ACADA DEVELOPMENTS CO LTD v. EPCO INDUSTRIE - AUSRUESTUNGEN GMBH

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JUDGMENT

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Silke, J. A.:

1. We allowed this appeal and stated we would give our reasons later. This we now do.

2. Acada Developments Co. Ltd. - "the Plaintiffs" - a Hong Kong company, entered into negotiations with Epco Industrie - Ausruestungen GMBH - "the Defendants" - a German company, for the purchase of one million barrels of Nigerian oil described as Bonny Light Crude - "the oil". The cost was in the region of US $26,000,000.

3. The negotiations for the purchase took the form of a series of telex messages couched in the language peculiar to that form of communication. They stretched over a period from the 15th of October 1984, when the Plaintiffs declared their interests, to the 31st of October 1984 when both the Plaintiffs and the Defendants considered they had a concluded agreement. The Plaintiffs contend that agreement included in particular two clauses which, together, form an arbitration agreement. The Defendants, while accepting the existence of a contract, contend that those clauses were not contained in it.

4. Disputes did arise - mainly, as we understand it, through the non-delivery of the oil contracted for - and the Plaintiffs issued a further series of telex messages requiring the Defendants to Submit the dispute to arbitration in Hong Kong. To these requests the Defendants made no reply and on the 12th of February of 1985 the Plaintiffs issued an Originating Summons seeking the appointment of an arbitrator under the provisions of Section 12 of the Arbitration Ordinance. They sought leave to issue and to serve the Originating Summons out of the jurisdiction. On the 16th of February the Plaintiffs were given the service leave they sought and that service was acknowledged on the 19th of March by a Hong Kong firm of solicitors on behalf of the Defendants.

5. On the 3rd of April 1985 the Defendants filed a summons, inter parties, seeking to challenge jurisdiction and which sought to have the leave order set aside and to avoid the appointment of an arbitrator. The main ground in support of their summons was that there was no valid binding arbitration agreement as between the Plaintiffs and the Defendants.

6. The matter came on for hearing on the 10th of April before Mayo, J. who dismissed the Defendants' summons and granted the Plaintiffs' application to have a named arbitrator appointed.

7. The Defendants now appeal against those orders. There have been a number of time summonses in the course of these proceedings but nothing now turns on these.

8. The Defendants take issue with the two of the three findings made by the Learned Judge and noted in his very brief reasons for decision. These are:

"

2.    On reading all the telexes I am satisfied that the terms of 2035 do apply including Clause 17.   3.    Reading Clause 17 as a commercial document and apply (SIC) what I regard as being the proper approach to the meaning of the Clause. I hold that the parties intended to include an arbitration clause in the Agreement.".

 

9. The course the telex messages took was this: First on the 15th of October - telex 5396 - the Plaintiffs expressed their interests in a proposal made by the Defendants that they should purchase the oil and they asked for clarification on certain points mentioning a price of US $26.45¢ per barrel as being an acceptable one. There was also reference to the terms of a letter of credit.

10. On the 18th of October the Defendants sent a telex, 7699, setting out the format of a letter of credit. To this the Plaintiffs made reply on the 19th of October in telex F2035. This was a long message and set out that which the Plaintiffs described as "full terms and conditions of our standard deal". It contained, apart from a general reference to a letter of credit, eighteen items. It concluded with an advice that once the deal was closed the Defendants would have to bear "full responsibilities" should the Defendants' suppliers not perform. Amongst the eighteen items appear the two which are controversial: "Item 16: Law: Hong Kong Law Shall Govern" and "Item 17: Arbitration: If any, arbitration is to be held in Hong Kong". There were included also provisions as to determination of quality and quantity, cargo shortage, lay time, and title and risk. These items are relevant only in relation to the arguments placed before us by Mr. Waung, who appeared for the Plaintiffs in this Court.

11. The Defendants reply to F2035 was contained in their telex 7753 of the 24th of October. That commenced with these words:

"	We hereby submit on behalf of Epco our offer valid until 24 hours 26 October 1984 Singapore time.....".

 

It also was a long message and set out a large number of terms and conditions. It contained no reference to Items 16 or 17. Nor did it make reference to determination of quantity, quality, cargo shortage, lay time, or title and risk. It concluded with these words:

"Please confirm receipt of this offer.".

12. On the 25th of October the Plaintiffs sent their telex A5676 thanking the Defendants for 7753 which they described as "your firm offer" and confirmed their acceptance of that offer with the exception of five major items. This clearly constituted the reply as a counter-offer. Only one of those counter-offers need concern us and that is the Item No. 4 which reads:

"	Other terms: shall be as per our telex earlier to you on crude purchase terms and conditions. .

This counter-offer was added to by the Plaintiffs' telex A5732 dated the 26th of October which referred to the terms of the necessary letter of credit. Telex 5676 had concluded by asking the Defendants for their confirmation of that which the Plaintiffs described as the "firm counters".

13. The Defendants replied by telex No. 7773 and they confirmed three of the Plaintiffs' "counter" items, though in reality the confirmation of two of them contained changes from the Plaintiffs' proposals. They did not make reference to the Item 4 to which I have referred.

14. 7773 was received outside the validity period but the Plaintiffs made reply to it on the 27th of October in their telex 3752 confirming the purchase from the Defendants, if the cargo was still there, but making three alterations in the terms.

15. On the 30th of October the Defendants in their telex 7793 submitted a wholly fresh offer, with a validity period up to the 31st of October, and this again was a lengthy and detailed document. It made no reference to any of the terms contained in the Plaintiffs' F2035 of the 19th of October and in particular there was no reference to Items 16 and 17. It concluded with these words:

 

"	Hoping that our offer fulfils your requirements we are now looking for the receipt of your order.".

Before 7793 was received the Plaintiffs had sent a further telex, 2078, of the 30th of October which made reference to a telephone conversation and to the loading of the oil "in one bottom during November 1-20'84". It also noted that the Plaintiffs understood that the Defendants would be sending "the full terms and conditions of sale" shortly. Those full terms and conditions were of course contained in 7793.

16. The Plaintiffs replied to 7793 in the telex 2081 of the 31st of October. They confirmed acceptance of the terms and conditions contained in 7793 but proposed that which they described as "minor amendments" to those terms. There was therefore still no concluded agreement.

17. Amonst those "minor amendments" was, again, an Item No. 4 and this reads:

 

"	All other terms and conditions: YR TLX 7793 Terms are acceptable and where relevant incorporate terms per our TLX MSG F2035-19/10/84".  (emphasis supplied)

an item not noted for its clarity. The telex concluded by asking the Defendants to signify their agreement to those "minor amendments".

18. On the 1st of November by the telex 7804 the Defendants confirmed and closed the deal based on their telex 7793 together with a telephone conversation which had taken place between representatives of the Plaintiffs and the Defendants at German time 7 o'clock p.m. on the 1st of November and it went on specifically to agree certain items of 2081. It made no mention of the Item 4 to which I have referred. In their telex, 5918, of the 1st of November the Plaintiffs acknowledged the Defendants' 7804 and, having made reference to the name of their bank, advised the Defendants of the name of the loading ship, the "AMUOYIAH". There ended the series of negotiating documents.

19. The issues which arise for our determination are first: Did Item 17 either by itself or as read with Item 16, - i.e. The "Hong Kong Law" and "if any, arbitration" items in telex F2035 - constitute a proper arbitration provision; second - were these items, given that they were an arbitration provision, agreed as part of the contract so that there was an agreement between the Plaintiff and the Defendant to submit future disputes which might arise under that contract to arbitration in Hong Kong.

20. Mr. Bleach, who appeared for the Appellants before us, felt he might have some difficulty in positively asserting that Items 16 and 17 did not constitute an arbitration provision though he does suggest that, on proper construction, they do not, and preferred to deal with the second issue first. We are content to follow the order he took. Mr. Waung has valiantly and industriously sought to persuade us that if we look at all of the telexes exchanged between the parties and note the gradual coming together of an agreement we will be satisfied that, in the course of negotiations, certain items having been agreed, they needed no further repetition each time a telex was exchanged. He makes the valid point that when negotiations are conducted in this manner and when an agreement has been reached on certain of the terms then, as those negotiations proceed, it would be quite unnecessary to repeat on each and every occasion those agreed terms. But first you must have the agreement. Mr. Waung provided us with a chart which he said would assist us in appreciating the point he makes. There were various terms agreed from the outset, the main one of course being the quantity of one million barrels of oil.  This remained generally the same throughout but attracted a minor qualification at a late stage of "plus or minus 10%". Other clauses, notably the clause as to compensation for non-performance altered drastically from the Plaintiffs' original position that the Defendants should bear full "responsibilities" to the final position of an agreement that liability should be in the sum of US $100,000 - and this in some respects at least having the appearance of a limited liability.

21. We cannot accede to Mr. Waung's contention that we look at all of the telexes as forming the contract itself. It is quite clear on the face of the documents before us that the negotiations went on by way of offer and counteroffer and that the firm offers were contained in 7793, accepted in general by 2081 and finally agreed in the Defendants' 7804. The final document, being the Plaintiffs' 5918, in no way altered the agreements come to in the previous two telexes to which we have referred. While the Plaintiffs in 2081 did suggest the "where relevant" inclusion of terms therein unspecified, but stated to be set out in 2035, this, not surprisingly in the light of its ambiguous nature and lack of certainty, was never shown to have been accepted by the Defendants. Further the Item 4 in 5676, which referred to other terms as being those standard Plaintiffs' terms as set out in 2035, was again never shown to have been accepted.

22. I accept this contract is a commercial document and I accept that the Courts should, if at all possible, try to give effect to it but before that can be done the intention of the parties must be clear. And that intention can only be ascertained from a consideration of the wording of the clauses of the contract. Where there is complete silence, as there is here on the Defendants' part, in relation to matters which the Plaintiffs suggest, even though at one stage they referred to them as a "a minor", are essential and where none of those terms, appear in the body of the contract itself I do not see how it is possible for this Court to supply them. These were parties negotiating at arm's length and if the Plaintiff felt, as apparently he did, that the Defendants with whom he was dealing for the very first time were inexperienced in the form of business they were transacting then it was for the Plaintiff to ensure the terms he considered vital were both understood and agreed to by the Defendants. This never seems to have happened.

23. In the event we would hold that this contract contained no arbitration clause.

24. That really concludes the matter for it is now strictly unnecessary to consider whether the two items, either Item 17 by itself or Item 17 read with Item 16, constituted a provision for arbitration. On this point I would merely say this, that for myself I think they do. They are not so vague or so uncertain as to be void. Had there been an agreement between the parties, evidenced by their inclusion in the contract, I would have thought that the words "Arbitration.: If any, arbitration is to be held in Hong Kong" coupled with the provision "Hong Kong Law Shall Govern" could amount to an arbitration clause. The Court will lean against frustrating the intention of the parties and will try to give such clause a meaning. Even the single word "arbitration", in context, in an agreement will suffice [Mustil & Boyd on Commercial Arbitration, page 76] and I am fortified in my view by that which was said in Hobbs Padgett & Co. v. J.C. Kirkland, Ltd^.(1) where the clause to be considered read "Suitable Arbitration Clause". Salmon L. J. at p.549, having said that the fact that the clause was very short did not seem to him to make it any less meaningful, construed it as meaning that the parties in that action

 

"	have agreed that, if any dispute arises between them under the contract, including any dispute as to the meaning of the contract, that dispute should be referred to arbitration rather than to the Courts.".

Salmon L. J. did not consider that the mere addition of the word "Suitable" before the words "Arbitration Clause" made the provision meaningless. I would construe the clause here as meaning that, if matters of dispute arose between the parties in the future then those disputes should be referred to arbitration in Hong Kong. But these truncated arbitration clauses will inevitably give rise to the sort of argument placed before us in the course of this hearing.

25. In the event we allowed this appeal and set aside the order appointing a named arbitrator.

(1)    [1969] 2 Lloyd's Law Report 574