Do I Need a Process Agent Even If My Contract Includes an Arbitration Clause?

Understanding Process Agents in International Arbitration: Let’s navigate some of the complexities of international arbitration and explore key elements such as the enforceability of arbitration awards, interpretation of “adequate notice” and the role of a process agent.  

Reducing Uncertainty Through Clear Contract Terms: Diligent contract-drafting practices – particularly for arbitration clauses and notification procedures – are essential. It is also important to consider the role a process agent can play in reducing uncertainty in cross-border financial transactions.  

Imagine the following scenario: ABC Project Developer S.A., a South American company, signs a loan agreement with Great People’s Bank, an American financial institution, for a principal amount of US $10 million for a 5-year term. The parties designated New York law as governing the contract. Two years later, the company finds itself in financial difficulty and is unable to make the agreed-to principal and interest payments and ends up defaulting.     

In the normal course of events, the bank would sue the company in a New York court to recover the money owed. In our scenario, however, the contract included an  arbitration clause, stipulating that the arbitration award will be final and binding, subject to any limited review or challenge available under applicable law.

If the bank wants to commence arbitration proceedings, how can it make sure the company is properly notified, and reduce the risk of later notice-related challenges to enforcement?  

Important Treaties Addressing Enforceability of Arbitration Awards 

So far, most countries have ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the “New York Convention”), one of the most important treaties governing arbitration between citizens of the United States and foreign citizens, along with the Panama Convention of 1975, which applies in many inter-American commercial arbitration matters. In principle, this may allow an arbitration award to be enforced in those participating jurisdictions. While neither the New York Convention nor the Panama Convention describes what constitutes effective service on a foreign company, they both address notice-related defenses, which have been further developed by US courts.  

The New York Convention stipulates that the respondent must be “given proper notice of the appointment of the arbitrator or of the arbitration proceedings.” Otherwise, courts may refuse to recognize and enforce an arbitration award. Similarly, the Panama Convention says that the respondent must be “duly notified of the appointment of the arbitrator or of the arbitration procedure to be followed.” Since the phrases “proper notice” and “duly notified” are open to interpretation, US courts have developed a “due process test” in an effort to set a more predictable standard. 

What is ‘Adequate Notice’? 

For example, in a case arising under the Panama Convention, Employers Insurance of Wausau v. Banco de Seguros del Estado, 199 F.3d 937, 942 (7th Cir. 1999), the Seventh Circuit explained that “adequate notice” should be understood as “notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” In that case, one of the defendants claimed not to have been notified of the arbitration proceedings. The contract signed in that case, however, contained an “agent for service of process” clause. This led the court to conclude, based on the facts before it, that there was an agency relationship from which actual notice could be inferred, and therefore the due process test had been met.  

Avoid Notification Issues by Appointing a Process Agent 

Returning to our earlier scenario, including an agent for service of process or “process agent” clause in the agreement (and notifying the appointed agent for service of process) could help reduce questions as to whether ABC Project Developer was properly notified of the arbitration proceedings. In fact, even though the rigorous rules regarding court service do not always apply to arbitration, including a service provision (specifically identifying for whom documents should be served) makes service of proceedings and other types of notices more straightforward, thus helping avoid ambiguity.   

Of course, there are many other factors to consider when drafting arbitration clauses but appointing a professional and responsive process agent could make a practical difference if an issue ever needs to be arbitrated. Like a good pair of suspenders, appointing a process agent isn’t always required, but it can add security and peace of mind to keep a deal in place.  

_{This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.}