OCEAN PARK CORPORATION v. PROUD SKY CO LTD

HCCL 10/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 10 OF 2006

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J U D G M E N T

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The application

1. This is an application by the 2^nd Third Party in these proceedings (‘Rotra’) to stay the Third Party action between the defendant (‘Proud Sky’) and itself pursuant to the provisions of Article 8 of the UNCITRAL Model Law, as enshrined within the Fifth Schedule to the Arbitration Ordinance, Cap 341, on the basis that the issue is the subject of a written agreement to arbitrate between these parties.

2. Article 8(1) reads as follows:

“

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.”

3. The Model Law, as enacted within our domestic Ordinance, specifically requires that the arbitration agreement in question must be “in writing”.

4. Originally this requirement was to be found within Article 7(2) of the Fifth Schedule, but since 1 January 1997 this Article has been replaced by Section 2AC of the Ordinance, which reads:

“	(1)	An agreement is not an arbitration agreement for the purposes of this Ordinance unless it is in writing.
	(2)	An agreement is in writing for the purposes of subsection (1) if –
		(a)	the agreement is in a document, whether signed by the parties or not; or
		(b)	the agreement is made by an exchange of written correspondence; or
		(c)	although the agreement is not itself in writing, there is evidence in writing of the agreement; or
		(d)	the parties to the agreement agree otherwise than in writing by referring to terms that are in writing; or
		(e)	the agreement, although made otherwise than in writing, is recorded by one of the parties to the agreement, or by a third party, with the authority of each of the parties to the agreement; or
		(f)	there is an exchange of written submissions in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and is not denied by the other party in response to the allegation.
	(3)	A reference in an agreement—
		(a)	to a written form of arbitration clause; or
		(b)	to a document containing an arbitration clause,
		constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement.
	(4)	In this section ‘writing’ (書面) includes any means by which information can be recorded.
	(5)	This section applies to all agreements that would, if they were arbitration agreements, be either domestic arbitration agreements or international arbitration agreements and applies to those agreements to the exclusion of article 7(2) of the UNCITRAL Model Law.”

The sole issue for decision

5. The only issue in this application is whether, on the facts, a written arbitration agreement can be divined, at least to the level of the relevant benchmark.

6. If so, subject to the specified exceptions (which it is not contended apply in this case) a stay must follow – under the Model Law regime, which our legislators have seen fit to enact, the court has no discretion in the matter given the mandatory language within Article 8.

7. In this instance Mr Haynes, who moves the court for a stay of the third party action against his client, Rotra, maintains that the answer to the issue in question plainly is ‘yes’; to the contrary, Mr Wright, appearing for the defendant, Proud Sky, suggests that the answer is an equally firm ‘no’, and that on the evidence available no such written arbitration agreement exists.

8. Who is correct?

The background facts

9. For present purposes an outline of the broad shape of this case will suffice.

10. The plaintiff in this action is the well-known entertainment complex, Ocean Park.

11. In connection with the leisure activities on offer, Ocean Park wished to import a ‘snow making machine’ and in due course, after making the relevant purchase from a European supplier of such instrument, Ocean Park set about arranging for the transport of this machine from Europe to Hong Kong.

12. It is this transport, or, more accurately, the failure of this transport, which is the genesis of the head action between the plaintiff, Ocean Park Corporation, and the defendant, Proud Sky, which is an international freight forwarder.

13. What happened essentially was thus: in late October 2005 Ocean Park contacted Proud Sky, and requested that arrangements be made to bring the snow machine to Hong Kong.

14. Proud Sky in turn had contacted a European freight forwarder, Rotra – with which Dutch organization it apparently already had co-operated in previous international freight forwarding business – and requested that arrangements be made for the shipment of the machine, by air, from Amsterdam to Hong Kong.

15. It appears that Rotra in turn had contacted the designated carrier, Martinair, the 1^st Third Party herein, which was to perform the actual carriage by air, and pursuant thereto Martinair is said initially to have pronounced that the dimensions of the containers (which were to contain the components of this machine) would, in fact, fit within the hold of the aircraft.

16. Unfortunately, this appears not to have been a correct assessment of the position, with the result that the machine which was to have been air-freighted ultimately had to be shipped by sea, utilizing the services of a sea carrier.

17. The corresponding delay did not please Ocean Park, which was aggrieved that it had not been able to obtain its machine, and hence its snowy product, by early December 2005, and thus, I presume, to be in full flow in time for Christmas.

18. The result of this sequence of events was that Ocean Park was forced to hire a substitute snow machine, pending receipt of the one that it had expected to receive. 

19. Hence the head action, pursuant to which Ocean Park claims against Proud Sky (at paragraph 7 of the Statement of Claim dated 16 June 2006) for the cost of the temporary hire of a substitute snow machine plus the cost of seafreighting the original machine – a claim totalling slightly more than HK$1.35 million.

20. The defendant, Proud Sky, in its Defence dated 21 August 2006, has mounted a number of defences to this claim; the defendant denies (at paragraph 4b of the Defence) that it had entered into any contract at all with Ocean Park, and, inter alia, avers (at paragraph 5) that in this sequence of events it merely had been acting as agent for Rotra, asserting that in fact it was Rotra with whom the plaintiff, Ocean Park, had contracted, relying in this context upon the terms of a draft Air Waybill dated 19 November 2005, and the fact that in turn Rotra had subcontracted the actual carriage to Martinair.

21. Additionally, if and in so far as Proud Sky is found to be the contracting party, the defendant pleads that any such contract was subject to HAFFA terms, and thus prays in aid the wide-ranging limitation and liability provisions contained within such terms

22. Looked at in the round, therefore, the broad sequence of pleaded defence arguments in the head claim appears to be: (1) no contract, (2) no breach, (3) exclusion of liability and (4) package limitation.

23. It is, of course, no part of this court’s current task to do more than describe the pleaded lines of argument; at this interlocutory stage, and absent trial of this action, no conclusions properly can be reached.

24. Nevertheless, should at trial the defendant be held liable in the Ocean Park action – it is the sole defendant named thereto, not least, I suspect, because Ocean Park had contacted Proud Sky, and no other entity, to arrange the carriage of this machine, Proud Sky having duly issued a ‘Purchase Order’ dated 27 October 2006 – the defendant in turn has issued Third Party proceedings against Martinair, as 1^st Third Party, and Rotra, as 2^nd Third Party.

25. The content of the Third Party Statement of Claim has occasioned a good deal of comment in this application; paragraphs 14-18 thereof set out the defendant’s alternative positions regarding the precise contractual position, and in particular paragraph 15, which pleads an agreement “evidenced by the email correspondence between the 2^nd Third Party, Rotra, and the defendant, Proud Sky (‘the Proud Sky Agreement’) whereby is averred that Rotra had agreed to undertake the air carriage of the snow machine from Amsterdam to Hong Kong for the defendant, and paragraph 16 (‘the Alternative Agreement’) whereby it is alleged that Rotra undertook with Proud Sky to arrange that the air carriage of the machine was to be performed by a competent air carrier.

The argument

26. It is the form of this pleading which forms a significant feature within the argument of Mr Haynes, who moves the court for a stay on behalf of Rotra. 

27. He says that in light of the pleaded position that there is a contractual nexus between Rotra and Proud Sky, any arbitration agreement which may be elicited from that correspondence which passed between these parties will be sufficient, for the purpose of Article 8, to stay the third party proceedings against his client in Hong Kong.

28. In this context Mr Haynes took the court through the sequence of email correspondence passing between Proud Sky and Rotra, and drew attention in particular to the references within the Rotra emails to the pre-printed (or digitally pre-set) conditions appearing at the foot thereof which bear the legend:

“	All our activities, dependent upon their nature, are subject to:
	…
	The Dutch Forwarders Conditions (Nederlandse Expeditievoorwaarden), as filed by the FENEX 4th January 1999 with the registry in the district courts (Arrondissementsrechtbanken) of Amsterdam, Arnhem, Breda and Rotterdam;.......
	With regard to the above mentioned conditions the latest version is applicable.  Copies of the conditions can be forwarded upon request free of charge.”

29. The foregoing extract is from an email from Rotra dated Tuesday October 4, 2005, which itself is a response to an email sent to Rotra by Proud Sky which, inter alia, expresses the hope that “we can build up a reciprocal relationship”, and quotes a certain amount of technical information as to air freight cost on various air carriers and asks for advice as to “your net/net buying cost on various airlines and liners.”

30. What is also notable is that this email from Betty Chan of Proud Sky to Harm Havercourt of Rotra itself bears at the foot thereof a pre-set legend which reads:

“	All transactions are subject to the latest edition of the Company’s Standard Trading Conditions, for details please click << http://www.proudsky.com/eng/trading.htm>>(copy is available upon request).  The Conditions in certain circumstances limit or exempt the Company’s liability.”

31. This is a pattern which is followed throughout the email sequence between Rotra and Proud Sky, which clearly had as its aim mutually achieving and co-operating within the business of the successful carriage of the designated snow machine which the plaintiff, Ocean Park, had purchased from the European seller.

32. In this connection the email from Proud Sky of Wednesday, November 9, 2005 addressed to Ronald Mollevanger and Harm Havercourt of Rotra from Clive Lo, Sales Manager of Proud Sky, commences:

“	Dear Ronald,
	Confirm secured the business.  R/O details as below.
	Shipper will send the cargo to airport in order for them to reclaim VAT taxes on the large icemaker they imported from the US…”
	The dimensions of the three containers are then provided (containers which, regrettably, were subsequently found not to fit within the aircraft), and the email then continues:
“	Cargo ready on 22 or 23 NOV 2005.  Please double check with factory.
	50/50 profit split.  Your cost and selling rate are:
	[details given]…
	Master airwaybill consignee show:
	[details given]………”

33. Commensurate with the established pattern, this email again contains at its foot reference to the Proud Sky Standard Trading Conditions, which appears to be in virtually standard form on all emails emanating from the defendant.

34. The reference at the foot of the Rotra emails to what has been referred to in argument as ‘the FENEX conditions’ has been amplified within the evidence filed in support of this application by a copy of the FENEX (Netherlands Association for Forwarding and Logistics) as deposited at the Registry of the District Courts at Amsterday, Arnhem, Breda and Rotterdam on 1 July 2004.

35. Under the heading ‘Disputes’, Article 23 thereof takes the form of 7 subparagraphs; Article 1 reads:

“

All disputes which may arise between the forwarder and the other party shall be decided by three arbitrators to the exclusion of the ordinary courts of law, and their decision shall be final. A dispute shall exist whenever any of the parties declares this to be so.

Without prejudice to the provisions of the preceding paragraph the forwarder shall be at liberty to bring before the competent Dutch court in the forwarder’s place of business claims for sums of money due [and] payable, the indebtedness of which has not been disputed in writing by the opposing party within four weeks after the invoice date.  In the event of urgent claims, the forwarder shall equally be at liberty to institute interim relief proceedings (kort geding) before the competent Dutch court in the forwarder’s place of business.”

Thereafter, subparagraphs 2-7 of Article 23 of these FENEX conditions deal with essentially procedural matters, which have no relevance to the current issue before the court.

36. In addition to the email reference to FENEX conditions, and thus an argument as to the implicit incorporation of Article 23 into the agreement which is said to have arisen, Rotra also rely upon the terms of a ‘Quotation’ dated October 5 2005 which was sent to Proud Sky, and which, the evidence reveals, was sent as an attachment to the email of 5 October 2005 from Harm Havercourt of Rotra to the defendant.

37. At the foot of this quotation is the pre-printed legend:

“	Of all our proposals, statements, agreements, undertakings and activities the following conditions are absolutely applicable.  On domestic road transport…..On the expedition activities the Dutch expedition conditions inclusive of the arbitration clausal (sic), so as filed by the FENEX.  On warehousing activities…..
	With reference to the above mentioned conditions the latest filed version of the document is always applicable. The conditions are available free of charge on written request.(emphasis added).

38. This specific reference to arbitration enables Mr Haynes to say, incorporation by reference apart, that there can be no question of the FENEX arbitration clause not having been brought to the attention of the defendant.

39. In response to the element of the argument dependent upon the content of this document intituled ‘Quotation’ – which includes quotations for internal transport in the Netherlands, the handling fee at Amsterdam airport, and applicable airfreight rates from Amsterdam to Hong Kong on CX and KL – Mr Wright for the defendant dismissed this on the bases that it cannot be applicable because on any view this Quotation cannot have led to the creation of a written arbitration agreement relating to the subject shipment, given that it stated that it was only valid for shipments of up to 2,000 kg, whereas the subject shipment involved a cargo weighing over that amount, and given that this Quotation involved only quotes for shipments on two airlines – Cathay Pacific and Royal Dutch Airlines – whereas the subject shipment was to be carried by Martinair.

40. As to the exchange of email correspondence, Mr Wright contended that this did not suffice for Rotra’s purposes either, given that it was plain that no concluded agreement to refer disputes to arbitration validly could be extracted from that correspondence.

Applicable principle

41. It is common ground that in Hong Kong the principles applicable to arguments to this nature are to be found in the decision of Burrell J in Pacific Crown Engineering Ltd v. Hyundai Engineering and Construction Co Ltd [2003] 3 HKC 659, a construction case in which, on the facts before him, the learned judge granted the stay which therein was sought.

42. In terms of the benchmark for the existence of an arbitration agreement, Burrell J held that it had to be demonstrated that there was a good prima facie, or a plainly arguable case, that an arbitration agreement existed and bound the parties, and that the onus of so doing lay upon the defendant applicant for the stay, and that in determining whether such a case had been made out, the court should look first at the evidence in support of the defendant’s contention, the relevant test being satisfied if the court was of the view that cumulatively the evidence was cogent and arguable and not dubious or fanciful.  The learned judge also held that it was for the arbitrator, and not the court itself on a stay application, to make a detailed final determination as to the existence or otherwise of an arbitration agreement, a matter upon which the arbitrator would have the benefit of oral testimony from both sides.

43. The decision in Pacific Crown, op cit., was approved and followed in the Court of Appeal in PCCW Limited v. Interactive Communications Service Ltd, CACV 18 of 2006 (unrep.), Judgment dated 16 November 2006, which also followed the approach in the much earlier Court of Appeal decision, (also cited by Burrell J in Pacific Crown)ofPrivate Company ‘Triple V’ Inc. v. Star (Universal) Co. Ltd and anor [1995] 3 HKC 129, wherein Litton VP (as he then was) held that it was for the court to determine on a prima facie basis whether there was a valid arbitration agreement.

44. The law on this point in this jurisdiction thus appears settled.  The question for the court in this application thus boils down to whether, on the evidence read as a whole, and bearing in mind the burden upon the applicant for the desired stay, it can be said to be ‘plainly arguable’ that an arbitration agreement existed on the basis of the documentation before the court?

45. If so, the third party action against Rotra must be stayed to arbitration; if not, Rotra will remain in the Commercial List action as presently constituted, and, absent appeal, no doubt will play its part in the forthcoming trial regarding the failed transportation of this snow machine.

Decision

46. I do not consider that, as part of its pleaded alternative case within the Third Party Statement of Claim, the fact that Proud Sky asserts the existence of an agreement with Rotra – a matter upon which Mr Haynes laid some emphasis during argument – in itself is determinative of the point at issue.

47. Putting to one side the issue of with whom Ocean Park in fact contracted for the carriage of this machine – which, given the nature of this application I will not currently presume to answer – I have no doubt but that both Proud Sky and Rotra were eager to secure this relevant piece of transportation business, it being anticipated that revenues earned from the respective part played by each freight forwarder in successfully transporting the machine from Amsterdam to Hong Kong would be split on a 50/50 basis.

48. However, this is nothing to the immediate point, given the fact that agreement as to co-operative division of fees earned does not in itself answer the question of whether there had been consensus ad idem in terms of what was to happen if this particular transportation venture were to go wrong (as indeed it did), and thus whether there had come into existence an agreement to refer to arbitration any subsequent dispute between these two freight forwarders who were designated to be involved at either end of the transportation chain.

49. In this connection I do not think that the ‘Quotation’ from Rotra, dated 5 October 2005, assists in establishing a plainly arguable case of a written arbitration agreement.

50. The evidence is that the defendant first came into contact with Rotra in September 2005 at a meeting in Bangkok, and subsequent to that meeting there was an exchange of emails.

51. The initial email from Rotra was a general introductory note dated 4 October 2005, wherein in effect the Dutch forwarder set out its commercial stall – “to give you an impression about the possibilities of Rotra I have attached also our company profile and communication matrix” – and in turn was responded to by Betty Chan, the General Manager of Proud Sky, on the following day, wherein Proud Sky set out its own rates.

52. The initial email from Rotra and the Proud Sky reply each contained at their foot the reference, in Rotra’s case, to the applicability of the FENEX conditions, and in Proud Sky’s case, to the fact that all transactions were subject to the latest edition of the Company’s Standard Trading Conditions.

53. Thereafter came the Rotra ‘Quotation’, dated 5 October 2005, which, as earlier noted, arrived as an attachment to the email of Mr Harm Havercourt of 16.59 on 5 October 2005, which in addition made reference to the “the Dutch expedition conditions inclusive of the arbitration clausal (sic), so as filed by the FENEX”.

54. It seems to me that in light of the sequence of emails, with the Rotra reference to FENEX conditions and in turn the Proud Sky reference to its own Standard Trading Conditions, it cannot cogently be asserted that this Quotation constituted an offer which had been accepted to contract on terms incorporating an arbitration clause; nor can this Quotation itself have led to the creation of an arbitration agreement relating to the purported shipment for the reasons earlier adumbrated relating to the substantive differences between the content of the Quotation and the differing detail involved within the anticipated snow machine transportation, and thus cannot on any basis have been intended to cover the shipment of this machine.

55. Accordingly, I reject any argument that a written arbitration agreement is evidenced by the ‘Quotation’ of 5 October 2005.

56. As to the contention that a written arbitration agreement is to be generally ascertained from the exchanges of email correspondence between Rotra and Proud Sky, I fail to see how this correspondence, which I now have had the opportunity to review in its entirety, demonstrates a ‘plainly arguable’ case that a concluded agreement to refer disputes to arbitration can be divined therefrom.

57. To the contrary; it seems to me that the ongoing sequence of correspondence emanating from Rotra and Proud Sky, with each email containing within it the respective statements from these organizations as to contracting upon their respective conditions, cannot be construed in a manner which would permit the argument that the defendant, Proud Sky, unequivocally agreed that it would abandon its own trading conditions – compliance with/adherence to which it had been at pains to assert in each of its emails – and instead had agreed to contract solely on the basis of the Rotra FENEX conditions.  With respect, this contention strikes me as a non-starter.

58. It follows, therefore, that I am against Rotra on this basis also, and thus that in my judgment Rotra, the applicant for the stay herein, has failed to discharge the burden which the law places upon it to establish the existence of a written arbitration agreement between itself and Proud Sky such that this court should give effect to it, and, pursuant to the provisions of Article 8, to grant the stay in favour of arbitration that it now wishes to obtain.

59. I note that as part of his argument Mr Wright made reference to a prior transaction between Rotra and Proud Sky, involving a successful shipment from Hong Kong to Amsterdam in early November 2005, wherein Proud Sky had issued the relevant airwaybill, and following shipment had sent a debit note to Rotra containing the usual Proud Sky rubric relating to all transactions being subject to its Standard Trading Conditions.

60. For my own part I do not think this is probative, save perhaps it is indicative of consistency of practice on the part of Proud Sky, and in deciding this application in the manner in which I have I have chosen not to give any weight to this further submission, and for avoidance of doubt in coming to a conclusion on this application I have confined myself to consideration of the facts of the instant case.

Additional argument: Civil Liability Contribution Ordinance, Cap 377

61. The main thrust of Mr Wright’s argument on this application has focused upon the textual analysis of the emails passing between Rotra and Proud Sky.

62. As a supplementary submission, Mr Wright asserted that even if Rotra were able to establish the existence of an arbitration agreement (which I have now held they do not), nevertheless Rotra would be entitled to a stay only if it could establish that the matters covered by the Third Party Notice fell within the scope of the alleged arbitration agreement, in which context he cited the case of Liu Man Wai & anr v. Chevalier (Hong Kong) Ltd, CACV 152 of 20002, Judgment dated 26 June 2002.

63. In this regard Mr Wright says that the primary allegation in the Third Party Notice is that Rotra (which has not been named as a defendant by Ocean Park) is liable in respect of the same loss as forms the subject-matter of the plaintiff’s claim against Proud Sky, and that the Third Party Notice alleges that Rotra is liable to the defendant in the head action pursuant to the provisions of the Civil Liability (Contribution) Ordinance, Cap 377. 

64. Thus, concludes Mr Wright, any such liability, if established, would arise wholly independently of any contract between Rotra and the defendant, Proud Sky, and thus the matters covered by the Third Party Notice in any event do not fall within the scope of the alleged arbitration agreement.

65. The point is forensically ingenious, although for present purposes I need not decide it; indeed any comment is academic given my finding that in the event Rotra, the applicant herein, has failed on the evidence to establish the existence of an enforceable arbitration agreement.

66. However, were I to be wrong in this primary conclusion, on the basis that the only arbitration clause to which specific reference has been made in this case is that contained within Article 23(1) of the FENEX conditions (cited in terms at paragraph 35 above), I cannot see that because the defendant may be found to possess a statutory right of contribution from Rotra in itself suffices to place the situation outwith the rubric of the term “All disputes”, which are the opening words of Article 23; thus if the alleged joint and/or several liability of Rotra indeed is disputed, as would necessarily be the case – in fact, under the terms of Article 23(1) “a dispute shall exist whenever any of the parties declares this to be so” – the fact that the relevant cause of action which underpins a claim for contribution by Proud Sky is of statutory and not contractual origin does not seem to me to make a material difference in terms of the stay argument.

67. Accordingly, if and in so far as this latter point taken by Mr Wright were to be ‘live’, which in my view it is not, I should have held against him on this argument.

Order

68. As a consequence of the foregoing, the Order of the court upon this stay application is therefore as follows:

(i)	The application of the 2nd Third Party by summons dated 8 June 2007 is dismissed;
(ii)	There is to be a costs’ order nisi that the costs of and occasioned by this application be paid by the 2nd Third Party to the defendant, such costs to be taxed if not agreed.