Werner a. Bock K.G. v. The N's Co Ltd
Read the full judgment text of CACV 67/1977 on BabelCite. This Court of Appeal judgment.
1. It is now common ground that the parties entered into an agreement which contained an arbitration clause. The agreement was for the sale of work gloves by the Defendant to the Plaintiff. In the event the Plaintiff refused to accept the goods tendered. An arbitration was held in Germany and an award made in favour of the Plaintiff, who thereafter sought leave to enforce that award in Hong Kong. Mr. Commissioner Liu dismissed the Plaintiff's application on condition that the Defendant paid into
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CACV000067/1977
----------------- Coram: Briggs, C.J., Huggins and Pickering, JJ.A. Date of Judgment: 4th May 1978. ----------------- JUDGMENT ----------------- Huggins, J.A.: 1. It is now common ground that the parties entered into an agreement which contained an arbitration clause. The agreement was for the sale of work gloves by the Defendant to the Plaintiff. In the event the Plaintiff refused to accept the goods tendered. An arbitration was held in Germany and an award made in favour of the Plaintiff, who thereafter sought leave to enforce that award in Hong Kong. Mr. Commissioner Liu dismissed the Plaintiff's application on condition that the Defendant paid into court within seven days the amount of the award and security for the Plaintiff's costs of the arbitration. In default of such payment the Plaintiff was to have leave to enforce the award. There was a further order for payment out to the Defendant of any money paid in should the Plaintiff not have commenced an action within three months for the adjudication of the dispute between the parties. It is against that judgment that the Plaintiff appeals. 2. The application to enforce the award was made under Part IV of the Arbitration Ordinance, that Part having come into force on 21st April 1977. There is no doubt that this was a "Convention award", i.e. one to which Part IV applied, or that, prima facie, enforcement of a Convention award may not be refused. The grounds on which enforcement may be refused are set out in s.44(2) and (3) and the issue before the learned judge was whether the Defendant had proved a sufficient ground of refusal. 3. The Defendant contended first
The agreement was that the arbitration should be conducted by the "Hamburg Friendly Arbitration and Schiedsgerioht". That clearly contemplated an arbitration to be conducted under the "Hamburger freundschaftliche Arbitrage" regulations of the Hamburg Chamber of Commerce, a copy of part of which was in evidence. The regulations provided for the settlement of disputes by the decision of "one or more arbitrators". They then set out the method of appointing the arbitrator or arbitrators. The material part of paragraph 2 of reg. 20 is as follows:
Throughout it has been assumed by the parties that this contemplates that in every case there should be two arbitrators, one appointed by each side. The possible alternative construction, namely that where the second party fails to designate its arbitrator within the time limit the Chamber of Commerce will appoint "the [sole] arbitrator", was not contended for. Regulation 4 is in these terms:
What happened in the present case was that after due notice the Defendant failed to designate an arbitrator and an arbitrator was appointed by the Chamber of Commerce. The arbitrator so appointed and the arbitrator named by the Plaintiff then proceeded immediately to appoint an umpire and the three of them considered the representations of the parties and made the award. The learned judge accepted the Defendant's contention that this was not in accordance with the regulations, the appointment of an umpire being appropriate only where two arbitrators have considered the representations of the parties and failed to agree upon an award. Mr. Bunting, who appeared for the Plaintiff on the appeal, very properly conceded that the procedure followed was not correct, but he attacks the decision of the learned judge in two ways: he submits first that the Defendant waived the irregularity and secondly that even if the irregularity was not waived the learned judge should have exercised his discretion to enforce the award in spite of the irregularity. 4. In my view the allegation of waiver fails. There is no doubt that the Defendant was fully aware of the appointment of the umpire at an early stage in the arbitration proceedings. The umpire himself wrote to the Defendant, told it of his appointment, enclosed the Plaintiff's Claim and asked for the Defendant's Answer within three weeks. That letter was written in German, as was the Claim. The Defendant's reaction was to reply to the effect that it could not read German and to ask for a translation into English of "the whole document". The initial reply of the umpire was, not unnaturally, that the language of the tribunal was German and that the Defendant must obtain its own translation. However, in reply to a further letter from the Defendant (no copy of which is in the papers before us) the umpire did forward a translation and this set out at the beginning the names of the arbitrators and of the umpire. The Defendant then submitted its Answer to the umpire. It is in the light of these clear indications of the Defendant's knowledge that an umpire had been appointed that the Plaintiff contends there has been waiver. Mr. Chan replies that mere knowledge of the appointment of an umpire was not enough, even though such appointment was necessarily irregular, because the Defendant did not know that the appointment was irregular and therefore did not know that it had a right to object to the appointment. It has been the Defendant's contention throughout that it was completely ignorant of the regulations governing the Hamburg Friendly Arbitration and Mr. Chan argues that, whilst that may have been negligent on the part of his client, it did not amount to a deliberate closing of its eyes. For some reason the learned judge did not in his judgment consider the issue of waiver, although at one point he said it was "a matter yet to be explored". As a result we have no finding as to the extent of the Defendant's knowledge. The judge's own notes put it beyond doubt that the issue of waiver was raised. As we have seen, however, it is certain that the Defendant's knowledge extended to the fact of appointment. Mr. Chan's submission is that to establish waiver the Plaintiff had to go further and to prove that the Defendant knew of its right to object. I think that is right: see, for example, R. v Essex Justices ex parte Perkins 1927 2 K.B. 475 where ivory, J., relied upon the principle laid down by Lord Romilly, M.R., in Vyvyan v Vyvyan (1861) 30 Beav. 65, 74:
It may be that the Defendant was fully cognizant of its rights despite its assertion that it was not, but that was a matter for the judge to decide. If necessary we would have to refer the case back to the High Court for a finding to be made. 5. Mr. Bunting's second contention is not dependant upon such a finding: he says that the judge wrongly exercised his discretion upon the facts as found. In short the view of the learned judge was that justice required a trial at which the Plaintiff would have to prove that the gloves were defective, the arbitration tribunal having held that it was for the Defendant to prove that the gloves were not defective. The judge was unmoved by the argument that the parties, by agreeing to arbitration in Germany, submitted themselves to the regulations of the Hamburger freundschaftliche Arbitrage, under reg. 20 of which, so it is stated in the Award, the burden of proof is upon the Defendant. Mr. Chan urges us to say that the judge was entitled to take that view because, in effect, any other rule would be uncivilized. I cannot agree. It is true that the courts in Hong Kong apply the maxim affirmanti, non neganti, incumbit probatio, but I decline to hold that a contrary rule is unconscionable. What is more important the Defendant's (assumed) ignorance of the rule as to the burden of proof had nothing whatsoever to do with the composition of the tribunal. It follows that in my view the learned judge exercised his discretion upon wrong principles and it is for us to decide how the discretion ought now to be exercised. Mr. Bunting submits that even assuming that the irregularity in the composition of the tribunal was not waived it was an irregularity of such a nature that it would be unjust to allow the Defendant to take advantage of it at this stage: the tribunal gave a unanimous decision in favour of his client and no possible prejudice has resulted to the Defendant. He goes on to emphasize that the whole tenor of Part IV of the Ordinance is to discourage what he would describe as unmeritorious technical points and to uphold Convention awards except where complaints of substance can be made good. We are told that the judge himself remarked that he would not criticize the arbitrators for appointing an umpire in the circumstances, although that does not appear in his judgment and it is not clear in what context the romark was made: on the face of it the appointment was not in accordance with the rules. For my part I think there is much force in what Mr. Bunting says and I cannot see that any possible prejudice has resulted. That being so I think the court should exercise its discretion not to refuse to enforce the award on the ground set out in s.44(2)(e). 6. Then an argument was advanced that the judge was wrong when he decided that the Defendant had failed to prove that the award dealt with "a difference not contemplated by or not falling within the terms of the submission to arbitration": see s.44(2) (d). The argument was based upon the sentence in the award "Thus, Respondent is to be held to be responsible for non delivery": it is said that the claim was not based upon non-delivery but upon alleged defects in the goods tendered. On a fair reading of the Award it seems to me to be beyond doubt that it was upon the tender of goods which were not proved to be in accordance with the contract and, as a corollary, upon a failure to deliver which were proved to be in accordance with the contract. The argument was based on semantics and had no merit. 7. Before turning to s. 44 (3) I should mention that the Defendant sought to rely on para. (c) of subsection (2). The judge found that the Defendant was unable to present his case before the arbitration tribunal. With respect to the learned judge this was not a ground of objection which was open to the Defendant because, as appears from the judgment itself, the Defendant had chosen not to rely upon it. The view taken by the judge was that the Defendant's election was "not so irreversible as would deprive the Defendant of its right to air its real grievance that it 'was not otherwise unable to present (its) case '". We indicated at an earlier stage that we could not accept that: the election was made and the judge should not have proceeded to decide an issue which was never argued before him. 8. Subsection (3) reads in part:
On behalf of the Defendant it was contended that it was against public policy to enforce this award. The judge rejected that contention but by a Respondent's Notice it was raised again before this court. It is based upon the premiss that the arbitrators did not apply the proper law of the contract. The judge held that so far as he was concerned it made no difference what was the proper law of the contract, because there was no evidence of any law alleged to be the proper law. It may well be that it would not be contrary to public policy to enforce an award even if it could be shown that the arbitration tribunal applied the wrong law: "public policy " must not be extended to include every conceivable kind of error. In fact we do not know what law the tribunal applied in construing the contract. It did, as we have seen, apply the Hamburger freundschaftliche Arbitrage regulations in relation to its procedure, but that was correct whatever the proper law of the contract. 9. In the result I have come to the conclusion that there was no sufficient reason for refusing to enforce this award. I would allow the appeal, set aside the order of the learned judge and grant the leave which was sought by the Originating Summons. 4th May 1978. Representation: |