ANANDA NON-FERROUS METALS LTD. v. CHINA RESOURCES METAL AND MINERALS CO. LTD.

IN THE COURT OF APPEAL

1993, No 139
(Civil)

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J U D G M E N T

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Mortimer, J.A.:

1. On 12th July 1993 Kaplan J. dismissed the plaintiff's application for leave to appeal against an interim award of an arbitrator. He decided (inter alia) that he had no jurisdiction because the arbitration was pursuant to an international arbitration agreement and not a domestic one. The plaintiff appeals. It is necessary to set out the salient facts.

The Facts

2. By a sale confirmation of 24th July 1992 the plaintiff agreed to sell and the defendant to buy a quantity of cadmium ingots CIF Rotterdam. The ingots originated in Hunan. Via Guangzhou they came to Hong Kong where they were repacked and shipped to Rotterdam on.27th August 1991. Before shipment the plaintiff resold the ingots. On 17th September 1991 the defendant paid the plaintiff US$143,690.25 under the contract. The ingots arrived in Rotterdam on 9th October 1991 and were discharged into a warehouse. Following an inspection there was a dispute whether the ingots complied with description. This went to arbitration under clause 11 of the sale confirmation part of which provided:

"The parties shall endeavour to settle amicably any claims or disputes which may arise under this contract failing which the dispute shall be referred to and finally settled by an arbitration under the laws of Hong Kong. The award shall be final and binding on both parties."

3. The defendant was claimant in the arbitration. On 14th April 1992 the defendant's solicitors wrote as follows:

"Would you please therefore accept this letter as formal notice of your clients to request and require them to concur in the appointment of an arbitrator pursuant to clause 11 of the agreement dated 24th July 1991 between our respective clients.

In the absence of such concurrence within 10 clear days of the date of this letter we have instructions to apply to the High Court to appoint an arbitrator pursuant to s.12 of the Arbitration Ordinance."

4. The parties agreed upon one arbitrator and the proceedings began.

5. On 17th November 1992 the plaintiff issued a summons returnable before the arbitrator for leave to serve interrogatories. On 24th November 1992 the defendant issued a summons asking for discovery. Both summonses are described as being "pursuant to s.14(1) of the Arbitration Ordinance". It was suggested that this reference to s.14(1) was a mistake. For my part I doubt whether it was. It is more likely that the judge was right in thinking that no adequate attention had been given to the point by the parties or their advisers.

6. An interim award was made on 26th April 1993 and amended on 4th June 1993. On 22nd June 1993 Kaplan J. heard the plaintiff's application under s.23(2) of the Ordinance for leave to appeal against the award.

Kaplan J's decision

7. The judge dismissed the application on the grounds that he had no jurisdiction. He decided that:

(a) This is an international arbitration to which the Model Law applies (see Article 1(1) of the Model Law);

(b) There is no written agreement that this is to be treated as a domestic arbitration agreement nor that the dispute is to be arbitrated as a domestic arbitration under s.2M of the Arbitration Ordinance;

(c) The defendant is not estopped from maintaining that it was an international arbitration to which the Model Law applies; and

(d) The defendant has not waived its right to maintain that this was an international arbitration.

The Relevant Legislation

8. On 6th April 1990 the Unicitral Model Law was incorporated into Hong Kong law by amendment to the Arbitration Ordinance Cap. 341 ("the Ordinance"). There are separate provisions for domestic arbitration agreements and international agreements. An international arbitration is defined in Article 1(3) of the Model Law. Part II of the Ordinance applies to domestic agreements and Part IIA to international ones but the Ordinance also provides in s.2L and s.2M some flexibility so that the parties may agree in writing which regime they will pursue. The precise conditions are:

"2L. This Part applies to a domestic arbitration agreement and to an arbitration pursuant to a domestic arbitration agreement, except where a dispute has arisen and the parties to the dispute have subsequently agreed in writing-

(a) that Part IIA is to apply; or

(b) that the agreement is, or is to be treated as, an international arbitration agreement; or

(c) that the dispute is to be arbitrated as an international arbitration."

2M. This Part applies to an international arbitration agreement and to an arbitration pursuant to an international arbitration agreement if, but only if, the agreement provides or the parties to the reference agree in writing-

(a) that this Part is to apply; or

(b) that the agreement is, or is to be treated as, a domestic arbitration agreement; or

(c) that a dispute is to be arbitrated as a domestic arbitration."

9. Some of the differences between the two regimes are relied upon by the plaintiff/appellant. The principal distinction is the right to apply for leave to appeal to the Court under s.23(3) in a domestic arbitration. There is no such right in an international arbitration.

10. Of less significance are the provisions for the appointment of arbitrators. In a domestic arbitration - failing, agreement -the court will appoint a single arbitrator under s.12. In the absence of agreement in an international arbitration three will be appointed with an application to the court as a last and unusual resort (See Articles 10 and 11).

11. The court has similar powers to make interlocutory orders under s.14(6) in both the international as well as the domestic regime (See s.34E). Section 14(1) (interlocutory matters) applies only to domestic arbitrations although an "international" arbitrator will make similar orders.

The Appellant's Case

12. The judge's decisions (a) and (b) are not challenged. But the plaintiff maintains that he was wrong to reject its submissions that the defendant is estopped from contending that this is an international arbitration and has waived its right so to do. The basis of the submission is that the defendant represented that it was pursuing a domestic arbitration because:

(a) It requested agreement for one arbitrator only;

(b) It said failing agreement it would apply to the Court for the appointment of one arbitrator under s.12 of the Ordinance - applicable only to domestic agreements; and

(c) Its summons for interrogatories was described as being 'pursuant to s.14(1)' of the Ordinance - again a section applicable to domestic agreements.

So, it is said the plaintiff acted upon the representation - see the reference to s.14(1) in its summons for discovery - and may have acted to its detriment as it lost the choice to have three arbitrators appointed; additionally, it lost the opportunity of seeking a written agreement under s.2M to an arbitration with a right of appeal to the Court.

13. Therefore, Mr Li Q.C. argues that the plaintiff has asserted that this is a domestic arbitration by its application for leave to appeal and that in all the circumstances it would be inequitable to allow the defendant to contend otherwise and consequently it was incumbent upon the judge to accept jurisdiction under s.22.

The Respondent's Case

14. On this point Mr Ma for the respondent submits that estoppel and waiver cannot assist the plaintiff. The jurisdiction of the Court is statutory and depends upon ss.2L and 2M. The judge decided that the agreement was international, that there was no agreement in writing to have the arbitration under the domestic regime within the provisions of ss.2M(a), (b) and (c) and therefore the court has no jurisdiction to entertain an appeal. He relies heavily on the words "if and only if" in s.2M, pointing out that if an oral agreement does not enable this international arbitration to be treated as a domestic dispute a fortiori this cannot be achieved by estoppel or waiver.'

Conclusion

15. The judge's unchallenged conclusions that this is an international arbitration and that there is no agreement in writing within s.2M are important parameters.

16. Two matters have to be considered. First, the jurisdiction of the Court to entertain an appeal under s.23(2) of the Ordinance. Second, whether the defendant is estopped from denying that this is a domestic arbitration, and if so, whether this enables the plaintiff to establish that the court has jurisdiction to hear an appeal.

17. Jurisdiction depends upon the Ordinance. The Court has no inherent jurisdiction to hear the appeal. There is jurisdiction (a) to hear an appeal from a dispute under a domestic agreement (S.2L and s.23(2) in Part II of the Ordinance); and (b) to entertain an appeal from a dispute under an international agreement if the parties make the necessary agreement in writing within s.2M(a), (b) or (c).

18. Obviously, the burden of satisfying the Court that it has jurisdiction is on the party applying for leave. It is necessary therefore for the plaintiff to establish either that this is a domestic arbitration agreement, or that this is an international arbitration agreement which the parties have agreed in writing to treat as domestic. The plaintiff is unable to establish either limb on the facts. Unless it can rely upon estoppel or waiver to establish the necessary facts - an agreement in writing which complies with s.2M - that is an end of the matter.

19. Broadly stated the issue is whether a party who bears the burden of establishing a fact and who is unable otherwise to do so, can succeed because the opposite party is estopped from contending to the contrary or has waived his right so to do. Insofar as waiver differs from estoppel it presents no difficulty. A party who bears the burden cannot establish a necessary fact by contending that the opposite party has waived his right to contend the contrary. It is simply as if the party who has waived his right takes no part in the proceedings. Waiver is a shield and not a sword. It establishes nothing.

20. The effect of estoppel cannot be stated so precisely. It arises in a variety of circumstances. If it is proprietary it may even found a cause of action, or at least enable a party to succeed in circumstances where otherwise it could not. It can create obligations as between the parties. In Amalgamated Property Co v Texas Bank [1982] 1 QB 84 Robert Goff J (as he then was) said at 105 D-E:

"It is sometimes said that an estoppel cannot create a cause of action, or that an estoppel can only act as a shield, not as a sword. In a sense this is true - in the sense that estoppel is not, as a contract is, a source of legal obligation. But, as Lord Denning M.R. pointed out in Crabb v Arun District Council [1976] Ch 179,187, an estoppel may have the effect, that a party can enforce a cause of action which, without the estoppel, he would not be able to do. This is not, of course, true of all estoppels."

21. The erudite examination of principles by the judge in the above case was considered by the Court of Appeal. At 122 Lord Denning M.R. summarised his conclusion:

"The doctrine of estoppel is one of the most flexible and useful in the armoury of the law. But it has become overloaded with cases. That is why I have not gone through them all in this judgment. It has evolved during the last 150 years in a sequence of separate developments: proprietary estoppel, estoppel by representation of fact, estoppel by acquiescence, and promissory estoppel. At the same time it has been sought to be limited by a series of maxims: estoppel is only a rule of evidence, estoppel cannot give rise to a cause of action, estoppel cannot do away with the need for consideration, and so forth. All these can now be seen to merge into one general principle shorn of limitations. When the parties to a transaction proceed on the basis of an underlying assumption - either of fact or of law - whether due to misrepresentation or mistake makes no difference - on which they have conducted the dealings between them - neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands."

22. When established, estoppel governs the relationship of the parties as between each other, in the same case, both Eveleigh L.J. at 126A and Brandon L.J. (as he then was) at 130H approved a passage in Spencer Bower and Turner, Estoppel by Representation, 3rd Ed. (1977), p.157 which is relevant to the estoppel relied upon in the instant case:

"This form of estoppel is founded, not on a representation of fact made by a representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed."

23. For my part I accept with respect these statements of principle. But, however flexible the doctrine of estoppel as between the parties, it cannot confer jurisdiction on the court when the parties cannot achieve this result even by clear oral agreement. This would enable a party to establish the fact upon which the court's statutory and only jurisdiction depends, by showing that it would be unconscionable for the other party to deny it. This cannot be done. It would enlarge the scope of estoppel far beyond the equitable regulation of affairs as between the parties themselves which cannot be justified in principle or on authority.

24. Further, it would negative the provisions of the Ordinance (see RHYL U.D.C. v RHYL Amusements Ltd [1959] 1 WLR 465) and defeat its object to achieve certainty as to which arbitration regime is being pursued.

25. This is sufficient to resolve this appeal. However, for completeness I add that in all the circumstances I would not hold that the defendants are estopped from denying that this was a domestic arbitration.

26. In order to succeed the appellant must show not only that the representations were clearly made but also that it relied and acted upon those representations to its detriment. This is fundamental.

27. It contends that it may have been disadvantaged by agreeing to the appointment of only one arbitrator when under the international regime it could have insisted on three - and that it may have been deprived of the opportunity to make the necessary agreement in writing to comply with s.2M above.

28. The parties can agree to just one arbitrator under the international regime - so this is neither conclusive nor probative of reliance. Without evidence there is no basis upon which the judge could have found that the appellant both relied upon and acted to its detriment upon the representations contended for. There is none. It has chosen not to file any evidence on the point and to rely solely on the submissions of counsel. Sometimes the inferences may be so clear that specific evidence may not be necessary but this is not such a case. On the available evidence it cannot be said that the basis of the equity is made out so as to be unconscionable for the defendants to deny that this is a domestic arbitration.

29. For these reasons I would hold that the judge's decision is correct. I would dismiss the appeal.

Macdougall, V.-P.:

30. I agree with my Lord, for the reasons which he has given, that this appeal should be dismissed.

Bokhary, J.A.:

31. With perhaps considerably less confidence than my brothers in the justice of that result, I too, would dismiss this appeal, subject to the question of the costs below (on which costs we are to hear counsel at the same time as we hear them on the costs here).

My conclusion that the plaintiff so fails is reached on the basis of one point only. No assertion that the plaintiff was distracted by the defendant's representation has been put on oath or affirmation. And the point on which I decide against the plaintiff is that such omission is fatal. I so decide ultimately without doubt but with some lingering unease.

32. Such unease arises because I am by no means confident that the reason why there was no such evidence was because there could be no such evidence. The defendant's challenge on jurisdiction came on the eve of the hearing below. So the plaintiff did not have much time to decide whether, and if so what, evidence it needed or might need to put in to meet that challenge. I am not confident that no such evidence would have been filed if the challenge had come earlier. Still less am I confident - and I say this without any criticism of those appearing for the plaintiff below - that no such evidence would have been filed if (however late the challenge came) Mr Li, who appears for the plaintiff so ably now, had appeared for it when the challenge was first made. But we must, at the end of the day, take the case as we find it: errors and omissions unexcepted.

33. I can indicate quite briefly why I would not decide this appeal against the plaintiff on any point other than the one which I have identified.

34. It seems to me that the defendant's letter of April 14,1992, did represent that the arbitration was a domestic one. What the letter threatened could only be achieved in such an arbitration. And it also seems to me that the representation was capable of distracting the plaintiff from a proper consideration of its position. But, as I have indicated, the position with which we are left and must take as we find it, is that the plaintiff, which alone knows whether it had been thus distracted, never asserted such distraction in evidence coming from it as opposed to argument advanced on its behalf.

35. Although the circumstances were such that such distraction could have been inferred, it did not have to be inferred. Ultimately, I do not think that we would be justified in reversing the learned judge's refusal to infer it.

36. Had there been such evidence, then I think that the plaintiff could have succeeded on an argument along these lines. Had it not been distracted, then it might well, on an unhindered consideration of its position, have decided that, since no appeal to the courts was possible, it ought to insist on three arbitrators rather than one, because three heads are better than one. And had it done that, then it might well have been better off. So the opportunity of which it was deprived by the representation which so distracted it was one of some value; and its loss is sufficient detriment for the purpose of founding an estoppel.

37. I am not persuaded that if the plaintiff were on solid ground otherwise, it ought nevertheless to fail on the basis that section 2M of the Arbitration Ordinance, Cap.341, precluded the operation of the doctrine of estoppel.

38. It is true that certainty is highly desirable. But estoppel is designed to achieve justice. And, as I know Lord Denning once said and suspect he often said, nothing is worse than the certainty of injustice. But for the fatal absence of vital evidence which I have identified, the plaintiff would, in my opinion, have been entitled to succeed. As it is, however, I agree that the appeal must be dismissed, subject to argument as to the costs below.