XCHRX GRAND EMPIRE HOLDINGS LTD. v. MARCO INTERNATIONAL (HK) LTD.

HCA14891/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.14891 OF 1999

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D E C I S I O N

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1. By this summons the defendant seeks an order that the above proceedings be stayed for the purpose of referring the matter to arbitration in New York pursuant to an arbitration clause in the written agreement between the parties dated 31 May 1999. The plaintiff seeks to argue that there should be no stay because they do not accept that an arbitration clause exists in the true agreement between them. They say that the written agreement of 31 May 1999 which is a detailed and lengthy sale and purchase agreement for goods is a sham and that the true agreement between them was an oral loan agreement to which no arbitration clause applied.

2. In my judgment the plaintiff's argument cannot succeed because of the combined effect of the following matters:

(1)	There is no dispute that both the plaintiff and the defendant signed the written agreement of 31 May 1999;
(2)	There is no dispute that on the face of it, that agreement is a conventional commercial contract for the sale and purchase of goods;
(3)	There is no dispute that that agreement contains, on its first page, the following clause :

" THIS CONTRACT IS AND SHALL BE SUBJECT TO THE TERMS AND CONDITIONS HEREIN STATED AND THOSE STATED ON THE REVERSE SIDE OF THIS CONTRACT, INCLUDING THE PROVISIONS FOR ARBITRATION, ALL OF WHICH ARE ACCEPTED BY BUYER. THIS CONTRACT MAY NOT BE MODIFIED, RESCINDED OR WAIVED EXCEPT IN A WRITING SIGNED BY AN AUTHORIZED OFFICER OF THE PARTY TO BE CHARGED AND ANY WAIVER SHALL ONLY APPLY TO THE SPECIFIC INSTANCE OR DEFAULT WAIVED."

(4)	The unequivocal provision for arbitration is in the following terms :

" (b)THE PARTIES TO THIS CONTRACT IRREVOCABLY AGREE THAT EACH AND EVERY CONTROVERSY OR CLAIM ARISING OUT OF, IN CONNECTION WITH OR RELATING TO THIS CONTRACT OR THE INTERPRETATION, PERFORMANCE OR BREACH OF THIS CONTRACT SHALL BE SETTLED BY ARBITRATION, BY A PANEL OF THREE ARBITRATORS, IN THE CITY OF NEW YORK IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES THEN OBTAINING OF THE AMERICAN ARBITRATION ASSOCIATION OR ITS SUCCESSOR, AND UNDER THE LAWS OF THE STATE OF NEW YORK, AND THAT THEY DO NOT INTEND THAT THE STATUS QUO MUST BE MAINTAINED PENDING ARBITRATION AND THAT JUDGMENT MAY BE ENTERED ON ANY ARBITRATION AWARD SO MADE IN ANY COURT HAVING JURISDICTION."

Mr Benjamin Chain, for the plaintiff, argues that the references above to "this contract" can only refer to this written agreement which he says is a sham. He submits that if it is a sham then the agreement between the parties was the oral loan agreement and not "this agreement". I consider this argument to be without substance for the following reason.

(5)	There is no doubt that the goods which are the subject matter of the dispute between the parties are the same goods to which the written agreement refers. The differences between the parties concern the same goods. When one party puts his signature to an arbitration clause concerning those goods then he cannot escape that clause by seeking to give the agreement a different name.
(6)	It cannot be argued that the arbitration clause does not exist. It exists and is signed for all to see. The high watermark of the plaintiff's argument is that, although it exists, it does not apply to them. That is a matter which falls squarely within the jurisdiction of the arbitrator. Article 16 UNCITRAL Model Law states :

"(1)

The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement." (emphasis added)

(7)	The plaintiff, in order to resist the stay application, must show the clause is null and void, inoperative or incapable of being performed. It is none of these.
(8)	By its conduct in diligently and expeditiously seeking the appropriate orders both in Hong Kong and New York, the defendant has demonstrated that it is ready and willing to do all things necessary for the proper conduct of the arbitration and remains so (Arbitration Ordinance, Cap.341, section 6).
(9)	The court finds there is no sufficient reason not to refer the matter for arbitration in accordance with the clause (Arbitration Ordinance, Cap.341, section 6).

3. I therefore make an order that these proceedings be stayed in accordance with paragraph 2 of the defendant's summons dated 22 September 1999. I also make an order for costs of and arising from the application to the defendant in any event, save as follows.

Costs of adjourned hearing on 14 January 2000

4. Approximately one week before the hearing scheduled for 14 January 2000 the defendant's solicitors learnt (not from the plaintiff) that the plaintiff company had been wound-up following a contested application on 3 January 2000.

5. They therefore took certain steps which they considered correct, in an effort not to incur unnecessary costs, pursuant to section 186 of the Companies Ordinance, Cap.132 which provides as follows :

"186. Actions stayed on winding-up order.

When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose."

6. The steps they took were based on an assumption that the hearing of 14 January would be vacated in the absence of any leave from the court. They wrote to the court asking that the hearing be vacated because of the winding-up order and section 186. The court did not vacate the hearing as even on the defendant's solicitors reading of section 186, it would be open to the plaintiff to apply for leave.

7. Prior to the hearing date on 14 January, the plaintiff's solicitors informed the defence that the provisional liquidator had instructed them to proceed on the hearing date. By this time the defence solicitors had cancelled its counsel thinking he would not be needed.

8. On 14 January, Mr Chain, for the plaintiff submitted the leave of the court was not required because section 186 refers to proceedings against the company and this is a claim by (emphasis added) the company. Mr De Witt, for the defendant, asked for an adjournment to re-instruct his counsel, Mr F Burkett. The adjournment was granted with the question of the costs of the adjournment reserved.

9. There is obvious force in Mr Chain's submission. There are however counter-arguments. Although there is no doubt that the original claim is a claim by the company and not against it. However, these proceedings to stay have been launched by the defendant against the plaintiff. The head note refers to "actions" stayed on a winding-up. This is an action by the defendant.

10. It is also arguable, but with less force that the word "against" in section 186 should be construed as only applying to actions "commenced" but not to actions "proceeded with".

11. However, I find it is not necessary to determine the point on this question of costs because when the defence solicitors cancelled their counsel (which was the only reason for the adjournment) they failed to appreciate that it was always open to the plaintiff to apply for leave as a preliminary to the hearing on 14 January. Given that the provisional liquidators had instructed them to proceed, such leave would surely have been granted.

12. As for the need for leave on the application itself it is now entirely academic. The defendant's application has been heard and determined. At the adjourned hearing the defence indicated that should leave be necessary they would not oppose it. For the sake of competence however I express my view that in the circumstances of this case, leave pursuant to section 186 of Cap.32 is not required.

13. I therefore order that the costs of the adjourned hearing on 14 January 2000 be to the plaintiff in any event.