SABERU CO LTD v. MARUBENI INTERNATIONAL PETROLEUM CO LTD

HEADNOTE

Courts - Practice - Arbitations - Incorporation of arbitration clauses in subsequent contracts

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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DECISION

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1. This is a summons for a stay of this Action under Section 6A of the Arbitration Ordinance Cap.341. The contracts relied upon in support of the application are contained in two agreements in writing the first dated simply December, 1980 and the second dated the 1st December, 1982 between Saberu Company Limited, which I shall refer to as "Saberu", and Marubeni International Petroleum Company Limited, which I shall refer to as "Marubeni" and which is a Hong Kong Company. The agreements have been exhibited as "YO-2" and "YO-4" respectively to the Affirmation of Yasushi Otsuka of the 14th July, 1988. There are two main issues to be decided before me the first is whether the two respective agreements each included agreements to arbitrate disputes arising under the contracts and the second, which only falls to be decided if there are arbitration agreements, is whether there are causes of action in the Amended Statement of Claire which extend beyond the limits of the arbitration agreements.

2. Although, as I have referred to above, there are 2 separate agreements the wording of each is, to a greater or lesser extent, very similar and the matter has been argued before the by both parties on the basis that there were no material differences between the documents and for reasons of simplicity, I propose in this Decision to make reference, primarily, to the first agreement since my decision in respect of the second follows that of the first.

3. The disputes between the parties arises in this way: by an agreement dated the 20th November, 1980, which for convenience may be termed the First Principal Agreement the Brunei Shell Petroleum Company Limited which has been referred to in the pleadings as "BSPCL" contracted to sell to Saberu 50,000 barrels per day of Seria Light Export Blend crude oil between the 1st January, 1981 and the 31st December, 1982. The contract was detailed, it provided for questions of type, quality, delivery, price, payment, passing of property and the risk, nominating procedures, loading considerations, measurement sampling and testing, taxes duties and imposts, the ultimate destination (a matter to which I must return) exceptions and inter alia the settlement of disputes, I note at this stage that clause 11 of the First Principal Agreement provided as follows:-

"To enable Sellers to discharge their obligation to inform the Government of the destination of exports, Buyers undertake to advise Sellers routinely of the ultimate country of destination of each cargo of oil purchased under this Agreement and, if so required by Sellers, shall provide a Certificate of Discharge, or equivalent, signed by an appropriate authority in the port of discharge. "

4. It can be seen that this is an important provision because it is by means of the information passed under this clause that the Government of Brunei would become aware of the ultimate destination of the oil sold. The clause takes on even greater significance in respect of this action since the fundamental allegations in this case involve an allegation that the Defendant had been shipping oil to South Africa in direct contravention of the wishes of the Brunei Government and it has been alleged in correspondence that this has resulted in the Plaintiff being unable to secure further agreements with the BSPCL.

5. Clause 14 of the First Principal Agreement is that which provides for the settlement of disputes. Paragraph (1) of that clause provides for the appointment of an Expert where the provisions of the Agreement require such a person to give a determination. It might be mentioned that it is not in dispute in this case that paragraph (1) of clause 14 is carried through to the agreement which I have to turn to in a moment. I quote paragraph (2) of clause 14:-

"Except where otherwise expressly provided herein, any dispute that may arise out of, or in connection with this agreement including its validity, construction and performance shall be determined by arbitration under the rules of the London Court of Arbitration (applicable to International Arbitrations where appropriate) at the date hereof, which rules with respect to matters not regulated by them, incorporate the United Nations Commission on International Trade and Law (UNCITRAL) arbitration rules. "

6. It will be noted that Paragraph (2) is broad in its effect and relates to any dispute which may arise out of or in connection with the agreement.

7. It appears that Saberu, the Plaintiff, was disposed to sell on immediately its supply of oil which it had secured from BSPCL and the Defendant entered the agreement which I term the 1980 Agreement. The first recital clause is of particular significance because, after reciting the essence of the First Principal Agreement it recite as follows:-

"A copy of the Principal Agreement is attached hereto. Unless otherwise specifically altered, amended or varied, the terms and conditions of the Principal Agreement shall be considered an integral part of this Agreement but where there is a conflict in interpretation this Agreement shall be paramount and effective. For the avoidance of doubt Clause 42 of the Principal Agreement shall not be applicable and is expressly excluded between the Sellers and Buyers of this Agreement. "

8. The 1980 Agreement then goes on to set out in clauses 1.1, 1.2 and 1.3 provisions which are either exactly, or in effect, the same as the First Principal Agreement but when the 1980 Agreement comes to the question of price, as might be supposed, if departs from the Principal Agreement to give the Plaintiff its profit upon the resale. Clause 7 of the 1980 Agreement provides that the nomination and lifting procedures shall be in accordance with the Principal Agreement.

9. Turning back to the recital clause it seems to me that the purpose and the effect of this is quite clear namely to incorporate the same terms and in substance to pass the same agreement, except as to price, which Saberu obtained from its seller on to Marubeni, the Defendant. The attachment of a copy of the Principal Agreement was no doubt for simplicity's sake but left beyond doubt the fact that both parties would be well aware of the terms of that Principal Agreement. No doubt, a certain amount of verbal manipulation would be required in reading the terms of Principal Agreement into the 1980 Agreement but that is implicit, in my view, if not explicit from the words "...but where there is conflict the interpretation this Agreement shall be paramount and effective. "

10. Two clauses appear to me to warrant comment the first is clause 7 of the 1980 Agreement. I appreciate that on my construction of the 1980 Agreement this clause would merely be reciting what was accomplished by the recital clause. Nevertheless I do not see that this would alter the interpretation which I give to the recital clause. I also observe, at this juncture, that in respect of what would appear to be all the references to "Buyers" and "Sellers" in these clauses 7 and 8 of the Principal Agreement as incorporated by reference in the 1980 Agreement, these have to be interpreted in the 1980 Agreement as references to Saberu and Marubeni respectively. Turning to clause 11 of the Principal Agreement it is also to be noted that, unless I am unaware of some provision of Brunei Law, Saberu was not apparently under an obligation to inform the Brunei Government of the destination of any exports, the obligation rested simply upon the BSPCL. Hence the verbal manipulation that would be required to introduce clause 11 into the 1980. Agreement would perforce require a slightly different form of manipulation but here the circumstances require it and I do not see that this detracts from the construction of the agreement to which I come.

11. As Mr. Huggins, who appeared for the Defendant, the Applicant on this summons, pointed out it would seem that this clause 11 is important in the formulation of the Plaintiff's claim and indeed the terms of clause 11 of the Second Principal Agreement dated the 14th December, 1982 again between the BSPCL and Saberu are set out in the amended Statement of Claim. These terms are slightly expanded and include a specific provision in paragraph (2) that there will be no supply of oil to the Republic of South Africa.

12. Turning lastly to the provisions of clause 14 (2) of the First Principal Agreement I have already noted that the terms are broad and upon my construction of the 1980 Agreement namely that all the terms of the First Principal Agreement are incorporated into the 1980 Agreement and references to the "Agreement" are references to the 1980 Agreement and references to "Seller" and "Buyer" are references to Saberu and Marubeni respectively unless such construction would be impossible, I consider that the words of the recital clause of the 1980 Agreement are clearly broad enough to incorporate the arbitration clause 14 (2). I note in particular the use of the expression "terms and conditions" as used in the recital clause. I see no reason to limit the meaning of the word terms in any way beyond its ordinary and natural meaning even if the word conditions where to be restrictively construed.

13. Mr. Bunting, who appeared for the Plaintiff, the Respondent on this application, argued that, as a matter of construction, some of the clauses in the First Principal Agreement were incorporated into the 1980 Agreement but some were not. Whilst not wishing to be definitive in respect of all the clause he argued for example that clause 14 (1) was clearly incorporated, because the provision of an expert thereunder is specifically referred to in clause 9 (3) of the First Principal Agreement, which clause again Mr. Bunting acknowledged would be incorporated.

14. The Plaintiff relied for the major part of its argument upon the "Portsmouth" line of authorities which appears to be the only line of authorities dealing with the incorporation of arbitration clauses in subsequent contracts but specifically the cases deal with the incorporation in a bill of lading of an arbitration clause under a charterparty. I have been taken through the cases and in particular I would refer to T.W. Thomas & Co. Ltd v Portsea Steamship Co. Ltd 1912 A.C., "The Annefield" 1971 2 W.L.R. 320, "The Rena K" 1979 1 Q.B. 377, Skips Nordheim v. Syrian Petroleum Co. 1984 1 Q.B. 599 and lastly to a case which usefully summarises the effect of those decisions namely Beecham Commodities Inc. v. Navigazione Alla Italia Spa a decision of Binghum J. of the 24th May, 1984. The effect of the decisions is that it is particularly difficult to incorporate into the terms of a bill of lading purely by reference an arbitration clause contained in a charterparty. Even so it is not impossible if the wording of the bill of lading is clear enough. As reference to the cases shows, the line of authorities started at a time when there was a judicial prejudice against that which was seen as ouster of the jurisdiction of the courts. That consideration has now gone but the essential differences between a bill of lading and a charterparty remain. The former, as is emphasised in the cases is a negotiable instrument which, therefore, may pass into the hands of those who would not be acquainted with the terms of the charterparty and further it is concerned with such matters as the receipt, carriage and delivery of goods and the payment of freight. It is to be contrasted with the terms of a charterparty which, of course, deal with a number of other things. There is emphasis in the cases that since the courts have made interpretations of standard form bills of lading it is manifestly important that such interpretations should be respected in subsequent cases since otherwise there can be no reasonable certainty amongst those involved it commerce. Hence the word conditions was strictly construed as conditions properly so called to be performed by the consignee upon arrival of the goods: see for example Hobhouse J. in Skips Nordheim 1984 1 Q.B. @ 605G and 608B and the Courts will not readily depart from that. It was also an important part of the decisions that since the arbitration clauses were not germane to the receipt, carriage or deivery of goods or payment of freight they would not be introduced into a bill of lading by mere general words: see for example Lord Atkinson in T.W. Thomas & Co. Ltd v. Portsea Steamship Co. Ltd.

15. I consider that Mr. Huggins is correct in arguing that this line of cases is not of direct relevance to the matters which I have to decide. In the first place there is not the contrast between what, on the one hand, is a negotiable instrument and what, on the other hand, is a charterparty since the agreements in the present instances are in effect the same agreements apart only from an increase in price. There was in each instance a deliberate intention to sell on the same oil to the next buyer and what the 1980 Agreement very sensibly said was that the same terms and conditions would apply. I do not consider that the reasoning of the Portsmouth line of cases is of assistance in the peculiar circumstances of this case since it cannot be said that the clauses which are germane to the matters in respect of the First Principal Agreement are not equally germane to the matters in the 1980 Agreement. I consider, therefore, that my construction of the 1980 Agreement is not affected in any way by any consideration of equivalent clauses in bills of lading cases.

16. Mr. Bunting also relied upon the Judgment of Gatehouse J. in Pine Top Insurance Co. Ltd v. Unione Italiana Anglo Saxon Insurance Co. Lid 1987 1 Lloyd's Rep. 476 as support for the proposition that in the absence of an express incorporation the Court should not construe the 1980 Agreement as incorporating the arbitration clause. Mr. Bunting submitted that I should not disturb the settled practice in relation to arbitration clauses and their incorporation in subsequent contracts since this was a matter in which certainty in the law was of particular importance. Whereas, of course, I would pay the greatest respect to a decision of Gatehouse J., I do not feel that in this instance his decision really affects what I have to decide. His decision rested in the first place upon the finding that the words of the retrocession contract which he had to construe edated to the original contract of insurance and not to the reinsurance contract. On his primary construction, therefore, there could be no possibility of an arbitration clause being incorporated in the retrocession agreement because the only relevant arbitration clause was in the reinsurance contract and not the original contract of insurance. Gatehouse J. then went on to say that if he were wrong on the first point he regarded the degree of verbal manipulation that would be required to read the arbitration clause as covering the case before him as going beyond that which was permissable. It was only after those 2 findings that he added the penultimate rider:-

"In any case, I would apply the settled principles of the bills of lading cases and hold that, in the absence of express incorporation in the slip, the arbitration clause in the reinsurance contract is not incorporated in the retrocession contract. "

17. Primarily, therefore, what Gatehouse J. decided was a matter of construction and obviously, for more than one reason, he felt compelled to hold that the proper construction was against the incorporation of the arbitration clause. His obiter dicta must be seen not merely in the light of his findings on construction but, specifically, whereas Gatehouse J. felt that the principles of the bills of lading cases were of application in the case of reinsurance and retrocession agreements before him, for the reasons which I have given, I do not consider they are applicable to the present contracts which relate to the sale of oil.

18. Simply as a matter of construction I consider that the arbitration clause namely clause 14 is incorporated into the 1980 Agreement and this therefore decides the first question. I do not see that I am in any way disturbing any settled practice by coming to such a conclusion. I would add that I consider that one of the reasons why it is manifestly sensible that the arbitration clause would be incorporated into the 1980 Agreement is that, were it otherwise and were there a dispute arising which was not the sole fault of Saberu, there could not only be a multiplicity of litigation but the same dispute could end in being decided by arbitration between the BSPCL and Saberu on the one hand and by litigation in court between Saberu and Marubeni. Such a situation would not, it seems to me, be particularly desirable.

19. In addition to the claim for breach of contract in paragraph 9 of the Amended Statement of Claim which claims three separate breaches namely;-

1.	that oil was delivered, sold or supplied to South Africa
2.	that the Defendant failed to provide Certificates of Discharge
3.	that in respect of numerous shipments, the Defendant provided forgeries which made false statements as to the ports of Discharge

there is a claim in tort. That claim is set out in paragraph 10 of the Amended Statement of Claim which reads as follows:-

"Further or alternatively by reason of the matters aforesaid the Defendant wrongfully interfered with the Plaintiff's two said contracts with BSPCL deliberately and directly and/or by breaching Brunei Law and/or breaching the said contracts with the Plaintiff indirectly causing the Plaintiff to breach its said contracts. "

20. The Plaintiff says this constitutes a cause of action which is not embraced by the arbitration clause and therefore the action should be allowed to proceed in respect of the claim for tort. Clearly if this were so I would accede to this argument. But in my view it is not so.

21. First, as suggested by Mr. Huggins, I proceed to analyse what this cause of action in tort amounts to. The allegation is that there was a wrongful interference with the Plaintiff's contracts. It is alleged that there was a breach of Brunei Law. The Brunei Law thought to have been breached is not identified although in paragraph 4 of the Amended Statement of Claim it is averred that there was imposed a "Boycott". I consider that identification of the Brunei Law concerned is a material averment within the meaning of the Rules as expounded by Scott LJ. in Brace v Odhams Press Limited 1936 1 K.B. 697 and whereas particulars might be asked for, the pleading is nevertheless incomplete without proper identification. I would add that I bear in mind the observations of Lord Edmund-Davies in Farrell v Secretary of State for Defence 1980 1 W.L.R. 172 @180 to the effect that it is bad law and bad practice to shrug off a criticism as a mere pleading point. The next allegation relied upon is that Marubeni by breaching its contracts with Saberu indirectly caused Saberu to breach its contracts with the BSPCL. This is a matter which in my view clearly arises out of or in connection with the 1980 Agreement as indeed would be the position, if it were relevant, of the breach of the Brunei Law and hence in my view it would be subject to arbitration just as much as the allegations of breach of contract. The words in paragraph 10 of the Amended Statement of Claim "deliberately and directly" add nothing more to the allegation in the context of this Statement of Claim since no further allegations are made as to the means by which the wrongful interference is alleged to have been brought about and hence in my view the whole action must be stayed in accordance with the arbitration provision.

22. I therefore make an order nisi staying all further proceedings in this action pursuant to section 6A of the Arbitration Ordinance Cap. 341 and that the Plaintiff do pay to the Defendant its costs of and occasioned by this application to be taxed if not agreed.