noting China has specifically filed objections to the provision of the Hague Service Convention dealing with alternative methods of service, such as service by mail.

The final result of this case could have significant implications. If the California Supreme Court finds the lower court to be correct, those contract clauses could become essentially useless. Firms dealing with international contracts would need to then adhere to the protocol required by the Hague Service Convention or Letters Rogatory as applicable.

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