POHANG IRON and STEEL CO. LTD. v. NORBULK CARGO SERVICES LTD. and Another

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

( COMMERCIAL LIST No. 103/1990 )

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REASONS FOR DECISION

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Rogers, J.:

1. This was a trial of a preliminary issue in what must be one of the slowest moving actions. The hearing of this matter was concluded on the morning of Monday 6th May shortly prior to my commencing my list for the day. At the conclusion of the hearing I gave my Decision in favour of the Plaintiff in the issue (1st Defendant in the Action) and I dismissed the action against it. Because of a lack of time I said I would give my reasons in writing later, which I now do.

2. This case arises out of a shipment of cargo alleged to have been delivered damaged in 1986.

3. The Plaintiff in the issue is the 1st Defendant in the action. It was the time charterer and disponent owner of the Korean Pioneer. The Plaintiff sub-chartered the vessel to the Defendant pursuant to the terms of a charterparty in the Gencon form. The two Bills of Lading under which the cargo was shipped and the charterparty included a paramount clause whereby the Hague Rules contained in the International Convention for the Unification of certain Rules relating to Bills of Lading dated Brussel's 25th August 1924 were stated to apply to the contract of carriage.

4. The goods were shipped from Hamburg in February 1986 and discharged from the vessel in Korea when the voyage was completed on 8th April 1986.

5. On 8th April 1987, the Defendant served a Notice of Commencement of Arbitration on the Plaintiff in Hamburg with respect to the goods carried under the Bills of Lading. The Defendant's claim in the Hamburg Arbitration was for the same alleged cargo loss and damage which is the subject of the claim in this action.

6. The Plaintiff duly appointed an arbitrator but the primary point taken in the arbitration was that the arbitration clause was invalid. I was told by Dr. Rabe, and I accept, that although as a matter of caution submissions as to the merits were put in, it seems there was never a hearing or argument directed to the merits; the only point discussed was the preliminary issue.

7. Under the Arbitration Rules, the Arbitral Tribunal had power to decide whether the Arbitration Agreement was legally effective and whether the Tribunal was properly constituted and had jurisdiction over the dispute. The point taken by the Plaintiff in the issue was quite simple: the arbitration clause was invalid. Clause 33 of the charterparty provided for Arbitration and any claim had to be made in writing and the Claimant's Arbitrator appointed within 6 months of final discharge of the vessel. The clause further provided that where that provision was not complied with the claim should be deemed waived and absolutely barred. That provision conflicted with Article III Rule 6 of the Hague Rules which provides that "In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within 1 year after delivery of the goods or the date when the goods should have been delivered." Para. 612 of the German Commercial Code was in similar terms and to similar effect.

8. In June 1990, the German Arbitral Tribunal dismissed the Defendant's claim in that the tribunal held that it had no jurisdiction to entertain the claim because under German Law, the prescriptive period of 6 months provided in Clause 33 constituted an impermissible abridgment of the 1 year period required by Article 612 of the German Commercial Code; hence the Arbitration Agreement contained in Clause 33 was null and void by reason of Article l 34 of the German Civil Code.

9. Thus far the parties are in agreement as to the facts.

10. On the 8th September 1990, the Defendant commenced these proceedings against the Plaintiff and another. In July 1991 Points of Claim were served. In September 1991 Bokhary J. ordered that there should be a trial of a preliminary issue namely - "Whether the Plaintiffs' claim is time barred pursuant to Article III Rule 6 of the Hague Rules in that the Plaintiffs' suit herein has not been brought within 1 year after delivery of the goods, the subject matter of the present action."

11. Points of Claim in the preliminary issue were filed in September 1991 and Points of Defence were originally served in October of that year but amended Points of Defence were eventually served in January 1994.

12. Those amended Points of Defence raised what in effect is the major issue which is now before me. The other major matters raised in the Points of Defence specifically the plea as to estoppel have since been abandoned by the Defendants.

13. What is now said is that the Writ in this action was issued within a period of 6 months after the date on which the Arbitral Tribunal in Germany published its award dismissing the claim. Since the dismissal was not a decision on the merits, it is said that the effect of section 212(2) of the German Civil Code is that the 1 year time limit prescribed by Article III Rule 6 of the Hague Rules is deemed to have been interrupted at the time when the arbitration proceedings were commenced.

14. It was also faintly argued that the commencement of the Arbitration Proceedings in Hamburg constituted commencement of proceedings sufficient to satisfy Article III Rule 6 of the Hague Rules.

15. The first point to be noted is that the contract is governed by German Law. For the most part German Law as regards this action can be taken to be the same as Hong Kong Law and the only point that has been the subject of discussion between the parties has been the effect of section 212(2) of the German Civil Code. It will be convenient to mention that one way or another almost the whole of the Defendant's case hinged upon that provision.

16. The point on this that was argued on behalf of the Defendant is that under Section 212(2) of the German Civil Code the period of limitation is extended to 6 months after the decision of the arbitrators holding that the arbitration was impermissible. Although words can be played with, the arbitrators held that the arbitration was incompetent. Article 612 of the German Commercial Code to which I have already referred mirrors, as I have said, Article III Rule 6 of the Hague Rules. Both these provisions have the effect of rendering any liability extinguished after the relevant period has expired. To this extent the provision of Article III Rule 6 is regarded in the same way in Hong Kong law. In the words of Lord Wilberforce in Aries Tanker Corporation v. Total Transport Ltd. [1977] 1 W.L.R. 185 at p.188G after the period has expired the claim "... is a claim which, ... had no existence in law, and could have no relevance in proceedings commenced, as these were". In German Law this is called, Ausschlußfrist, best translated as a period of preclusion.

17. When one comes to the effect of Section 212(2) of the German Civil Code the only question is whether it can have any relevance to a period of preclusion. Even here there is hardly any disagreement between the parties, or rather their experts. It is the case that the prevailing view is that Section 212(2) is a procedural provision. The most that has been argued in this case is that the sub-section could, or perhaps should, be applied to matters of preclusion by "analogy" and the failure to appreciate that is a mistake which has been perpetuated through the decisions.

18. Dr. Rabe the Plaintiff's expert is a well known expert in German maritime law. He is the current author of the leading text book on the subject "Seehandelsrecht" Prüßmann/Rabe. I note that Dr. Rabe was the Plaintiff's legal representative in the Hamburg arbitration proceedings. I have duly warned myself as to the possibility of bias as a result. Nevertheless I also have to say that he was clear and straight forward in his evidence and I have no hesitation in accepting his opinion as being correct on this matter. He demonstrated that all decisions which in any way touched upon this issue pointed clearly to the fact that Section 212(2) related to matters of procedural law, (called in German "Verjährungsfrist"), and did not apply to periods of preclusion, ("Ausschlußfrist"). There were 2 cases in Landgericht: the Jordeans and the Roussillon. There were 2 decisions of arbitration tribunals namely the Francesca 1990 Award and the Emilia 1988. Finally there was Dr. Rabe's own book to which I have already referred. The Defendants' expert Dr. Holtappels went so far as to say that Dr. Rabe's book was the only one worth mentioning.

19. The point was sought to be made that in the book Dr. Rabe had said "the provisions on limitation - particularly those of Par. 194 - 225 BGB - apply in principle" to par. 612 of the German Commercial Code. That argument is hardly worthy of dignifying with a detailed analysis. In the first place what is said in the book is that the provisions apply in principle but each provision has to be looked at individually to see whether it applies. More importantly, at page 545 of the original German there is a passage which makes clear that section 212(2) is not applicable.

20. In contrast Dr. Holtappels who was called by the Defendants to the preliminary issue was a less impressive witness. His experience in the legal field does not compare with Dr. Rabe's. Although he has been a shipowner and an arbitrator for many years he has only comparatively recently qualified and gone into practice as a lawyer. His evidence amounted to an argument that Section 212(2) should apply to periods of preclusion by analogy. His point was that since section 212(1) was applicable to Para. 612 he could see no reason why section 212(2) should not also be applicable. He was able to produce no support for this other than the opinion of someone who is now one of his own partners who wrote an article on this very case. He was handicapped in expressing that opinion by his own decision as a co-arbitrator in the case of the Emilia. His response was that he had now considered the matter more fully.

21. As a matter of logic and legal argument I can see all the difference in the world between Section 212(1) which merely says that the limitation period is not interrupted because of abortive proceedings and section 212(2) application of which would have the effect of reviving a liability which had become extinguished.

22. In summary therefore I have no hesitation in finding as a fact that Section 212(2) of the German Civil Code is a procedural provision which has no application in respect of periods of preclusion "Ausschlußfrist" e.g. section 612 of the German Commercial Code and Article III Rule 6 of the Hague Rules. That is the German Law. With the greatest respect, and I might say trepidation at expressing a view on an argument which on the face of it sets out to correct a misapprehension of German law, I do not consider that the argument that section 212(2) can be applied by analogy has validity.

23. Strictly speaking it seems to me that on that finding it must follow that as procedural law is a matter of the Lex Fori, see e.g. Dicey & Morris The Conflict of Laws Chapter 8 Rule 17, the point raised in paragraph 12 of the Amended Points of Defence must be bad because the law pleaded is a matter of procedural law and that is to be determined by reference to Hong Kong Law. I do not see it necessary for the Plaintiff in the issue to plead this. That, however, should not I think be the end of the matter because the preliminary point raised is in terms of Article III Rule 6.

24. It was sought to be argued that Article III Rule 6 should be given a purposive construction, the purpose being to give warning within a year that

a claim was being made: Since abortive proceedings commenced within the year's period would suffice even though they were commenced before a tribunal incompetent to hear and determine the claim the purpose would have been achieved by the commencement of the Hamburg arbitration proceedings.

25. That argument ignores the fundamentals. The period laid down in the Hague Rules is in reality part of the contract between the parties. The agreement was that action would have to be brought within a year of the delivery of the goods otherwise all liability would be discharged. It is the liability which is extinguished after the year's period and it cannot be revived. Both the Hague Rules and the German Commercial Code have very similar provisions with regard to giving notice of a claim. Both these entail that notice must be given at the time of discharge. There is no justification therefore in seeking to extend the meaning of Article III Rule 6 to allow proceedings which were a nullity to be treated as "bringing suit".

26. Discharge of the vessel took place on the 8th April 1986 and hence the period would have expired in 1987. Since the Hong Kong proceedings were commenced in 1990 that was 3 years too late unless suit had been brought in respect of damage to the goods within the one year period. The arbitration proceedings, as I have already said, were not a competent suit. That was held by the Arbitral Tribunal itself. The tribunal was, therefore, incompetent to determine the dispute. But it is the law that the suit had to be brought in a Court of competent jurisdiction. Hobhouse J. pointed out in the Nordglimt [1988] 1 Q.B. 183 at p.192 that an action brought before an incompetent court would not suffice to prevent the carrier being discharged under this provision of the Hague Rules. Mr. Bell on behalf of the Defendants suggested that I should not rely on this statement as it was obiter. He said that it did not give a purposive construction to the rules that decisions in cases such as the Finnrose [1994] 1 Lloyd's Rep 559 showed were required. In this regard he said that what the Rule required was that notice of a claim would be given to a carrier so the claim could be investigated.

27. Whilst the statement made by Hobhouse J. is strictly obiter it was apparently approved by the Court of Appeal in the Amazona [1989] 2 Lloyd's Rep 130 at p.135 and seems to accord in its reasoning with a number of other decisions for example the Merak [1965] P. 223 and the Havehelt [1993] 1 Lloyd's Rep. 523. Clearly the Hague Rules require not only notice to be given immediately but also Rule 6 is there to ensure that Action be commenced (and prosecuted) with efficient dispatch. Commencing litigation in the wrong tribunal does not achieve that.

28. On the face of it therefore the liability in respect of which the Defendant to the issue seeks to bring suit was long since extinguished. As Mr. Thomas Q.C. pointed out, those who might say they are put in a difficulty because they are unsure of the validity of an arbitration clause can protect themselves by commencing Action in both possible tribunals.

29. On that basis it seems to me that in the first place since section 212(2) is a procedural provision it can have no application to this action since procedural matters are governed by the Lex Fori i.e. Hong Kong Law.

30. In the second place Section 212(2) can have no application to a case such as this where the liability is not time barred on a procedural basis but in the words of Lord Wilberforce had no existence in law.