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

HCMP 1836/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1836 OF 2011

(ON AN INTENDED APPEAL FROM HCA NO. 1526 OF 2010)

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BETWEEN

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DECISION

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1.  The Plaintiff's claim has been stayed for arbitration by Saunders J who has refused leave to appeal. This is the Plaintiff's application for leave to appeal.

2.  Essentially, the Plaintiff relies on the same points rejected by Saunders J in his judgment of 14 July 2011.  With respect, I am in complete agreement with the reasoning and decision of the learned judge. 

3.  I will deal briefly with the Plaintiff's submissions.  First, the Plaintiff submits that it is reasonably open to the court to come to a different view on what law governs the arbitration agreement.  It is said that the Court of Appeal might wish to provide guidance on the matter.

4.  The relevant provision is to be found in the Memorandum of Understanding made between the parties in August 2006 ("MOU") and it provides as follows:

"Governing Law and Jurisdiction

This MOU and all of the obligations contained herein shall be governed in its entirety by the laws of the Federal Republic of Germany.  The application of the UN Convention on the International Sales of Goods (CISG) is excluded.

Any dispute, controversy, or claim between the parties hereto arising out of or relating to this MOU shall be submitted to an arbitral tribunal comprising of three (3) arbitrators and the arbitration venue shall be in Shanghai, China.  Either party initiating an arbitration proceeding shall give notice to the other party.  The arbitration proceedings shall be held in accordance with the arbitration rules of the International Chamber of Commerce ('ICC') in effect on the date of the signing of this MOU.  (Klöckner) and (Advance Technology) shall each appoint one (1) arbitrator, and these two arbitrators shall jointly select the third arbitrator which shall be admitted to practice law in the Federal Republic of Germany.  If a party does not appoint an arbitrator within thirty (30) days after the selection of the first arbitrator, the relevant appointment shall be made by the chairman of the International Court of Arbitration.  The arbitration shall be final and binding on the parties.  The arbitration proceedings shall be conducted in English.  For the purpose of this arbitration clause (Advance Technology) and (a subsidiary of Advance Technology) shall be considered as being one party." (sic)

5.  The Plaintiff's case is that the lex arbitri is PRC laws.  Were that so, the learned judge accepted on the evidence that

"43.      … as a matter of PRC law, … the arbitration clause is null and void, inoperative or incapable of being performed.  In those circumstances, a stay would be refused, and Klöckner would be entitled to proceed with the action." Para. 43 of the judgment.

6.  However, the learned judge was of the view that although the arbitration venue was agreed to be in Shanghai, China,

"28.      … the parties impliedly intended that the lex arbitri is the law of the Federal Republic of Germany."

7.  The learned judge earlier explained in his judgment:

"24.      But there is no rule that the lex arbitri must be the law of the seat of the arbitration.  That is especially so where the law is chosen by the parties. That appears from Dicey and Morris, §16-017:

'The law chosen by the parties.  If there is an express choice of law to govern the arbitration agreement, that choice will be effective, irrespective of the law applicable to the contract as a whole.  If there is an express choice of law to govern the contract as a whole, the arbitration agreement will also normally be governed by that law: this is so whether or not the seat of the arbitration is stipulated, and irrespective of the place of the seat.'  (My emphasis)"

8.  With respect, I agree. 

9.  The learned judge relied on the fact that the German qualified lawyer should be the third arbitrator, and the Plaintiff submits that the Court of Appeal might assign a different weight to the identify of the third arbitrator in determining the parties' choice of the law governing the arbitration agreement.  Even so, I do not believe it is reasonably arguable that the learned judge's conclusion is wrong.

10.  Then, it is said that the dispute is independent of the MOU because the Plaintiff's claim is for the goods sold and delivered and falls outside the matters covered by the MOU.  Again, I agree with Saunders J.

11.  It is quite clear that the MOU covered the Defendant's activity as a distributor of the Plaintiff's products and the Plaintiff's claim arose out of such activity.  The Certificate of Distributorship ("COD") attached to the MOU makes clear that:

"… (the Defendant) … is authorized to promote, stock and resell … Products (of the Plaintiff)."

12.  For the above reasons, leave to appeal is refused.  I make an order nisi that the Plaintiff pays the Defendant the costs of this application to be taxed unless agreed.