KLÖCKNER PENTAPLAST GMBH & CO KG v. ADVANCE TECHNOLOGY (HK) CO LTD

HCA 1526/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1526 OF 2010

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BETWEEN

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REASONS FOR DECISION

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1.  I am not satisfied either that Klöckner’s proposed appeal has a reasonable prospect of success, or that there is any reason in the interests of justice why an appeal should be heard.  Leave to appeal and a stay of the arbitration pending appeal are refused.

2.  I accept that the applicant for leave to appeal does not have to demonstrate that the appeal will probably succeed: see Apple Daily Ltd v Oriental Press Group Ltd, unreported, HCA 1396/2009, Chu J, 3 January 2011, but the applicant must show that there is a reasonable prospect of success in the appeal.

3.  Two questions arose in the decision sought to be appealed, first what was the proper law of the arbitration agreement, and second whether the dispute fell within the scope of the arbitration agreement. A subsidiary question, whether as a result of Chinese law the arbitration agreement was incapable of performance arose only if the answer to the first question was that Chinese law was the proper law of the arbitration agreement.

4.  Mr Khaw correctly identified three factors as pointing overwhelmingly to German law being the proper law of the arbitration agreement.  They were:

(i)  that the MoU expressly provided that: “all of the obligations contained herein shall be governed in its entirety by the laws of the Federal Republic of Germany.”  (My emphasis)

(ii)  that the arbitration clause provided that the third arbitrator shall be a person admitted to practice German law;

(iii)  that both the governing law clause and the arbitration clause were set out under a heading in the MoU entitled “Governing Law and Jurisdiction”.

5.  Against this, the only factor upon which Mr Cheng can rely to argue that the proper law of the arbitration agreement should be Chinese law is the fact that the seat of the arbitration is stated in the MoU to be Shanghai.  While I accept that an argument can be mounted, indeed has been mounted, based upon this point alone, I am satisfied that it has no reasonable prospect of success.  That is particularly so when regard has had to the statement in Dicey and Morris, §16-017, cited at §24 of the decision.

6.  Mr Cheng referred me to Article 58 of the Minutes of the Second National Working Conference on the Trial of Foreign-Related Commercial and Maritime Case promulgated by the PRC Supreme People’s Court on 26 December 2005.  The Article reads:

“The lex causae agreed to by the parties to a contract for settling disputes arising from the contract cannot be used for determining the validity of foreign-related arbitration clauses. Where parties to a contract have specified the lex causae for determining the validity of arbitration clauses, the laws agreed shall apply; where parties to a contract have not specified the lex causae for determining the validity of arbitration clauses, the arbitration place, the laws of the country or region of the arbitration place shall apply.” (My emphasis).

7.  Consequently, said Mr Cheng, the Chinese courts being the supervisory courts to the arbitration process would be bound to conclude that Chinese law was the appropriate law for determining the validity of the arbitration clause.  Other than pointing to the fact that the seat of the arbitration was in Shanghai he could not suggest any reason why that should be so.

8.  The argument is unsustainable.  This is a plain case where the parties to the contract have specified the appropriate law for determining the validity of the arbitration clause.  They do so by saying that the entirety of the contract, plainly including the arbitration clause, is to be governed by the laws of the Federal Republic of Germany.  There is nothing in the evidence to suggest that in the application of its own law the Chinese courts would find that the law governing the arbitration clause was anything other than that agreed to by the parties.

9.  I accept Mr Khaw’s submission that the three authorities relied upon by Mr Cheng do not lay down any principle to the effect of the governing law of an arbitration, but are simply cases decided on their own particular facts.

10.  In Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenberg AG [1981] 2 Lloyd’s Rep 446, the arbitration was to take place in Zurich Switzerland.  The arbitration agreement provided that any question of construction or effect should be decided according to English law if the reference was by the purchasers but the law of the Federal Republic of Germany if the reference was by the sellers.  In that situation, it is not at all surprising that the lex arbitri was found to be Swiss law.   In XL Insurance Ltd v Owens Corning [2000] 2 Lloyd’s Rep 500, the contract contained a London arbitration clause and a jurisdiction clause requiring the policy could be construed in accordance with New York law.  The case is simply an example of the usual rule that if there is no stipulation as to the law of the arbitration agreement that law would normally be the law of the seat of the arbitration.  C v D [2007] 2 Lloyd’s rep 239, is precisely the same category.

11.  In none of the three cases relied upon were expressions such as those set out in §4(i) above used.

12.  Next, Mr Cheng seeks to say that it is reasonably arguable that the Court of Appeal is likely to disagree with my finding a that the dispute falls within the scope of the arbitration agreement.

13.  Again, an argument can be mounted, but I am not satisfied that it has any reasonable prospect of success.

14.  The relevant expression in the MoU is:

“any dispute, controversy, or claim between the parties hereto arising out of or relating to this MoU.” (My emphasis).

Mr Khaw was right to draw my attention again to Fiona Trust & Holding Corp v Privalov [2008] 1 Lloyd’s Rep 254 CA, and the following passage from the speech of Lord Hoffmann,  at 257, with whom the other law lords agreed:

“In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessman, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same Tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.”

15.  There is nothing in the language of the MoU to suggest that following the making of the MoU disputes in respect of the sale and purchase of goods between Klöckner and Advance Technology should be dealt with other than by arbitration.  Such sales plainly relate to the MoU and consequently it is not reasonably arguable that a dispute arising from such sales should not go to arbitration as the parties have agreed.

16.  Mr Cheng relies upon the decision of the House of Lords in Union of India v E. B. Aaby’s A/S (The Evje) [1975] AC 797, as an example of the case where Aaby’s, relying on a subsequent undertaking to pay general average, given independently of the contract containing the arbitration clause, was held not to be bound by the arbitration clause, which contained a limitation provision.  That was so, because the court found that the undertaking constituted a fresh contract varying the contract containing the arbitration clause, and that fresh contract contained no limitation period.

17.  But the situation in the present case is quite different.  First, the particular expressions contained in the present MoU, to which I have already referred, were not contained in the charter party. Second, the case is simply demonstrates that the subsequent undertaking given to pay general average constituted a separate contract which contained no limitation provision..  It does not lead me to conclude that it is reasonably arguable that the arbitration clause was not intended to cover the present dispute.

18.  Finally, Mr Cheng says that the arguments advanced by him have not been definitively considered by the Court of Appeal, and a judgement will give guidance.  I suspect the reason that the matter has not gone before to the Court of Appeal is because in most cases the answer is clear, and in any other case, well-established principles are simply applied to facts.  It is simply not necessary to give leave in order to obtain the guidance of the Court of Appeal.

19.  For these reasons, leave to appeal is refused.

20.  Klöckner must pay Advance Technology’s costs on the application for leave, to be taxed on a party and party basis.