Service address clauses prevent future difficulties

By Efar Zhou, Martin Hu & Partners
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In contract negotiations, notice clauses get little regard compared to other contract terms – e.g., price, liability for breach of contract and other such terms – to the point that most contracts do not even contain such notice clauses. However, when a dispute arises, the difficulty of effecting service is often the first difficulty that a creditor faces. When the other party goes into evasion mode, or absconds, the path for the creditor to assert his rights and toll the limitation of action becomes arduous and expensive. Even if he or she institutes legal action or arbitration proceedings, the entire process will likewise be prolonged due to such issues as “this person not found, unable to effect service”, etc. If the parties can specify the service address for collection letters and process documents in the notice clause, then numerous difficulties in effecting service can easily be resolved.

TOLLING LIMITATION OF ACTIONS

The fourth paragraph of article 10 of the Provisions on Several Issues Concerning the Application of the System of Limitation of Actions in the Trial of Civil Cases, issued by the Supreme People’s Court (SPC) specifies that where the whereabouts of the debtor are unknown, the only way open to the creditor to toll the limitation of actions is to assert his claim through publication of a collection announcement in influential national media, or influential provincial-level media, of the place where the debtor’s domicile is located.

Efar Zhou, Associate, Martin Hu & Partners
Efar Zhou
Associate
Martin Hu & Partners

Pursuant to the provisions, for a creditor to toll the limitation of actions when the whereabouts of the debtor is unknown, the creditor must complete the following two statutory steps in order: (1) demonstrate that the whereabouts of the debtor are unknown, e.g., with a mailed collection letter returned due to the person or address being untraceable; and (2) publication of a collection announcement in the statutory publication or media.

Publishing an announcement is a creditor’s only feasible means of asserting a claim and tolling the limitation of actions, other than instituting a legal action or arbitration proceedings. However, considering the cost of publishing such announcements, and the debtor’s actual repayment capacity, the creditor may ultimately forego publication of the announcements and face the risk of expiration of the limitation of actions.

If the parties have specified their service addresses in their contract, the creditor may send the collection letter directly to the specified mailing address, and regardless of whether the acceptance of the collection letter is successfully signed for, the creditor will be deemed to have asserted his claim against the debtor. If the mailing address left by the debtor is erroneous, resulting in the letter being returned, or if the debtor’s address has changed without the creditor having been promptly notified, resulting in the collection letter being returned, the SPC deems that the creditor’s intent to assert his claim has been communicated to the debtor, and the limitation of actions can be validly tolled.

ADDRESS PROVISION: ARBITRATION

When arbitration documents sent to the respondent are returned, the arbitration institution will ask the applicant to designate the respondent’s last known address. If there exist multiple valid contact addresses in the preceding dealings between the respondent and applicant, but the applicant has no evidence in support of this, the applicant will often be in a bind as to how to confirm such a last known address. Furthermore, although in arbitration proceedings service at the last known address of a party whose whereabouts are unknown is somewhat more convenient than service by announcement in a legal action, it will often still require the expenditure of several weeks or even several months.

However, arbitration grants the parties a high degree of autonomy. With respect to service addresses, the rules of many arbitration institutions provide that, in addition to the service addresses confirmed by the parties themselves, service at the addresses of the parties specified in their contract is also deemed valid service. For example, the arbitration rules of the China International Economic and Trade Arbitration Commission (CIETAC) specify that arbitration documents are to be sent to the address provided by the party, or the party’s arbitration agent, or that specified by the parties. The arbitration rules of the Hong Kong International Arbitration Centre (HKIAC) specify that service at an address specified in any agreement applicable to the relevant parties is deemed valid service.

ADDRESS PROVISION: LITIGATION

The SPC confirms, in the Several Opinions of the Supreme People’s Court on Further Promoting the Optimal Allocation of Judicial Resources Through the Separation of Complex and Simple Cases, which were implemented as recently as 12 September 2016, that, “If the parties specified service addresses before a dispute arose, the People’s Court may treat such addresses as the confirmed addresses for the service of process documents.” This is the first time that the SPC has issued a document that recognizes that “if the parties have specified service addresses”, such addresses have practical application in a court service procedure.

However, the opinions issued by the SPC are judicial policy and they further only state that a court “may” treat such addresses as the confirmed addresses for the service of process documents. As service is an extremely important procedural issue, and considering courts’ conservative and prudent method of dealing with the same to date, the courts may still resort to service by announcement where service at the addresses specified by the parties fails.

Regardless of whether courts will in the future directly deem the addresses specified by parties to be valid confirmed addresses for the service of process documents, the acceptance and recognition of pre-trial specified service should be the future trend for legislative revision in respect of the laws and regulations governing civil procedures.

It is not hard to see that, if both parties can expressly specify the service address for relevant documents in the notice clause, this not only enables either party to promptly and conveniently assert its claims, but it can also greatly optimize the procedure for the service of process documents in arbitration proceedings and legal actions, save time in the hearing of cases, and effectively block the other party from abusing the service procedure to prolong cases.

Efar Zhou is an associate at Martin Hu & Partners

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