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HCA014689A/1996
IN THE SUPREME COURT OF HONG KONG
HIGH COURT
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ORIENMET MINERALS COMPANY LIMITED |
Plaintiff |
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AND
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WINNER DESIRE LIMITED |
Defendant |
Coram: The Hon Mr Justice Findlay in Chambers
Date of hearing: 2 April 1997
Date of handing down of Judgment: 7 April 1997
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JUDGMENT
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Background
1. In July 1996, the parties entered into two agreements written in Chinese under which the defendant agreed to transport 800 metric tons of aluminium ingots to the People's Republic of China, to handle the necessary documents and to pay to the plaintiff the sale proceeds.
2. The agreements recorded that the defendant was to be the plaintiff's agent "in importing" the ingots, that the defendant would be responsible for processing the documents for importing the goods into China, and for organising shipment, transportation, loading and unloading the goods after receiving the bills of lading from the plaintiff in Hong Kong. The defendant was also responsible for obtaining the sale proceeds after selling the goods. The defendant was to remit the sale proceeds "in Reminbi". The plaintiff was to pay the defendant amounts in Hong Kong dollars for handling the goods. The sale price of the goods in China was to be confirmed by the plaintiff.
3. The agreements also contained a clause that, in translation, reads -
"This agreement shall have legal effects after being signed by [both parties]. If [the parties] has any dispute and cannot reach any agreement, the relevant arbitration shall be in accordance with Hong Kong Law."
4. The plaintiff alleges that the defendant has sold the goods in China, and has failed to account to the plaintiff for the proceeds.
5. Broadly, the defendant's case is that Mr Chung Hiu Kin, a director of the defendant, entered into the agreements. Mr Chung, it is said, was not authorised by the defendant to enter into the agreements. Mr Chung has now cannot be found. So, the defendant alleges that there were no agreements between the plaintiff and the defendant.
6. The plaintiff's solicitor says that, after acknowledging service of the writ, the defendant's solicitors wrote to the plaintiff's solicitors asking for a 14day extension for filing the defence. The plaintiff agreed to this provided it was recorded in a consent summons. The defendant's solicitors said that they would prepare a consent summons. They did so and faxed a copy to the plaintiff's solicitors. On the same day, the plaintiff issued a summons under Order 14 seeking judgment on the issue of liability, with the assessment of damages to be adjourned. In spite of this, the defendant's solicitors said that the defendant had a right to file a defence and "shall do so accordingly". Instead, however, the defendant filed a summons seeking a stay of the action "pursuant to s. 34C of the Arbitration Ordinance, Cap. 341 and Article 8 of the UNCITRAL Model. Law on International Commercial Arbitration" the arbitration agreement being "not a domestic arbitration agreement within the meaning of the Arbitration Ordinance, Cap. 341".
Is There an Arbitration Agreement?
7. The first issue to be resolved is whether or not the agreements contain a valid arbitration agreement.
8. I repeat the clause in the agreements relating to arbitration for the sake of convenience -
"This agreement shall have legal effects after being signed by [both parties]. If [the parties] has any dispute and cannot reach any agreement, the relevant arbitration shall be in accordance with Hong Kong Law."
9. There are two possible interpretations of this clause -
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It provides that, if the parties agree to submit their dispute to arbitration, Hong Kong law shall govern that arbitration.
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It provides that the parties shall refer any dispute to arbitration, which shall be conducted according to Hong Kong law.
10. I believe that the most natural construction of the clause is that it was the intention of the parties that any dispute that could not be resolved by agreement would be referred to arbitration conducted according to Hong Kong law. I cannot accept that the parties referred to arbitration merely for the purpose of fixing the applicable law in the event that they agreed to submit their dispute to that process of dispute resolution. I find that the parties have entered into a binding agreement to submit their disputes to arbitration.
International or Domestic?
11. The next issue to be decided is whether the arbitration agreement is international or domestic.
12. Section 2 of the Arbitration Ordinance, Chapter 341, provides that "International arbitration agreement" means an arbitration agreement pursuant to which an arbitration is, or would if commenced be, international within the meaning of article 1 (3) of the UNCITRAL Model Law, and "Domestic arbitration agreement" means an arbitration agreement that is not an international arbitration agreement.
13. Article 1(3) of the UNCITRAL Model Law provides -
"(3) An arbitration is international if:
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the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or |
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one of the following places is situated outside the State in which the parties have their places of business; |
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(i) |
the place of arbitration if determined in, or pursuant to, the arbitration agreement; |
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(ii) |
any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or |
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the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country." |
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14. In the case before me, there can be no doubt that "a substantial part of the obligations of the commercial relationship" was to be performed outside Hong Kong. The defendant's main obligation - to sell the goods in China and receive the sale proceeds there - were to be performed outside Hong Kong. One cannot say that these obligations were insubstantial; they were therefore substantial.
15. It follows, in my view, that the arbitration agreement between the parties was an international one.
Is the Dispute Arbitrable?
16. Mr Wong argues that is not permissible for the defendant to argue that agreement was never in existence, but, at the same time, that the agreement provides for any dispute, including a dispute as to whether or not the agreement was ever in existence, must be referred to arbitration. On the face of it, this argument has great merit. One might think that for our defendant to succeed in such an argument must be equivalent to the feat of pulling oneself up by one's own boot straps.
17. But the Model Law provides -
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"Article 16. Competence of an arbitral tribunal to rule on its jurisdiction. |
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(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause." |
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18. So, this being an arbitration agreement to which the Model Law applies, Article 16 provides that the tribunal has precisely the power that Mr Wong says it does not have. And this is what Kaplan, J. decided in Fung Sang Trading Ltd. V Kai Sun Sea Products & Food Co Ltd [1991] 2 HKC 526.
19. Mr Wong argues, however that Kaplan, J. did not take into account another provision of the Model Law -
"Article 1. (5) This law shall not affect any other law of this State by virtue of which certain disputes may not be submitted to arbitration or may be submitted to arbitration only according to provisions other than those of this law."
20. I do not accept that that this provision sets to naught the very specific provision of Article 16 (1). I do not accept that, in making the Model Law part of our law, the legislature provided that a tribunal may rule on the existence of the arbitration agreement, but, at the same time, provided that it may not do so because the law in existence immediately prior to the enactment of the Model Law may have said that an arbitrator may not rule of the existence of the agreement in which the arbitration agreement is contained. That would make nonsense of the legislation.
21. Mr Wong says that, although Kaplan, J. referred to the case of Heyman v Darwins [1942] AC 356, he did not accept it as authority for the proposition that "If the dispute is whether the contract which contains the [arbitration] clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission." (per Viscount Simon, L.C. at 366). Kaplan, J. did not refer to this pronouncement, I am sure, because it was not relevant. The Lord Chancellor was speaking with great good sense, but he was not considering the effect of Article 16 of the Model Law. Other English cases on this point must be approached with caution because England has not adopted the Model Law as part of its law.
22. Accordingly, I hold that, under these international arbitration agreements, the dispute as to whether or not the parties ever entered into the agreements is arbitrable.
Should a Stay be Granted?
23. On my findings, it seems to me that I have no discretion. Article 8 of the Model Law says that I "shall" refer the parties to arbitration.
Result
24. It seems to me that I must, not without some unhappiness, grant a stay and refer the parties to arbitration. I do so.
The Order 14 Summons
25. This summons must, on the basis of my conclusion of the stay summons, be dismissed.
Costs
26. There does not seem to me to be any obvious reason why costs should not follow the event on both summonses. Accordingly, I make orders nisi that the plaintiff pay the defendant's costs on those summonses.
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JK FINDLAY |
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Judge of the High Court |
Representation:
Mr Horace YL Wong, instructed by Messrs Chan & Chiu, for the plaintiff.
Mr Benjamin Chain, instructed by Messrs Oliver CM Chan & Co, for the defendant.
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