Can a California court invalidate agreements on international service of process?

Cognizant of the time, expense and complexity of international service of process, many lawyers (this author among them) recommend including contractual notice provisions in agreements involving international commerce. In this way, parties can agree in advance on alternative forms of service, whether by mail, courier, or even email -- to provide certainty, and to avoid the time and expense of formal compliance with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil of Commercial Matters, often referred to as the Hague Service Convention. That common tool (a quick internet search will yield many exemplars of contractual waivers of service) may no longer be available due to a decision of the California Court of Appeal. In Rockefeller Technology Investments (Asia) VII v. Changzhou SinoType Technology Co., Ltd., 2018 DJDAR 5395 (June 1, 2018), the Los Angeles-based 2nd District Court of Appeal held that parties may not contract around the formal service requirements of the Hague Service Convention.

For the 73 states parties, the Hague Service Convention applies "in all cases, in civil or commercial matters, where there is occasion to transmit a judicial or extrajudicial document for service abroad." As the court explained in Rockefeller, the convention provides that each contracting state shall designate a "Central Authority" to receive service requests from other contracting states. According to Article 5 of the convention, the Central Authority of the receiving state "shall itself serve the document or shall arrange to have it served by an appropriate agency, either--

"(a) by a method prescribed by its internal law for the service of documents in domestic actions upon persons who are within its territory, or

"(b) by a particular method requested by the applicant, unless such a method is incompatible with the law of the State addressed."

The convention provides for alternative methods of service if permitted by the receiving state. Article 10 states: "Provided the State of destination does not object, the present convention shall not interfere with ... the freedom to send judicial documents, by postal channels, directly to persons abroad." (Emphasis added.) In other words, if a state does not object, parties may effect service in that state by mail. For international service of process in non-objecting states, the Rockefeller decision should have little practical effect. However, many contracting states, including the most significant economies like China, Japan, Germany, India, Korea, Russia and Mexico, have objected to Article 10, formally opposing service of process in their respective territories by "postal channels." These countries do not allow service by mail in cases falling under the convention.

The Hague Service Convention entered into force Feb. 10, 1969. In the ensuing years, parties (and lawyers) have learned to navigate the convention's requirements, and in many countries the convention has largely achieved its dual goals of (1) facilitating international service of process, and (2) ensuring that international service is reasonably likely to provide actual notice to defendants. Notwithstanding significant progress, however, service under the convention remains cumbersome, expensive and sometimes uncertain, often taking many months to complete, with attendant expenses of translation, as well as engagement of local counsel in the receiving state to monitor and navigate the process at that end. In response to these complications, U.S. business people and their lawyers have developed a range of devices to reduce time and expense, and to enhance certainty. Prominent among those tools are agreements to waive formal service requirements and agree instead to contractually specified notice procedures, such as notification by courier, postal mail or email at a specified address.

Throwing years of customary American practice in international commerce into question, the court in Rockefeller held that parties cannot circumvent the official service requirements set forth in the convention by agreeing to accept service by contractually specified methods that deviate from the requirements of the convention. Citing Société Nat. Ind. Aero v. U.S. Dist. Ct., 482 U.S. 522, 533-34 (1987), the court explained that a treaty is in the nature of a contract between nations, and that treaty interpretation begins with the text of the instrument, informed by the context, negotiating history and "practical construction adopted by the parties." Focusing on the text of Article 1, with its directive that the convention applies in "all cases ... where there is occasion to transmit a judicial or extrajudicial document for service abroad," the court concluded that because the convention is an agreement among sovereign nations, only contracting states, and not private parties, may determine how service may be effected.

Although the court in Rockefeller did not examine the travaux préparatoires of the convention, it did analyze the context of the treaty. Thus, Article 2 requires each contracting state to designate a Central Authority, and Article 5 provides for service to be effected by or at the behest of the Central Authority, by a method prescribed by the internal law of the receiving country. Moving to Article 10, the court determined that because China, where plaintiff sought to effect service, had formally objected to service by mail, such service "was not effective under the Hague Service Convention."

Whether the court in Rockefeller got it right remains to be seen. Notably, the appellate court did not address at least two potentially important issues. First, the court did not parse the meaning of the phrase "where there is occasion to transmit a judicial or extrajudicial document for service abroad," in Article 1 of the convention. In the landmark case of Volkswagen Aktiengesellschaft v. Schlunk, 485 U.S. 694 (1988), the Supreme Court held that the Hague Service Convention is mandatory, but only where it applies -- that is, where "there is occasion" to transmit a judicial document for service abroad, which depends on the internal law of the forum state. After extensive analysis of the convention's negotiating history, the court in Schlunk held that because the Illinois long-arm statute authorized plaintiff to serve Volkswagen's German parent company by substituted service on Volkswagen of America in Illinois, notwithstanding the German parent's failure or refusal to appoint the U.S. subsidiary as its agent for service of process, there was no occasion for service abroad, and the Hague Service Convention did not apply. In Rockefeller, it does not appear that the appellate court considered whether California law might permit an alternative form of service on Changzhou SinoType that might not involve "service abroad."

Second, although the court in Rockefeller correctly noted that the convention does not allow alternative forms of service where the state of destination objects, and that China submitted objections to mail service, the court did not discuss the possibility that Chinese law might permit contractual agreements regarding service of process. Moreover, as a matter of U.S. law, "it is settled ... that parties to a contract may agree in advance to submit to the jurisdiction of a given court, to permit notice to be served by the opposing party, or even to waive notice altogether." National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 316 (1964). Accordingly, just as the Supreme Court in Schlunk held that service on an involuntary local agent pursuant to Illinois law might fall outside the scope of the convention, it might also be permissible that, as long as not barred by the law of California (or the limits of due process), contracting parties might agree on a form of notice that does not involve transmission of judicial documents for service abroad. If respondent Changzhou SinoType successfully petitions for review in the California Supreme Court, the state high court may address some or all of these issues.

In the meantime, what should parties already committed to or considering international commercial agreements do if they want to avoid having to effect service through the "Central Authorities"? For starters, not every contractual waiver of service in an international agreement is invalidated by Rockefeller. As noted, each state party to the Hague Service Convention may choose whether to object to alternative forms of service. Roughly half of the 73 contracting states have presented some form of objection under Article 10, meaning the other half do not prohibit service by mail. In addition, the decision in Rockefeller comes from a California Court of Appeal, so while potentially persuasive in other jurisdictions, it does not create binding precedent in other states or in federal court. And even in California, the decision of one court of appeal binds lower courts, but it does not bind other courts of appeal, or even other divisions in the same appellate district.

For existing contracts with foreign companies in countries that have objected to alternative forms of service under Article 10 of the convention, the Rockefeller decision means parties should review those contracts to identify and evaluate provisions that purport to bypass Hague service requirements. That review should include assessment of whether the foreign contracting party might have to be served abroad. If the parties are not already in a dispute, they might amend their contract to provide for domestic service of process, such as by appointment of a local agent for service of process. Or they might consider providing for international arbitration instead of a judicial forum, as the Hague Service Convention does not apply to service in international arbitration. Although the court in Rockefeller expressly declined to assess the propriety of service of the underlying demand for arbitration, it is well-established that the requirements of the Hague Service Convention do not apply to international arbitration.

For existing disputes, parties should consider whether service of process overseas complied with the Hague Service Convention, especially in cases where the responding party does not make an appearance. Where the responding party has appeared, or in cases where the parties have a shared interest in getting their dispute resolved, foreign parties may agree to appear voluntarily, especially if doing so might save them from having to reimburse the other party for the cost of service. The convention does not prohibit a foreign party from appearing in litigation voluntarily.

The full import of the Rockefeller decision remains to be determined, including the possibility of review by the California Supreme Court, as well as the extent to which other courts will or will not follow Rockefeller. But for now, the Rockefeller decision makes it harder to get foreign parties into a court in the U.S., and for that reason it has the potential to complicate dispute resolution in international business relationships.