LANDALE DEVELOPMENT LTD. v. ZHUM HENG DEVELOPMENT LTD.

HEADNOTE

CONTRACT - whether arbitration agreement incorporated - communication by fax - reference to arbitration printed on back of standard form contract - back of document not sent to buyer - buyer signs front.

IN THE DISTRICT COURT OF HONG KONG

CIVIL JURISDICTION

Action No. 12640 of 1989

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RULING

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1. This is an application by the defendant for a stay of proceedings, commenced by a writ issued on the 9th November 1989, on the ground that the dispute between the parties is the subject-matter of an arbitration agreement in writing. It is made pursuant to section 6A of the Arbitration Ordinance (Cap. 341), which makes it mandatory for a court to impose a stay if the arbitration agreement is not a domestic arbitration agreement, unless the reference is void or inoperative. For the purposes of the present application, it is conceded that section 6A of Cap. 341 is the operative provision, with the consequence that the court has no discretion to refuse the application if there is a valid submission to arbitration. The present application raises interesting issues regarding the law relating to the communication of contractual offers and acceptances by fascimile transmission ("fax"), as well as the incorporation of terms by reference to some other document. As it may be of interest to contracting parties other than the parties to these proceedings, I give leave for my ruling to be published. I am indebted to Mr. Lam and Mr. Chan for their very helpful and clear submissions, which have enabled me to eliminate the various doubts or reservations which I harboured with respect to this case. But, it is only right that I should acknowledge that their submissions have at the same time, demonstrated that the point at issue is finely balanced and eminently suitable for consideration by a higher court. For that reason, I gave leave to appeal against my decision without any formal application by either party.

2. The brief history of these proceedings is as follows. In or about December 1988, the plaintiff agreed to buy 112 metric tons of ferro silicon ("the goods" from the defendant at a price of US$865 per metric ton. The plaintiff contends that, having paid the price in full, it received less than the contractual quantity of the goods, and was obliged to purchase the difference elsewhere at a higher price. In an affirmation in support of the present application, the defendant disputes both claims. Apart from putting the quantum of the plaintiff's damages in issue, the defendant seems to be putting in issue the question whether its alleged failure to deliver 112 metric tons was a breach, having regard to the alleged effect of certain certificates of quality and weight, supposedly required under the terms of the contract. Mr. Lam contended that there was no "dispute" to be referred to arbitration, because the defendant had never replied to or denied the allegations in the letter before action, dated the 25th August 1989, until after the writ was served. In some circumstances, a failure to deny a claim may justify a finding that there is no dispute. But, it is not the only inference to be drawn. In the present case, I think that there is a dispute over the quantum of damages as well as the question whether the defendant was in breach.

3. The real issue is whether the contract incorporated an agreement to refer these disputes to arbitration. It is common ground that the contract of sale was evidenced by, or contained in, a document headed "SALES CONFIRMATION" and dated the 6th December 1988. This document contains printed terms in Chinese and English on the obverse (or face) and reverse (or back) sides of the paper. Blank spaces on the face of the document have been completed in English. These deal with matters such as the names, etc. of the seller and buyer, description and price of goods, date of shipment, mode of payment, and documents to be presented. At the top of the face of the document there is printed :

"The undersigned Sellers. and Buyers have agreed to close the following transactions according to the terms and conditions stipulated below :"

4. At the bottom of the face of the document, and immediately above the spaces for the signatures of the parties, there is printed :

"10. Remarks : This contract is expressly made subject to the terms and conditions set forth on the face and back hereof."

5. In the very narrow space between these printed words and the spaces for the signatures the following words have been typewritten :

"Documents issued by third party as shipper are acceptable."

6. On the back of the document there are various other terms printed in Chinese and English, the last of which (7) is the reference to arbitration.

7. Unfortunately, this document in standard form was not fully presented by the defendant to the plaintiff for signature in the usual way. The office of the plaintiff is in Tsimshatsui; that of the defendant in Central. Instead of delivering it by messenger or by post, the defendant faxed it to the plaintiff. However, only the obverse or face of the document was faxed, together with a second page consisting of a handwritten message in Chinese characters on the defendant's headed notepaper. This covering letter asked the plaintiff to fax the faxed document back to the defendant after signature by the plaintiff. This was done on the 6th December 1988. On the same day the plaintiff signed the faxed copy and faxed its reply or acceptance of the defendant's offer to the defendant. Prior to the 6th December 1988 there had been no, or no similar, dealings between the parties. Accordingly, I must deal with this application on the basis that the plaintiff was not actually aware of condition 7 - the agreement to refer disputes to arbitration - when it signed the faxed copy, because it had not received the reverse side of the document in standard form.

8. Upon these facts, it is open to the court to conclude that there was never any concluded contract on the terms of the document in question, because the parties were never ad idem. The defendant intended to sell on the basis that disputes would be referred to arbitration before the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade (condition 7). Although the plaintiff agreed to buy goods which it knew were to come from China, it arguably intended any disputes to be governed by the law of Hong Kong, as the place where the contract was made, and to be resolved by resort to the courts in Hong Kong. There being no consensus ad idem, neither party would be bound by the document in question. Where, as in the present case, the supposed contract has been followed by complete performance by one party (i.e. payment of the price by the plaintiff) and at least substantial performance by the other party, I venture to suggest that any court would be very hesitant to conclude that there never was any binding contract, because of some defect in communication. The law of contract gives limited recognition to the subjective intentions of the parties. Although it strives to give effect to their intention, that fact is invariably ascertained by reference to their objective conduct and the surrounding circumstances. A part may act contrary to his real intention, but in a way which induces the other. party reasonably to believe that they are contracting on the same terms.

9. In my judgment, this case does not fall to be decided on the basis of following or considering the well-known decision in Smith v. Hughes (1871) LR6QB597. There was, in my-view, a contract for the sale of the goods between the plaintiff and the defendant. The only question is whether condition 7 was validly incorporated into that contract. Mr. Chan submitted that it was incorporated because the faxed copy sent to the plaintiff expressly referred to another document actually in existence. He further contended that the plaintiff was bound by condition 7, because it must have known that the back of the document had not been faxed, and yet, it still signed the faxed copy and faxed. its acceptance to the defendant without asking for clarification of the "terms and conditions" -referred to in clause 10 of the document. Such conduct was tantamount to signing a contractual document without reading its terms. In such circumstances, the leading authority of L'Estrange v. F. Graucob Limited [1934] 2KB394 clearly establishes that the signatory is bound by all the provisions, even though they have not been read. Mr. Chan also relied on Wyndham Rather Limited v. Eagle Star and British Dominions Insurance Company Limited (1925) 21 Ll L. Rep. 214 and Golodetz v. Schrier (1947) 80 Ll L. Rep. 647.

10. Mr. Lam accepted that an arbitration agreement might be incorporated by reference, but contended, rightly in my view, that the document or documents must show clearly that the parties did intend to incorporate the arbitration clause. He submitted that such intention was lacking in this case because clause 10 was only expressed in English and because of the failure to fax the back of the standard form. The defendant had failed to take reasonable steps to bring all the terms of the document to the notice of the plaintiff.

11. It is odd that clause 10 is the only clause or part of the document which does not have a version in Chinese. But, I am not persuaded that this indicates that the parties did not intend the conditions on the reverse of the document to apply. The parties have clearly chosen English as the language of the contract, and clause 10 clearly puts the plaintiff on notice that there were other terms in addition to those on the front of the document. Having regard to the position of clause 10, I am also satisfied that reasonable steps were taken to bring the other terms to the notice of the plaintiff. The plaintiff knew that the offer was sent by fax, and must therefore have known that only the front of the document had been sent. It signed that document without asking for a copy of the reverse of the document. In my view, it is in the same position as if it had received the original document and had signed it without turning it over to read the conditions on the reverse side. Accordingly, I am satisfied that the parties have agreed to refer all disputes to arbitration. The defendant's application for a stay must be granted.