XCHRX P & O NEDLLOYD LTD. AND ANOTHER v. WAH HING SEAFREIGHT (CHINA) CO., LTD.

HCCL39/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.39 OF 1999

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J U D G M E N T

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The Application

1. This is the Defendant's application by summons dated 29th May 1999 for a stay of proceedings in favour of arbitration in the People's Republic of China, alternatively in favour of determination by the Courts of the PRC, on the basis of a contractual agreement so to do. The summons also includes a further request for a stay on the basis of forum non conveniens, albeit I think it is fair to say that this element of the case, correctly in my view, was not seriously pressed.

The Factual Background

2. In broad outline, the factual background is relatively straightforward. By a contract contained in or evidenced by a bill of lading No.74/9805LD02 upon the Defendant's form, the Defendant agreed to deliver ten 20-foot containers stuffed with a cargo of 62 blocks of rough granite from Hong Kong to Yunfu on board the vessel "Guang Bin". The shipper was named as the 1st Plaintiff, the Consignee was to Order of the holder of the original through bill of lading No.56976909 issued by P & O Nedlloyd, and the Notify Party was one Yunfu Chit Lee Granite Material Product Co. Ltd.

3. The Plaintiffs' complaint - and hence these proceedings - is that the Defendant failed to deliver and/or release the cargo at Yunfu against production of the P & O bill of lading, but instead it released the goods to Chit Lee Marble & Minerals Co. Ltd. without production of the P & O bill, which continued to be held by the Plaintiffs. There is a factual dispute about precisely what happened at Yunfu in terms of whether the offloaded goods remained unclaimed on the dockside, but in any event what does seem to be uncontradicted is that the goods were actually released to Chit Lee absent production of any bill of lading but upon Chit Lee's representation that they had the authority to collect the goods for and on behalf of the shipper.

4. Although it does not impact upon the present application, the Plaintiffs have settled their liability to the shippers under the P & O bill, namely Messrs Larvik Granite A/S of Norway, and the claim is consequently framed in terms of an indemnity for NOK583,897.00, which was the amount paid by the Plaintiffs to Larvik Granite.

The Contractual Provision

5. This is contained in Clause 2 of the Wah Hing bill, which reads thus :-

"2. JURISDICTION. All disputes arising under or in connection with this Bill of Lading shall be determined by Chinese Law in the courts of, or by arbitration in, the People's Republic of China."

6. As such, as Mr Li for the Defendant remarked, the terms of this clause represent a somewhat unusual hybrid, there being reference within the clause both to arbitration and to foreign law and jurisdiction. In any event, nothing is said to turn on this, it being accepted by Mr Hingorani for the Plaintiffs that there is within its confines both an arbitration clause and a foreign jurisdiction clause. It is further common ground that the arbitration element within the clause amounts to an international arbitration agreement within the terms of the Uncitral Model Law, which of course now forms part of Hong Kong domestic law.

7. This being the case, Mr Hingorani was constrained to argue the case on two distinct limbs : first, that it was no longer open to the Defendant to invoke Clause 8 of the Model Law, which he accepted would put an end to his resistance on this application, providing as it does for a mandatory stay; and second, and if he be correct in his first submission, that he was in a position to discharge the burden upon him according to the well-known principles adumbrated by Brandon, L.J. (as he then was) in The El Amria [1981] 2 LLR 119, at 123. I take each of these arguments in turn.

The Argument

(1) The 'election' point

8. Mr Hingorani persuasively argued that by its conduct the Defendant was no longer in a position to assert a wish to go to arbitration in China. This was because, he said, the Defendant had 'elected' to litigate in China by virtue of a solicitor's letter dated 14th May 1999 written on its behalf. Since this letter is central to the argument, I should perhaps set it out. It is from Messrs Kenneth C.C. Man & Co. to Messrs Dibb Lupton Alsop, and reads :-

"Dear Sirs,

Re: HCCL No.CL39 of 1999

We refer to the captioned action.

We note that according to the terms and condition of the Bill of Lading No.74/9805LD02 issued to your client by our client as Agent, it is provides in clause 2 of the said bill that 'all disputes arising under or in connection with this bill of lading shall be determined by Chinese Law in the court of or by arbitration in the People Republic of China'.

It is our client's instructions to bring this matter for determination in the Law Court in PRC according to the said term, we thus should be grateful if you would kindly take instructions from your client as to whether your client would agree to stay the present proceedings pending the outcome of the determination of the proceedings to be taken in PRC within the next 5 days.

Yours faithfully, ..."

9. For his part, Mr Hingorani asserts that reference to "our client's instructions to bring this matter for determination in the Law Court in PRC ...", and the request that instructions be taken as to an agreement to a stay suffice to constitute a binding election on the part of the Defendant.

10. In fact, this request for a stay was refused by Messrs Dibb Lupton Alsop's letter in reply of 19th May 1999, which in turn was followed by a further letter from the Defendant's solicitors dated 27th May 1999, the operative part of which reads :-

"... We understand that the deadline for filing defence of the above action would be on Tuesday, 1st June, 1999.

We would like to inform you that our Counsel Mr M.T. Yeung is preparing a summons and an affirmation in support for an order to have the above action tried in PRC and we expect that this can be done by him on 1st June, 1999. We would therefore be grateful if you would allow this matter to be stayed until 2nd June, 1999.

In the meantime, we would inform you that a time summons for extension of time for 7 days has been taken by us and the date of hearing is fixed to be heard on 2nd June, 1999.

We would appreciate it for your kind co-operation in this matter."

11. In this connection, Mr Hingorani again relies on the reference to having this action"tried in the PRC" as buttressing his election argument.

12. It is a matter of record that the relevant summons to stay - either in favour of arbitration or litigation in the PRC - was issued but a few days later and, it must follow from Mr Hingorani's submission, the proposition is that it is now not open to Mr Li, on behalf of the Defendant, to ask for arbitration. To this proposition, Mr Li disagrees, submitting that his client has never abandoned its contractual rights. However, Mr Li, very properly in my view, accepts that he is obliged now to elect and, unsurprisingly given the potential result, he has informed the Court that he has taken firm instructions on the matter and his client has firmly elected for arbitration, and not litigation, in China.

13. Even allowing for the ingenuity of Counsel with a difficult case to argue, the election point canvassed by Mr Hingorani struck me as an ambitious submission, to say the least. The doctrine of binding election is equitable in origin, the underlying principle being that equity fastens on the conscience of the person said by a certain course of conduct to have "elected", thereby precluding the resiling from such confirmed course. Indeed, although Mr Hingorani argued the case on the basis of the Defendant's 'election', analytically he was, I think, close to invoking a form of estoppel by conduct, and indeed he touched on the latter in the course of his argument. Nevertheless, I do not consider that either approach assists him.

14. There was no question of any agreement between the solicitors in this case - to the contrary there was pointed disagreement - and I fail to see how a mere expression of intention by a solicitor in a pre-application letter could or should prevent the application being made, as was the case, in the alternative pursuant to the terms of the contractual clause. Nor can there be any question of estoppel since it is difficult to isolate any reliance, much less detriment, on the part of the Plaintiffs.

15. So I am against Mr Hingorani on the argument that the letters, whether singly or together, constitute a binding election with the result that it is now open to Mr Li only to apply for a stay for the purposes of litigation in China, and that he is correspondingly precluded from now opting for arbitration. Nor do I see that the case principally prayed in aid by Mr Hingorani, that of The Thor Scan [1998] 4 HKC 536, is of assistance. In that case, the defendant pursued a contradictory course in its stay application, initially opting for the Netherlands but later pursuing the application in favour the Netherlands Antilles. The judge at first instance refused the application to amend the summons and dismissed the stay application, the Court of Appeal (by a majority) upholding this decision, a significant element within which was that, having commenced (and failed) in proceedings in the Netherlands, the defendant should not be allowed to change : the defendant had there made an election, and that election was held to be final. In my view the facts in The Thor Scan and those in the present case are fundamentally distinguishable, and with respect, I am unable to arrogate to the solicitors' pre-application letter of 14th May 1999 the quality of a binding election.

16. On the basis that this conclusion be correct, as I hold that it is, Mr Hingorani realistically makes no effort to take the matter further, expressly accepting that he is "stymied", as he put it, if the Defendant is thus able to rely on Article 8 of the Uncitral Model Law, in that the Court has no discretion in the matter save and except (which is not the case here) where three specific conditions are met. Article 8(1) provides :-

" (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 on 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."

17. So that, absent any argument being raised as to the applicability of Article 8 in the circumstances of this case (and none has), I am driven therefore to accede to the application to stay the present proceedings in favour of arbitration in the PRC. I note in passing that I regret the removal of the element of judicial discretion in debates of this nature, not least given the circumstances of this particular case, but there it is.

18. The foregoing conclusion is, of course, sufficient to dispose of this application. But if and in so far as this case may go further, I should, I think, briefly deal with the alternative argument.

(2) The El Amria argument

19. Had Mr Hingorani reached the safer waters of the foreign jurisdiction clause, he of course would necessarily have assumed the burden of demonstrating to the Court why the parties should not be kept to their bargain in terms of choice of forum according to the principles therein outlined by Brandon L.J. (as he then was) in The El Amria, op.cit., principles which remain good today.

20. In this regard, the argument is more evenly balanced. Mr Hingorani points to the fact that the 2nd Plaintiff and the Defendant have their principal place of business in Hong Kong, the contract of carriage was entered into in Hong Kong, the loading port was Hong Kong, and the case relates to delivery of cargo without production of the original bill of lading, so that, Mr Hingorani asserts, the evidence to be relied on will be mainly documentary.

21. To the contrary, Mr Li says that the case is essentially one of mixed law on fact, and suggests that the applicability of Clause 8 of the bill of lading contract, and in particular what did or did not occur after the goods were offloaded onto the wharf at Yunfu, depends on evidence to be collated and adduced in the PRC.

22. However, what seemed to me to be particularly important in this context was Mr Hingorani's assertion that in reality there was no substantive defence to this claim, in that there was no contention by the Defendant that this cargo was handed over against production of an original bill of lading, or indeed any bill at all. In this connection, he relied on the decision of Rix J. in Motis Exports Ltd. v. Dampskibsselskabet AF 1912 [1999] 1 LLR 837 wherein it was held, inter alia, that it was the essence of a bill of lading contract that a shipowner was both entitled and bound to deliver the goods against production of an original bill of lading providing he had no notice of any other claim or better title to the goods, and that (on the facts of that particular case) it was no defence to a shipowner or the defendant innocently to be deceived by production of a forged bill of lading into release of the cargo, so that when the proper bill of lading was produced, he had no defence.

23. This point is, I think, well taken (or would have been had the Court not been hamstrung by the provisions of the Model Law, and the removal of the element of judicial discretion). In my view, where a discretion exists - as it undoubtedly does in The El Amria type of analysis - it is open to the Court to take the apparent strength of the plaintiff's case into account as a distinct element in the weighing process. In a case referred to Counsel by the Court, namely the decision of the English Court of Appeal in Standard Chartered Bank v. Pakistan National Shipping Corporation and Others [1995] 2 LLR 365, Clarke, JA at 378 observed as follows :-

"... It appears to me that in a case where a defendant has no arguable defence on liability and quantum that would be a strong reason to refuse a stay because, as I said in the Adria Services Y.U. case, there would be no real issues between the parties which should be tried either here or elsewhere."

24. Had the issue been open to me, absent the rejection of the election argument and the applicability of Article 8 of the Uncitral Model Law, I should have adopted and followed this approach. So that although The El Amria starting point is undoubtedly that the discretion should be exercised by granting a stay unless strong cause for not doing so is shown, in light of the apparent strength of the Plaintiffs' case and the fact that, almost certainly, the Plaintiffs' present application for a stay is purely tactical, I would have held in the exercise of my discretion that a stay should not be granted, and I should have declined the application. I note also that under the discretionary analysis which is here permitted, the time summons taken out by the Defendant may possibly have constituted a "step in the action".

25. In any event, this course regrettably is not open to me, and it gives me no satisfaction that, in the particular circumstances of this case, I am constrained to hold in favour of the Defendant.

Order

26. The result of the foregoing is that in light of the Defendant's election made on this application, the Defendant's application for a stay of the present proceedings is granted in favour of arbitration in the PRC.

27. In the circumstances, costs must, I think, follow the event, and in the absence of Counsel today, I make an order nisi that the Plaintiffs do pay the Defendant its costs of this application, to be taxed if not agreed.