Pan Ocean Container Suppliers Co Ltd v. Spinnaker Equipment Services Inc

HCCT 9/2023

[2025] HKCFI 700

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 9 OF 2023

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BETWEEN

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DECISION

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1.  Introduction

1.1By judgment handed down on 9 July 2024 (“Judgment”), I dismissed the Plaintiff’s applications (1)  by its AOS[1] amended on 1 March 2023 to set aside the Award and (2)  by its summons dated 3 May 2023 for leave to re-amend the AOS, ie the Amendment Application.

1.2The Plaintiff now applies (1)  pursuant to section 81(4)  of the Arbitration Ordinance Cap 609 (“AO”)  for leave to appeal against that part of the Judgment refusing to set aside the Award and (2)  for leave to appeal against my decision dismissing the Amendment Application (“Leave Application”). 

1.3The Leave Application was brought by the Plaintiff’s summons dated 23 July 2024 on grounds set out in the annexed Draft Notice of Appeal (“DNOA”). Originally, directions were given for paper disposal of the Leave Application. The Plaintiff subsequently issued another summons dated 16 August 2024 (“16/8/24 Summons”)  for leave to amend the DNOA in the manner set out in the annexed Draft Amended Notice of Appeal (“DANOA”).  In view of the proliferation of issues, I directed the parties to attend a 2-hour hearing, which only took place on 14 November 2024 due to counsel’s availability.  The combined effect of the DNOA and the DANOA is to effectively challenge almost each and every aspect of the Judgment.

1.4At the hearing, the Plaintiff was again represented by Mr Patrick Chong (with Ms Athena Wong and Mr Han Sheng Lim)  and the Mr Toby Brown again appeared for the Defendant.

2.  The applicable principles

2.1There is no dispute between counsel on the relevant principles on an application for leave to appeal made under section 81(4)  of the AO, which are those summarized in LY v HW [2022] HKCFI 3016 as follows:

“[3] The decision whether to set aside the award is not interlocutory, but final. If the grounds set out in Article 34(2)  are not proved to the satisfaction of the Court, there is no discretion to set aside. Even if a ground is established, the Court has made it clear that it has a residual discretion to enforce the award (Pacific China Holdings Ltd (In Liquidation)  v Grand Pacific Holdings Ltd CACV 136/2011, 9May 2012).

[4] … For such an appeal to succeed, it must be shown that the judge had misdirected himself or herself with regard to the principles in accordance with which his/her discretion had to be exercised, or had misunderstood the law or the evidence, had taken into account matters which ought not to have considered, or failed to take into account matters which the judge ought to have done; or where the decision is plainly wrong.

[5] … the intended appeal [should enjoy] reasonable prospects of success, alternatively [is] of great general public importance to warrant appellate guidance.

[6] In Trust Risk Group SpA v AmTrust Europe Ltd [2015] EWCA Civ 437, the English Court of Appeal analyzed and explained the circumspection in the approach of an appellate court when hearing appeals, pointing out that there is a spectrum of appropriate respect to the decision of the lower court, depending on the nature of the decision of the lower court. At paragraph 36 of the Judgment, Lord Justice Beatson referred to the observations made by May LJ in El Dupont De Nemours and Co v ST Dupont (CA)  [2003] EWCA Civ 1368 (“Dupont”)  and highlighted the following:

“At one end of the spectrum are decisions of primary fact reached after an evaluation of oral evidence and purely discretionary decisions.  What May LJ described as ‘multifactorial decisions often dependent on inferences and analysis of documentary material’ are further along the spectrum.  May LJ observed that CPR 52.11 (4)  expressly empowers the appeal court to draw any inference of fact which it considers justified on the evidence.  Questions of law lie at the other in of the spectrum.”

At paragraph 40, His Lordship also referred to Aldi Stores Ltd v WSP Group Plc [2007] EWCA Civ 1260, which concerned an appeal from a decision by a trial judge striking out a claim for abuse of process, where the Court stated that the decision was one “involving the assessment of a large number of factors to which there can, in such a case, only be one correct answer”, but that nonetheless, an appellate court will be reluctant to interfere with the decision of the judge. It will generally only do so in such a case where the judge has taken into account immaterial factors, omitted to take account of material matters, erred in principle, or come to a conclusion that was impermissible or not open to him.” (emphasis added)

2.2The merit threshold is not a very high.  The prospects of the intended appeal do not have to be probable but have to be more than fanciful (LY §11).

2.3In addition, even for factual findings that are based on affidavit evidence, the appellate court should not intervene unless there are palpable errors.  The following observations are made at Ling Wai Hoi v Jetland Global Investments Ltd [2022] HKCA 1457 §29:

“The first ground of appeal is in essence a challenge to the Judge’s assessment of the credibility and sufficiency of the evidence put forward by Mr Ling to raise a bona fide dispute with regard to his case on the Arrangement. The appeal court’s approach in this regard has been summarised in the judgment of Kwan VP in Re Cheung Kwan [2021] HKCA 282, at [31] to [33]. Even though the judge’s evaluation of evidence and findings of act were based on affidavit evidence and contemporaneous documents rather than oral evidence, the appeal court should be reluctant to interfere with the lower court’s evaluation of the evidence, unless it is demonstrated that the judge had fallen into palpable errors in the finding of fact. The appellate process is not designed to give a litigant a platform to repeat submissions made in the court below on the evidence and factual aspects in the hope of persuading the appeal court to come to a different view from the primary judge.” (emphasis added)

2.4In relation to the principles applicable to the 16/8/24 Summons, the Plaintiff relies on Lai Yuen Wah v Hoi Kwong Printing Co Ltd [2003] 1 HKC 447 §9 and 周敏 v 王洪春 [2022] HKCFI 2151 §4.  In gist, leave to amend the DNOA should be granted if it enables the Plaintiff to pursue a legitimate position, subject to there being no sufficient prejudice caused to the Defendant.  I do not understand Mr Brown to have any quarrel with the foregoing propositions.

2.5I have already set out the principles relevant to an application to set aside an arbitral award at Judgment §§3.50 and 4.2.  In gist, the court, in its supervisory role, is concerned with the structural integrity of the arbitral proceedings, and the conduct complained of must be serious, even egregious before the court would find that there was an error sufficiently serious so as to have undermined due process.  Where an applicant relies on the public policy ground, there must be a substantial injustice arising out of an award which is so shocking to the court’s conscience as to render enforcement repugnant.

2.6A prominent feature in the present case is that the Plaintiff had throughout not participated in the Arbitral Proceedings, despite the fact that, as I have found, it was given proper notice of the Arbitral Proceedings.  The Section 81 Application essentially was a post-mortem analysis of the Award, seeking to identify irregularities, procedural or otherwise.  It bears emphasis that such irregularities (even if established which the Applicant cannot)  could have been objected to had the Plaintiff participated.

3.  DNOA Ground 1: Exhibiting “Without Prejudice” Communication as Evidence

3.1This ground is directed at Judgment §§4.23-4.33. 

3.2DNOA Ground 1 asserts that:

(1)  I had erred in law in holding at Judgment §§4.31-4.32 that the Plaintiff could not derive any assistance from AZ v BY [2023] EWHC 2388 (TCC)  on the basis that AZ was a case concerning adjudication rather than arbitration;

(2)  I had erred in law at Judgment §§4.25 and 4.27 to find that Ince’s letter dated 25 June 2021 (“25/6/21 Letter”)  did not amount to without prejudice correspondence and, as a consequence, I had also erred in law to find that Ince’s letter dated 15 July 2021 (“15/7/21 Letter”)  was also not protected by without prejudice privilege, on the basis that the 15/7/21 Letter formed part of the without prejudice negotiations between the parties “anchored” by the 25/6/21 Letter;

(3)  I was plainly wrong at Judgment §4.33 to hold that the Tribunal was able to put any reference to without prejudice communications out of her mind, as Award §89 referred to the 15/7/21 Letter.

3.3It seems to me that the material complaint of DNOA Ground 1 is the challenge made at §3.2(2)  above.  As is plain from Judgment §§4.31 to 4.33, my observations therein which give rise to the challenges set out at §§3.1(1)  and (3)  above were made only “for completeness”. 

3.4The Plaintiff has characterized my findings that the 25/6/21 Letter and 15/7/21 Letter are not without prejudice correspondence as ones involving a question of law.  In my view, that is a mischaracterization. 

3.5According to AZ, a case heavily relied upon by the Plaintiff, there is a distinction between admissibility of without prejudice material (which is a question of law)  and whether the material covered by without prejudice privilege (which is a fact-finding exercise):

(1)  AZ §7 observes that to determine whether the without prejudice privilege applies, the court has to work out what, on a reasonable basis, the intention of the author was and how it would be understood by a reasonable recipient;

(2)  As pointed out at AZ §§4-6, in determining whether certain communications are covered by the without prejudice privilege, the exercise turned on “considering the chronological sweep of interaction between [the parties], from the evolution of a dispute in 2021 to the indications in 2023 that negotiations were over” and depends on whether “it is clear from the surrounding circumstances that the parties were seeking to compromise the action”;

(3)  AZ §25 observes that whilst the question of admissibility is a question of law, whether the material is without prejudice to attract that privilege is a matter of fact.

3.6I have already cited AZ §25 at Judgment §4.32.  In his written material, whilst citing the part which puts forward the proposition that the question of admissibility is a question of law, Mr Chong has omitted to cite what followed:

“If, therefore, a court concludes (contrary to the determination of the adjudicator)  that material was in fact without prejudice and that the test of apparent bias is made out, the decision should not be enforced. Not only is this the correct result analysing the position from first principles, it seems to me it also accords with the important public policy behind without prejudice communications, and, in the words of Akenhead J, is consistent with the Court's strong discouragement to parties from deploying "without prejudice" communications in adjudication.” (emphasis added)

3.7The purpose of the without prejudice rule is to protect a litigant from being embarrassed by any admission made purely in an attempt to achieve a settlement.  It is trite that a letter, even if stated to be written without prejudice, which amounts not to an offer to negotiate, but merely to an assertion of that party's rights or an attempt to argue that his case is well founded is not privileged. Conversely, a letter containing an offer to settle may be written as an open letter and used by the party writing it during the trial, providing it has relevance and does not form part of the continuing without prejudice negotiations: Hong Kong Civil Procedure 2025 Note 24/5/49 and AZ §§6-16.

3.8At Judgment §§4.23 to 4.26, I have set out the relevant parts of the pleadings and the 2 letters. Mr Chong has selectively focused on the words “Without prejudice” in the 3^rd full paragraph of the 25/6/21 Letter.  As pointed out by Mr Brown, the sentence that contains those 2 words in fact reads “Without prejudice to our client’s rights and claims…”. 

3.9Statement of Claim §17 refers to messages marked “Without Prejudice”.  Judgment §§4.25-4.27 note that the 2 letters were not labelled as without prejudice and that, importantly, their contents involved the assertions of the Defendant’s rights. In particular, the 25/6/21 Letter only urged the Plaintiff to commit to a revised production schedule which was beyond the completion dates stipulated in the POs (which breach was already referred to in a preceding open letter from Ince dated 21 June 2021 “21/6/21 Letter”[2]).

3.10In other words, the chain of letters, namely the 21/6/21 Letter, 25/6/21 Letter and the 15/7/21 Letter were all open letters which asserted the Defendant’s rights.  Nothing has been produced by the Plaintiff which shows any admission on the Plaintiff’s part.

3.11I am of the view that the complaint set out at §3.2(2)  above, which is a challenge against factual findings made in the Judgment, does not enjoy a reasonable prospect or is of general public importance warranting appellate guidance.  It follows that the complaints set out at §§3.2(1)  and (3)  above fall away.

3.12In any event, as pointed out at Judgment §81(3), under section 81(3)  of the AO, even had the Tribunal erred in admitting any without prejudice correspondence, a challenge made on the grounds of error of fact or law on the face of the Award is not a valid setting aside ground.

4.  DNOA Ground 2: Allowing the Defendant to give evidence from the Bar Table and failing to consider the impact of the Defendant’s defective evidence on the rest of its factual case

4.1DNOA Ground 2 is targeted at Judgment §5.11.  The complaint is that I had exercised my discretion on a basis which was plainly wrong by refusing to set aside the Award despite the fact that the Tribunal (1)  permitted the Defendant to correct defects on its evidence via legal submissions and (2)  failed to consider the impact of the said defects on the remainder of the Defendant’s case.

4.2The relevant context to Judgment §5.11 is set out at §§5.2 to 5.5, in particular §§5.2(3)-(8)  and 5.4.  What is plain from the context is that the Defendant decided not to pursue the case set out in the witness statement “for the sake of simplicity” and that the Tribunal accepted that using a weighted average approach, calculated by an arithmetic calculation of the prices set out in the POs which were already in evidence, was a “convenient” approach.  It must be pointed out that the foregoing has the result of significantly reducing the quantum claimed by the Defendant (Judgment §5.2(6)).  Pertinently, it has not been said by the Plaintiff that, for the purpose of quantum assessment, it did not agree to the prices set out in the POs and, as such, how the weighted average approach is therefore in any way problematic.  The Defendant’s attempt to depart from the prices set out in the POs (which was eventually not pursued)  does not discredit the use of the weighted average approach based on the prices agreed by the Plaintiff.

4.3DNOA Ground 2 plainly has no merit.

5.DNOA Ground 3: Failure to Notify HKIAC that the Expedited Procedure no longer appropriate

5.1DNOA Ground 3 is directed at Judgment §§4.3-4.16.  It is said that:

(1)  Judgment §4.14 erred in law, in that I had failed to appreciate that the Defendant’s failure to notify HKIAC that the Expedited Procedure was no longer appropriate amounted to an abuse of process and breach of the Defendant’s duty of good faith;

(2)  I was plainly wrong to hold at Judgment §4.15 that the Tribunal was meticulous and careful in the process, on the assumption that the Plaintiff’s other complaints against the Tribunal are made out, for example, that the Tribunal relied on without prejudice correspondence, permitted the Defendant to perfect its evidence form the Bar Table, and failed to consider the impact that the Defendant’s defective evidence might have on the remainder of its factual case.  This second limb has been dealt with in the above sections.

5.2Judgment §§4.12-4.13 set out the 2 occasions on which (according to the Plaintiff)  the Defendant should have informed HKIAC that the Expedited Procedure was no longer appropriate.  It was pointed out that the first occasion arose because the LD Claim (20’)  had increased due to the effluxion of time but that did not affect the complexity of the underlying claim.  The second occasion arose as a result of the Tribunal’s indication that there was a possibility that the Declaratory Relief might not be granted, leaving the Defendant to pursue the Non-Delivery Claim.

5.3At Judgment §4.14, I observed that the Plaintiff has not cited any authority for the proposition, namely where, as here, the Plaintiff has chosen not to participate in the Arbitral Proceedings, the Defendant was nevertheless obliged to make a request for a more elaborate procedure in which the Plaintiff would unlikely participate in any event.  This remains the position in the Leave Application.

5.4Mr Chong argues that the lack of case law in this regard justifies appellate guidance on whether the duty of good faith is extended to a claimant in the present situation, and what should be the proper step and procedure for the claimant, HKIAC and the Tribunal.

5.5I am unable to agree.  There are two overriding observations.  First, there can be no dispute that Hong Kong has long been striving to establish and uphold a policy of being supportive of arbitration agreements and awards.  Secondly, it must be remembered that DNOA Ground 3 is pursued as a public policy ground and it is established that a complaint under the public policy ground can only be made out if it can be shown that there is a substantial injustice which is so shocking to the court’s conscience as to render enforcement repugnant. 

5.6I agree with Mr Brown that the position advocated by the Plaintiff, namely that it should be placed in a more advantageous position by not participating in the Arbitral Proceedings, is misplaced.  In the chronology set out at Judgment §5.3, the Plaintiff could have made an application under Article 42.3 of the 2018 Rules after the Defendant communicated its Statement of Claim or after the Defendant communicated its further submissions on 6 April 2022 had it chosen to participate in the Arbitral Proceedings.  Even were such application made, it is not a foregone conclusion that such an application would have been successful.

5.7As pointed out at A Guide to the HKIAC Arbitration Rules, 2^nd Ed, §12.30, in considering whether to apply the Expedited Procedure, the primary factor HKIAC considers is often the complexity of the dispute.  Further on at §12.53, it is stated that when deciding whether to disapply the Expedited Procedure under Article 42.3 of the 2018 Rules, HKIAC will take into account whether there are any new circumstances arising after HKIAC’s decision to apply the Expedited Procedure and whether such new circumstances justify the disapplication of the Expedited Procedure, including whether such new circumstances can or cannot be properly examined and determined by the arbitral tribunal under the Expedited Procedure. 

5.8The good faith requirement postulated by the Plaintiff is that the Defendant should (1)  make an application to disapply the Expedited Procedure on the basis of the new circumstances (the LD Claim (20’)  had increased naturally by effluxion of time and the Tribunal had indicated that she was not minded to grant the Declaratory Relief thereby leaving the Defendant to claim the Non-Delivery Claim)  and (2)  provide justifications that the new circumstances cannot be properly dealt with by the Tribunal under the Expedited Procedure in the circumstances where the Plaintiff was not contesting the claims.  The foregoing proposition is self-evidently contradictory to the general position that an arbitral tribunal should conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ dispute.

5.9In my view, the good faith requirement postulated by the Plaintiff is not reasonably arguable and does not warrant appellate guidance.  I decline to grant leave in respect of DNOA Ground 3.

6.  DNOA Ground 4: Tribunal’s invitation for further submissions on damages

6.1DNOA Ground 4 is directed at Judgment §§5.7, 5.9, 5.10 and 5.12.

6.2The first complaint is that I had erred in law by holding at Judgment §5.7 that the Non-Delivery Claim fell within the scope of the submission to arbitration. Reliance is placed on the fact that the Defendant was itself surprised that the Tribunal had invited it to deal with the Non-Delivery Claim as noted at Judgment §5.3(2).

6.3Judgment §5.7 refers to §§4.9-4.11 and 4.13 which set out the relevant parts of the NOA, the Statement of Claim and the Award.  The Defendant was only caught unprepared by the Tribunal’s indication that she was not minded to grant the Declaratory Relief and it therefore had to address the Non-Delivery Claim.  The “surprise” is not germane to the resolution of the issue whether the Non-Delivery Claim, which is to be determined by the terms set out in the NOA and the matters pleaded Statement of Claim.  I am not persuaded that it is reasonably arguable that the pursuit by the Defendant of an award for the Non-Delivery Claim as its final relief was outside the scope of the Arbitral Proceedings.

6.4The second complaint is that I had erred in law at Judgment §5.9 in holding that it was appropriate for the Tribunal to ask the parties to address her on damages if she was disinclined to grant the Declaratory Relief on the bases that (1)  the Non-Delivery Claim was not within the scope of submission and (2)  it was in breach of Article 42(d)-(e)  of the 2018 Rules.  I have dealt with the complaint on the scope of submission.  The complaint based on a departure of Article 42(d)-(e)  of the Rules is also misplaced.  It is plainly a procedural decision which the court will not lightly interfere with or second guess: AAB v BBA & Anor [2024] HKCFI 699 §34.  In so far as the Plaintiff complains that that case management decision had an impact on the deadline prescribed by Article 42 for the Tribunal to communicate the Award, this is dealt with separately below.

6.5The third complaint is that I had erred in law at Judgment §§5.10 and 5.12 in holding that the approach adopted by the Tribunal was in accordance with the Expedited Procedure as long as the Tribunal complied with Article 13.1 of the 2018 Rules. It is said that I had in particular ignored the manner in which the Tribunal had conducted the Arbitral Proceedings had led to a failure to meet the deadline for the communication of the Award. 

6.6As pointed out at A Guide to the HKIAC Arbitration Rules §§12.47, HKIAC may extend the time limit to communicate an award under the Expedited Procedure in exceptional circumstances.  Before making its decision, HKIAC or the arbitral tribunal will typically seek comments from the parties.  Examples of circumstances given in which HKIAC extended the time limit include:

(1)  The arbitral tribunal requested the parties to respond to certain queries arising in the course of the drafting of the arbitral award.  One of the parties requested additional time to respond given its counsel’s difficulty in obtaining instructions from clients in the Mainland due to the COVID-19 travel restrictions imposed by the Chinese Government.  The tribunal requested an extension of 4 days and none of the parties objected to the request;

(2)  The sole arbitrator requested an extension of time due to the need to deal with urgent and unforeseen family matters.  The parties had no objections to this request.

6.7There are 2 pertinent observations.  First, as set out at Judgment §5.3(4)  and (5), the Tribunal had indicated on 25 April 2022 that she would proceed to decide the dispute on the basis of the documentary evidence available and on 27 April 2022 she raised the query which eventually led to a significant reduction in the quantum of the Non-Delivery Claim awarded.  The approach advocated by the Plaintiff suggests that the Tribunal should simply not ask for clarification and dismiss the Non-Delivery Claim on the basis that the Defendant had failed to prove loss.  It seems to me, perversely, that that approach, if taken by the Tribunal, would have been comparatively more shocking to the court’s conscience.  Secondly, as noted at Judgment §5.3(7), the Tribunal, consistent with the commentary set out in the preceding paragraph, did indicate to the parties that she would seek an extension of time from HKIAC.  As set out at Award §43, there was no objection to such request.  Whilst the deadline was extended to 16 July 2022, the Award was in fact communicated on 15 June 2022, well before the expiry of the extended deadline.

6.8I decline to grant leave to appeal on DNOA Ground 4.

7.  DNOA Ground 5: The Amendment Application

7.1At Judgment §6.1, I dismissed the Amendment Application principally on the lack of merits of the grounds proposed to be included which views, for the reasons set out above, are maintained.  There is nothing in the point in criticizing the approach taken in Judgment 6.2.

7.2I decline to grant leave to appeal on DNOA Ground 5.

8.  DANOA Ground: No Notice of Arbitration

8.1The Plaintiff takes a new point on the proper construction of Article 3.1 of the 2018 (reproduced at Judgment §3.6), in that subparagraphs (a)-(d)  operate successively, and once a prior subparagraph is triggered, the Defendant is not entitled to rely on the deeming effect of the paragraphs following.  In the present case, only the PO Address is stated in the POs.  The Plaintiff therefore reasons that once Article 3.1(b)  is triggered, the Defendant cannot rely on the communications sent to the Business Card Fax Number and the Qin Email Address under either Articles 3.1(c)  or (d)  (Judgment §§3.16(1)  and §3.19).

8.2I do not regard the Plaintiff’s interpretation of Article 3.1 is a purposive one. 

8.3In any event, irrespective of the correctness of the Plaintiff’s construction, as pointed out at A Guide to the HKIAC Arbitration Rules §5.54, in practice, some parties deliver written communications to all addresses specified at Article 3.1(a)-(d)  to avoid any defect in service and there is an incentive to do so particularly in cases in which the respondent does not participate.  This is precisely the situation of this case.  It must be borne in mind that the analysis set out in the Judgment was to address the Plaintiff’s position that Ye himself or the management did not receive any of the communications each sent to the Plaintiff via multiple means (Judgment §3.25).

8.4The rest of the DANOA Ground seeks to challenge the factual findings in the Judgment, especially the findings that Qin (1)  was not a low-ranking employee, (2)  had not resigned or was not terminated and (3) was at least one of the persons designated within the Plaintiff organization to deal with the Arbitral Proceedings (Judgment §§3.37, 3.38 and 3.46).

8.5Importantly, as pointed out at Judgment §§3.50-3.51, the court is concerned with the structural integrity of the Arbitral Proceedings and the conduct complained of must be serious, even egregious.  The Plaintiff’s submission that the Award should be set aside because the Defendant had done over and above what is required under Article 3.1 of the 2018 Rules (according to its interpretation)  to bring notice of the Arbitral Proceedings to the Plaintiff is a non sequitur.

8.6In my view, the DANOA Ground is not reasonably arguable and it follows that the 16/8/24 Summons should be dismissed.

9.  Conclusion

9.1For the above reasons, I dismiss the Leave Application and the 16/8/24 Summons.  I make a costs order nisi that the Plaintiff do pay to the Defendant the costs of the Leave Application and the 16/8/24 Summons on an indemnity basis.

Mr. Patrick Chong, Ms. Athena Wong and Mr. Lim Han Sheng, instructed by Wat & Co., for the Plaintiff

Mr. Toby Brown, instructed by Squire Patton Boggs, for the Defendant