XCHRX H. SMAL LIMITED v. GOLDROYCE GARMENT LIMITED

1994 No. MP 908

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

___________

________________

H E A D N O T E

________________

Arbitration - appointment of arbitrator - Model Law definition of 'arbitration agreement' - whether any written record of agreement to arbitrate emanating from Defendant - whether arbitrator should be appointed - need to expunge reference to arbitration rules of the Hong Kong General Chamber of Commerce.

_______________

J U D G M E N T

_______________

1. I have before me an application made by the Plaintiff for me to appoint an arbitrator under Section 12 of the Arbitration Ordinance, this being clearly a domestic arbitration.

2. The definition of Arbitration Agreement contained in Article 7 of the Model Law is by reason of Section 2 of the Arbitration Ordinance applicable also to domestic arbitrations.

3. The Defendants object to the appointment of an arbitrator on the grounds that there has been no compliance with Article 7 of the Model Law.

4. Briefly, what happened was this : the Plaintiffs and the Defendants clearly had previous business dealings although these are not fully specified in the evidence. However, they sent to the Defendants a Purchase Order dated the 12th June 1992 in respect of certain goods. Clause 7 of the terms and conditions of that Purchase Order contains a Hong Kong Arbitration Clause. I note in passing that this arbitration clause refers to the arbitration being conducted in accordance with the rules of The Hong Kong General Chamber of Commerce. I have to point out that The Hong Kong General Chamber of Commerce has no rules for arbitration, has nothing whatever to do with the arbitration and, for some years now, has referred all arbitration matters to The Hong Kong International Arbitration Centre. I would strongly urge parties who are using standard terms and conditions which make reference to the rules of Hong Kong General Chamber of Commerce or possibly to appointment in default by The Hong Kong General Chamber of Commerce to change those terms because it will not find that the Chamber will assist with regard to arbitration any more. Preference should, of course, be made to the Hong Kong International Arbitration Centre and their rules.

5. Be all that as it may, this document, the Purchase Order, was signed by the Plaintiff but it is common ground it was not signed by the Defendant. When I say it was not signed by the Defendant, I mean that no copy signed by the Defendant has been produced. In fact, it has been stated on behalf of the Plaintiff that a former employee, a Mr. Echo Ng, who has now gone to Canada, did tell the Plaintiffs that he knew that the Defendant had signed their copy of the Purchase Order and had kept a copy.

6. Mr. Alan Ng who appears on behalf of the Plaintiff, has submitted firstly that I should decide that the evidence relating to the signing of the Purchase Order by the Defendant in the circumstances I have just outlined is sufficient to meet the minimum threshold required for me to be satisfied that Article 7 has been complied with. I cannot accept that submission. This evidence is hearsay. We do not know where it was signed or in fact by whom on behalf of the Defendants it was signed. I am not suggesting that this is no evidence because a hearsay notice could be put it but when one comes to consider the question of the weight to be attached to such evidence, I think it is almost inevitable that the court or an arbitrator would attach little weight to this in the absence of hearing from Mr. Echo Ng. In my judgment, this evidence does not meet the necessary threshold to which I referred in Pacific International Lines v. Tsinlien Metals & Minerals [1993] 2 HKLR 249.

7. The next way in which Mr. Ng put his case is that he submits that there clearly was a binding contract between these parties. He relies upon the fact that the goods were duly delivered and that disputes as to quality arose and that when those disputes arose, the Defendants made an offer of compensation which was contained in a document, exhibited as LYL-9. He submits that it is clear beyond doubt that there was a contract between these parties and that contract contained an arbitration clause and I should therefore appoint an arbitrator.

8. The problem with this argument is that it does not take into account that the Arbitration Agreement contained in another written agreement has a life of its own. The doctrine of separability has now been enshrined in the Model Law and has been fully accepted in case law in England and Hong Kong. Article 7(2) of the Model Law states that the Arbitration Agreement shall be in writing and goes on to add that it is in writing if it is contained in a document signed by the parties. That is not the position here because only one party signed it. However, the Arbitration Agreement is also in writing if is contained in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, and the agreement there referred to is the agreement to arbitrate and not the agreement in relation to the underlying contract, and Mr. Ng who has put his case extremely fairly and as attractively as possible, has been forced to concede that the only document to which he can refer in this context is in fact, LYL-9, the compensation agreement, which makes no reference whatsoever to the arbitration clause.

9. Mr. Ng has referred to and relies upon the well-known English Court of Appeal decision in Zambia Steel v. Clark and Eaton [1986] 2 Lloyds Rep. 225. It has to be pointed out that that case concerned the definition of Arbitration Agreement contained in Section 7 of the 1950 Arbitration Act which states :

"Arbitration Agreement means an agreement in writing including an agreement contained in an exchange of letters or telegrams to submit to arbitration present or future differences capable of settlement by arbitration"

10. I do not propose to go into any detail about this case but it is worth noting that at p.235, at the end of his judgment, Ralph Gibson LJ stated this :

"Once it is clear that the assent to the written terms or evidence of it is not required to be contained in the written agreement, but that assent to the written terms may be proved by other evidence then in my judgment any evidence which proves that the parties agreed to be bound by an agreement to submit contained in a document or documents is sufficient to make the document or documents an agreement in writing within the 1975 Act."

11. It does not seem to me that this approach can be applied in quite the same way to Article 7(2) of the Model Law if the other evidence is not written. The agreement to arbitrate has either to be in writing signed by the parties or contained in another document which provides a record of the agreement.

12. There is no basis for arguing that the Arbitration Agreement can be established by a course of dealing or the conduct of the parties. I have looked at the UNCITRAL reports in relation to Article 7 and I am quite satisfied that Article 7 cannot be complied with unless there is a record whereby the Defendant has in writing assented to the agreement to arbitrate.

13. In all those circumstances therefore, it seems to me that the Plaintiff has not established compliance with Article 7 of the Model Law. Even if I were wrong about any of the matters to which I have just adverted, I would still be reluctant to exercise my discretion in favour of appointing an arbitrator because the state of the evidence is really most unsatisfactory and I believe that if the parties were forced to arbitrate there would be difficulties which would far outweigh the importance and value of this claim. This claim is just within the High Court limit. It is not a difficult claim and I think the Plaintiff should be left to pursue its remedies through the litigation process.

14. I would like to complete this judgment by making the following comment. If parties really believe that arbitration is something which they want when disputes arise, then it is incumbent upon them to ensure that Article 7 is complied with. In the present case, it would have been very simple for the Plaintiffs to insist on a signed copy of the Purchase Order being returned to them by the Defendants. If that simple precaution had been taken, then the Plaintiffs would have been in possession of an Arbitration Agreement signed by the parties which complied with Article 7. This is an elementary step and I urge all those in commerce and industry who are interested in ensuring that they arbitrate their disputes when they arise to make sure that their documentation complies with Article 7 of the Model Law. It is not a difficult thing to ensure but it does prevent arguments such as have been submitted to me during the course of this hearing.

15. In all the circumstances therefore, this summons will be dismissed with costs to be taxed if not agreed.