PRIVATE CO. "TRIPLE V" INC. v. STAR (UNIVERSAL) CO. LTD. and Another

IN THE COURT OF APPEAL

1995, No. 90
(Civil)

- Headnote -

Art. 11(3) of the UNCITRAL Model Law on International Commercial Arbitration is only engaged where the failure to agree the appointment of an arbitrator is because the parties have not agreed on a procedure for his appointment. It is not engaged where the failure to agree is because the parties do not agree that there should be an arbitration at all, or that the arbitration should involve a particular party.

IN THE COURT OF APPEAL

1995, No. 90
(Civil)

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J U D G M E N T

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Litton, V.-P.:

1. On 27 January 1995 Leonard J decided, pursuant to Article 11(3)(a) of the 5th Schedule to the Arbitration Ordinance (the UNCITRAL Model Law), to appoint an arbitrator to resolve disputes arising from two contracts, both dated 21 December 1993: Contract No. 1034 HK relating to the sale of 100 television sets to the plaintiff, for delivery at the port of Vostochny in Russia, and contract No. 1035 HK relating to a sale of micro-wave ovens. Both contracts contain an arbitration clause in these terms:

"16. If any dispute shall arise between the Buyer and the Seller in connection herewith which cannot be settled by the agreement between them, the same shall be referred in Hong Kong to the Arbitration in accordance with the provisions of the Arbitration Ordinance of Hong Kong."

2. The defendants, being dissatisfied with the judge's decision, lodged a notice of appeal on 28 March 1995, which was amended by our leave this morning.

3. Two preliminary issues have arisen:

(i) Whether the judge's decision is one which falls within Article 11(5) of the Model Law and accordingly is outside the jurisdiction of this court to entertain on appeal.

(ii) Whether the judge's decision is final or interlocutory: if interlocutory, the defendant's appeal is out of time, being outside the 14 days allowed by Order 59 rule 4(1).

4. We have heard argument on the two preliminary issues and also on the substantive issue: the submissions on the substantive issue proceeded de bene esse upon the supposition that both preliminary issues are resolved in the appellants' favour.

Jurisdiction point

5. As to the jurisdiction point, I have come to the view that this court has jurisdiction to entertain this appeal, for the reasons that Keith J will express shortly.

Time for appeal

6. As to the time point, I adopt the test in Salter Rex & Co. v. Ghosh [1971] 2 QB 597, by considering the nature of the proceedings in the court below. The issue was very narrow. The proceedings before Leonard J were commenced by originating summons. Plainly, a decision made by the judge on the originating summons, one way or the other, would have finally disposed of the matter before him: either an arbitrator would have been appointed, or none. If the latter, the plaintiff would have been free to prosecute its claim for damages against the defendants in court. In my judgment the order appealed against was final and the notice of appeal was accordingly lodged within the statutory time limit.

The jurisdiction of an arbitrator

7. I move now to consider the substantive point.

8. The UNCITRAL Model Law confers a wide jurisdiction on an arbitrator duly appointed under Article 11(3): see Article 16(1) which says that the arbitral tribunal may rule on its own jurisdiction, including any objections to the existence or validity of the arbitration agreement.

Contract No. 1034 HK

9. In relation to Contract No. 1034HK the defendants' case is this: by an agreement of the same date and entered into between the same parties Contract No. 1034HK was rescinded; hence there is no agreement to refer anything to arbitration.

10. This second agreement is, on its face, an unusual document. It is in the form of a statement by the plaintiff's principal Mr. Vajnof Valentin to the effect that there was "no need to achieve the shipment of television sets" and that the "contract value" of US$150,000 was for investment in "the Hong Kong Market Hang Seng Index". It is said to have been "approved" by the first defendant by its signature and seal.

11. The defendants dispute the validity of this second agreement but have not condescended to particulars. The denial is in a solicitors' letter followed by an affidavit by the solicitor in which the same denial is repeated.

12. The judge said this:-

"There is prima facie evidence of a dispute between the Plaintiff and D1 in relation to contract 93RV-1034HK and an arbitrator ought to be appointed to arbitrate their dispute. It will be for the arbitrator to decide the effect, if any, of the alleged subsequent agreement cancelling the contract."

13. I agree. If the judge were to go into the matter more deeply, he would in effect be usurping the function of the arbitrator. Whilst, clearly, the judge had to make a judgment as to whether there existed an underlying agreement to arbitrate, he could do no more than to form a prima facie view. Here, in exercising his jurisdiction under Article 11(3), Leonard J in effect asked himself whether it was arguable that Contract No. 1034HK still subsisted, despite the existence of the subsequent agreement. This seems to me the correct approach. Here, as I have said, the second agreement is, on its face, a very odd document. It's legal effect is not wholly self-evident. I make no comment on the hypothetical situation, posed in argument, where the evidence is overwhelming that an agreement to arbitrate has been abrogated. This in my judgment is not such a case.

Contract No. 1035HK

14. As to Contract No. 1035HK, the appeal is confined to the 2nd defendant being made a party to the arbitration. Counsel for the defendants Mr Mumford, QC, does not seek to disturb the order in relation to the 1st defendant. This is one of the matters covered by the amended Notice of Appeal. Mr Mumford's point is that there was no scintilla of evidence before the Judge that the 2nd defendant was a contracting party: on the face of the contract only the 1st defendant was bound.

15. The Judge found upon the evidence that, arguably, the 1st defendant signed both for itself and as agent for the 2nd Defendant. Has he erred in this regard? There was some evidence to the effect that the 2nd defendant was to be the party to "render performance" under the contract, though the evidence as to agency is, at this stage, extremely shadowy. Mr Mumford makes the further point that as it is plain on the face of the contract that the 1st defendant was the only principal, any evidence in contradiction of that fact is inadmissible. Here, again, in my judgment, the judge had a fine line to tread. It was not for him to resolve the issue in any way. In my view, he exercised his judgment correctly. The 2nd defendant is, of course, at liberty to argue the point before the arbitrator that they are under no liability, whether under the first or the second contract.

16. In one way or another the question of their liability would have to be resolved. Leonard J's conclusion that it would be proper for this to be resolved by the arbitrator cannot in my view be faulted.

The costs

17. The judge made an order, as against the 1st defendant, that the costs should be awarded on an indemnity basis. This is, of course, a most unusual order to make, since the question as to whether the underlying agreement to arbitrate has been rescinded or not, together with the whole of Contract No. 1034HK, has yet to be determined. The judge in coming to his view followed the reasoning of Kaplan J in Safond Shipping [1993] No. MP 2635. That was however a wholly exceptionally case, and in my judgment is no precedent for the indemnity costs order in the circumstances of the present case. In Safond Shipping great expense had been unnecessarily incurred in serving the order overseas: in circumstances where, on the defendant's part, there was, as the judge said, nothing other than "thundering silence".

18. In my judgment the proper order to make in this case is that the 1st defendant should be made to pay the costs on the usual party-and-party basis; no circumstances existed to justify the judge's unusual order. I would accordingly allow the 1st defendant's appeal to the extent that I would set aside the order for indemnity costs and substitute therefor an order for party-and-party costs. Otherwise, the appeal should be dismissed.

Liu, J.A.:

19. I have had the benefit of the views of my Lords, the Vice-President and Mr Justice Keith on Article 11(3) of the Uncitral Model Law. Article 11 is in Chapter III under the general heading of "Composition of Arbitral Tribunal". Articles 10 to 15 of this Chapter are under the respective Rubrics of "Number of arbitrators", "Appointment of arbitrators", "Grounds for challenge", "Challenge procedure", "Failure or impossibility to act" and "Appointment of substitute arbitrator". At least Article 11(1) and Article 14 do not seem to be strictly procedural.

20. In essence, Article 11(3) provides, inter alia, that in default of an agreement "on a procedure of appointing the arbitrator", "if a party fails to appoint the arbitrator within 30 days of receipt of a request to do so from the other party ...... the appointment shall be made, upon the request of a party, by the court". Whether or not such an appointment made by a court forms part of the "appointment procedure" of arbitrators, be it in a strict or a more liberal sense, the court's decision thereon would seem to fall squarely within the words in Article 11(5) viz. "a decision on a matter entrusted by paragraph (3) of (Article 11)" to the court and "shall be subject to no appeal".

21. Construction of Articles of the Uncitral Model Law in the Fifth Schedule to the Arbitration Ordinance should be attempted without time and other constraints. Miss Rattigan's submission on Article 11(5) would seem to be well founded. However, the view I form is not one on which I could confidently voice my dissent.

22. For the reasons my Lord the Vice-President gives, I agree with the conclusions he has reached and have nothing further to add. I also agree with the orders the Vice-President proposes.

Keith, J.:

23. I agree that this appeal should be allowed on the issue of indemnity costs, but that apart from that this appeal should be dismissed for the reasons given by Litton V.-P. The questions as to whether:

(i) there is a dispute between the Plaintiff and the Defendants concerning both contracts, and

(ii) there is a valid agreement to refer those disputes to arbitration sufficient to engage the arbitrator's jurisdiction, are matters for the arbitrator to decide. I also agree that the orders made by Leonard J. were final, so that the Notice of Appeal was lodged in time, and that this was not an appropriate case for an order for indemnity costs. However, I wish to add a few words of my own as to whether the jurisdiction of the Court of Appeal to hear this appeal has been properly engaged.

24. Art. 11(5) of the Model Law provides:

"A decision on a matter entrusted by paragraph (3) or (4) of this article to the court or other authority specified in article 6 shall be subject to no appeal".

The beguiling argument of Miss Rattigan for the Plaintiff is that the Court of Appeal has no jurisdiction to hear this appeal because

(i) the orders made by Leonard J provided merely for the appointment of an arbitrator,

(ii) those orders were decisions on a matter to which Art. 11(3) relates, and

(iii) those decisions were on a matter entrusted by Art. 11(3) to the High Court, because Art. 6 of the Model Law and section 2(1) of the Arbitration Ordinance (Cap. 341) entrusted the functions referred to in Art. 11(3) to the High Court.

25. For my part, I agree with the first and third of these propositions, but I cannot agree with the second. Art. 11(3) is engaged only if the parties fail (to use the words of Art. 11(2)) "to agree on a procedure of appointing the arbitrator". In my judgment, Art. 11(3) is only engaged where the failure to agree the appointment of an arbitrator is because the parties have not agreed on a procedure for his appointment. It is not engaged where the failure to agree is because the parties do not agree that there should be an arbitration at all, or that the arbitration should involve a particular party. I find support for that view in the heading of Chapter III of the Model law (which includes Art. 11): "Composition of Arbitral Tribunal".

26. In those circumstances, I turn to why the parties in this case did not agree on the appointment of an arbitrator. In relation to the first contract, it was because the parties did not agree that there should be an arbitration at all, in view of the Defendants' contention that the agreement containing the arbitration clause had been rescinded. In relation to the second contract, it was because the parties did not agree that the second Defendant should be a party to the arbitration, in view of the Defendants' contention that the second Defendant was not a party to the second contract at all. It follows that the orders made by Leonard J. relating to the appointment of the arbitrator were not decisions to which Art. 11(3) related. It follows that, in my view, the jurisdiction of the Court of Appeal to hear this appeal is not excluded by Art. 11(5).

Litton, V.-P.:

27. The appeal is dismissed.