XCHRX TAI HING COTTON MILL LTD. v. GLENCORE GRAIN ROTTERDAM BV. and Another

1995, No. CL 28

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. In October 1994, the plaintiff and the first defendant executed a written contract in terms of which the plaintiff bought and the first defendant sold 1000 tons of cotton. The contract was executed on behalf of the first defendant by the second defendant as agent. The cotton was to be supplied in two shipments; one of 300 tons, regarding which there was no problem, and one of 700 tons, which is the subject of this action.

2. The significant provisions of the contract are -

"All Quality disputes as defined by the By-laws and Rules of The Liverpool Cotton Association Limited, and all disputes other than Quality disputes touching or arising out of this contract shall be referred to Arbitration in accordance with the By-laws and Rules of The Liverpool Cotton Association Limited and shall be resolved by the application of English Law.

The obtaining of an Arbitration award shall be a condition precedent to the rights of either party to start legal proceedings in respect of a arbitrable dispute.

There shall be no allowance to Seller but should the cotton not be equal to the quality sold, it shall be taken with an allowance mutually agreed or settled by arbitration in Liverpool."

3. On 13 January 1995, the second defendant told the plaintiff that the 700 tons of cotton had shipped on 12 January 1995 and that the expected voyage time was about one month. On 27 January 1995, the plaintiff asked for full shipping details so that it could take delivery of the cotton quickly. On 26 January 1995, the second defendant provided the plaintiff with copies of the bill of lading and other relevant documents. The bill of lading, the specification and the certificate of origin identified the cotton by the bale numbers, and the specification gave the gross and net weights. On 30 January 1995, the plaintiff asked the defendant allow the plaintiff to take delivery of the cotton. On 7 February 1995, the plaintiff's solicitors demanded delivery of documents to enable the plaintiff to take delivery of the cotton. The second defendant replied saying that it was the "firm resolution" of the first defendant to deliver the cotton to the plaintiff. On 8 February 1995, the plaintiff's solicitors wrote again inquiring about the documents. On 9 February 1995, the first plaintiff wrote to the second defendant, with copy to the plaintiff's solicitors. It said that it was their firm intention to deliver approximately 700 tons of cotton out the vessel, but their was a physical obstacle. It said that the vessel had been loaded "without segregation as to qualities, whereby actual qualities themselves could not have been accurately established at the time of loading due to circumstances beyond our control." They proposed that the "above vessel will be discharged into our warehousespace, whereafter buyers are invited for joint classing of goods so as to establish how much of contract-type is available. Should total quantity outstanding not be available in contract-type, both parties to undertake to come to an agreement in respect of deviance in qualities and corresponding prices, whereafter necessary arrangements can be made for delivery." This is a convoluted way of saying that, if the cotton mentioned in the shipping documents is of a higher quality that mentioned in the contract, you will have to pay more.

4. It seems this exhausted the patience of the plaintiff. The next day, on 10 February 1995, the plaintiff applied ex parte for an injunction, and this was granted. The order was that defendants be restrained until determination of the summons or further order from taking into their possession or dealing with the cotton described in the bill of lading and the shipping documents relating to that cotton. The defendants were also ordered to deliver to the plaintiff the documents to enable it to take delivery of the cotton upon payment. The summons was taken out on 13 February 1995. On the same day, the plaintiff took out a summons under Order 86 asking for an order for specific performance of the contract. On 11 February 1995, the first defendant applied to vary the ex parte order by deleting the order that the defendants deliver the documents to enable the plaintiff to take delivery of the cotton upon the first defendant undertaking to deliver the cotton to a safe place and store it until determination of the summons. This was refused. The first defendant appealed against this refusal and the matter was heard urgently on 13 February 1995. The appeal was dismissed.

5. On 15 February 1995, the defendants issued a summons seeking an order that all further proceedings be stayed on the basis that the disputes ought to be referred to arbitration.

6. I now have before me the plaintiff's summonses and the defendant's summons.

7. It is convenient, I think to deal with the defendants' application for a stay firstly. I have already quoted the provisions of the contract relating to arbitration. There can be no doubt that this constitutes an international arbitration agreement. That being the case, Article 8 of the Fifth Schedule to the Arbitration Ordinance (Cap 341) governs the matter. This provision states -

"(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement of the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

(2) Where an action referred to in paragraph (1) of this Article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court."

8. Before this provision and the provisions of the contract can come into play, there must be a dispute. Arbitration is a machinery for the resolution of disputes. If there is no dispute, there is nothing that can form the subject of an arbitration; it is not arbitrable. The matter is dispute here is whether or not the plaintiff is entitled to delivery of the documents relating to the cotton. The only answer to the plaintiff's entitlement advanced on behalf of the defendants by their solicitor in an affidavit dated 15 February 1995 is stated as follows:

"The dispute between the parties exists because the defendants contend they should not be obliged to deliver goods of a higher quality than that called for under the contract and further dispute that specific performance as sought in the writ, interlocutory relief and the inter partes summons by the plaintiff is the remedy available to the plaintiff in relation to the contract for the sale of goods. The defendants refusal to tender the bill of lading and other shipping documents was due to its belief that the bales enumerated in the bill of lading contained cotton of a higher quality than contracted for."

9. The first contention was considered by the Court of Appeal. Godfrey JA, at page 45P, said - ". . . the seller says that these goods are, or may be, of a superior quality to that provided for by the contract. We therefore have a highly unusual case in which the seller is suggesting that, because the goods are of such superior quality, it has a right to inspect the goods and delay their delivery before it comes under a legal obligation to hand over the documents. This suggestion is completely unfounded." The Court of Appeal did not have before it the affidavit by the defendants' solicitor mentioned above, but the defendants' case was not advanced thereby. The contention remains as unfounded as ever it was.

10. The contention that there is a arbitrable dispute "that specific performance as sought in the writ, interlocutory relief and the inter partes summons by the plaintiff is the remedy available to the plaintiff in relation to the contract for the sale of goods" is equally untenable. This is not a dispute "touching or arising out" the contract. It is a dispute about what remedy a court should, in its discretion, provide in any particular case where there has been a breach of the contract, and is a matter for argument. I have come across no case in which the only matter referred to arbitration was the question of which remedy should be granted in respect of a breach of contract; specific performance or damages. I am not surprised by this. If it were otherwise, it being seldom the case that the remedy is not disputed or the amount of damages, if that be the appropriate remedy, is not contentious, stays would rarely be refused in cases where the party seeking the stay has absolutely no answer to the merits of the claim at all.

11. I do not intend to review the cases on whether or not there is a dispute that is capable of being referred to arbitration. This has been done by Kaplan J in Icos Vibro Ltd v S.F.K. Construction Management Ltd (CL No. 9 of 1991, which appears to be unreported, although it should be) and Barnett J in Guangdong Agriculture Co Ltd v Congara International (Far East) Ltd [1993] 1 HKLR 123. In my respectful view, Kaplan J put the matter correctly when he said - "Saville, J's reminder of Templeton, LJ's words in Ellerine v Klinger ["There is a dispute until the defendant admits that the sum is due and payable"] serve only to remind practitioners that stays will only be refused where the claimant can show clearly and emphatically that the respondent has no grounds for disputing the claim."

12. In this case, I have no doubt, and it appears the Court of Appeal had no doubt, that the plaintiff has shown "clearly and emphatically" that the defendants respondent have no grounds for disputing the plaintiff's claim for delivery of the documents. Accordingly, there can be no stay because there is no dispute capable of being referred to arbitration.

13. Mr Smith argues that, even if I refuse a stay, I should not make the orders requested by the plaintiff because their effect would be an order for specific performance, and that is not an appropriate remedy in this case.

14. Godfrey, JA said, at 47H -

"The buyer is prepared to offer an undertaking to this court to retain the goods as provided in the undertaking given to Sears, J for a period of 14 days from today, and during that period to give an opportunity to the seller to inspect the goods and take whatever steps it may be advised to take before the expiry of the period of 14 days. If the seller does decide to make an application for interlocutory relief within that period to the court of first instance, that court will deal with the application in the ordinary way. If the seller decides, after consideration, not to take any such step within that period of 14 days, then at the end of that 14 days the buyers will be free to deal with the goods as they like."

15. Mortimer, JA said, at 48K -

"I would, however, also protect the sellers in the manner suggested by Godfrey, JA so that they will have an opportunity to make any application to the court to protect any legal right which they may contend they have over the next 14 days."

16. On 15 February 1995, the defendants issued their summons applying for a stay.

17. On 17 February 1995, Sears, J made an order saying that the defendants "have a right to inspect and sample the raw cotton within the period of 14 days from the date of the Order" of 13 February 1995. The defendants' summons of 15 February 1995, together with the plaintiff's summonses, was adjourned.

18. The defendants made no application to protect any legal right within the 14 days stipulated. They issued the summons for the stay, but that, in itself, did nothing. What the Court of Appeal contemplated was some interlocutory relief that would prevent the plaintiff being "free to deal with the goods as they like"; an interim injunction pending final resolution of the matter. That being so, the plaintiff has been, since, I suppose, 28 February 1995, free to deal with the goods, and, for all I know, has done so. In these circumstances, would it make any sense for me to say that, the plaintiff having the documents and the goods, having paid for them and having been told by the Court of Appeal that it is free to deal with the goods as they like, this situation must now be unravelled, the goods and documents returned to the defendants, and the plaintiff left to its remedy in damages? I think not. Mr Smith said, several times, that what the judges at first instance, and the Court of Appeal, did was, in effect, to order specific performance against the defendants. That is right. And it is not for me to set off on a new path that would set to naught what has already been done.

19. In any event, the factors that influenced Sears, J and the Court of Appeal are the same factors that would drive me to the same conclusion. The defendants contracted seriously to deliver the documents to the plaintiff to enable the plaintiff to take delivery of the cotton. It deliberately avoided complying with its contractual obligations on grounds that it must have known were entirely spurious, in the hope that it could extract more money from the plaintiff. It did this because it well knew that the plaintiff was anxious to take delivery as quickly as possible. I do not think the court should lend its support to this sort of behaviour, especially in a commercial case. Commercial men should be discouraged from breaking their bargains on no better a basis than that it suits them to do so for their own advantage.

20. In the result, I make an order in terms of the plaintiff's summons under Order 86, and, although that puts an end to the matter in this court, I also make an order in terms of the plaintiff's summons under Order 29 for the sake of completeness. The defendants summons for a stay is refused.

21. There seems to be no reason why the defendants should not pay the plaintiff's costs in all three matters, and I make an order nisi accordingly.