Werner a. Bock K.G. v. The N's Co Ltd

HCMP000664/1977

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

-----------------

-----------------

Coram: Mr. Commissioner Liu, in Chambers.

Date of Judgment: 31st October, 1977.

-----------------

JUDGMENT

-----------------

1. This is an application by the Plaintiff for leave to enforce a German award of an arbitral authority comprising two arbitrators and an umpire.

2. The contractual relationship between the parties is governed by a Contract referred to in the affidavit of Mr. Fraser filed herein on the 5th October, 1977 and therein marked "DAF-1", whereby the Plaintiff agreed to purchase gloves to be shipped by the defendant C.I.F. Hamburg. One of the clauses in that written Contract reads as follows: "Arbitration: Hamburger Friendly Arbitration and Schiedsgericht".

3. For the application at bar, one need refer only to Sections 42, 43 and 44 in the new Part IV of the Arbitration Ordinance recently brought into operation last April. Asfar as we are here in Hong Kong, the grounds on which this application is presented are hithereto virgin territories. It is common ground that an applicant seeking to enforce an award under Section 42 must first show that there was a binding agreement to submit to arbitration and that a "Convention award" has been made thereunder.

4. S.44 of the Arbitration Ordinance enables a person against whom a Convention award is proposed to be invoked to lay the foundation, by establishing certain matters, for inviting the Court to refuse leave for its enforcement in Hong Kong. Mr. Chan, counsel for the Defendant, submitted that there was no arbitration clause. Alternatively, counsel confined himself to S.44(2)(d) & (e) and S.44(3) of the Arbitration Ordinance.

5. Gloves manufactured by the Defendant were inspected locally by Mr. Lippert of Messrs. Young Husband as the Plaintiff's Hong Kong agent and were rejected after inspection. I am informed by Mr. Chan whose statement as counsel I accept for the present purpose that the gloves were subsequently sold to a Swiss buyer at a price 1% lower than that stipulated for in the said Contract. The Plaintiff complained of alleged defects in the gloves supplied and refused dilivery of. Pursuant to the provision for arbitration in the said Contract, on the 5th November 1976 by a telex the Plaintiff requested the Defendant to appoint its own arbitrator within a period of 7 days. On the 4th December, 1976, the Defendant sought a translation of a letter from the Hamburg Chamber of Commerce dated 23rd November. On the 28th February, 1977, the Defendant wrote to Dr. Straatmann of the Hamburg Chamber of Commerce stating, inter alia:

"We just like to list serveral key points for your consideration and judgment." and "We hope that our reply would give you a clearer picture of this arbitration and we would be grateful if you could advise us any further development of the case."

In the same letter, the Defendant advanced no less than seven written submissions for consideration. Not only did the Defendant fully appreciate the essence of the provision for arbitration in the said Contract, but it was also left in no doubt that steps had been taken by the Plaintiff with a view to resolving the dispute arising therefrom by arbitration in Hamburg.

6. The Plaintiff maintained the proper law of the said Contract as German Law, but Counsel hastened to add that in the absence of any evidence of German law, the Court should be guided by Hong Kong law for the construction of the said Contract, in particular the provision: "Arbitration: Hamburger Friendly Arbitration and Schiedsgericht". Counsel relied on the statements at pages 1065 and 1133 in Dicey ⁽¹⁾ and the judgment of the learned Commissioner O'Connor, as he then was, in Fine Furs Ltd. & Another v. Louis Levine.⁽²⁾ For a variety of reasons, Mr. Chan for the Defendant strenuously contended that the proper law of the said Contract is none other than Hong Kong law, but Mr. Chan voiced his dissatisfaction with the Plaintiff's approach in a criticism that it created a glaring contradiction. I do not share that criticism. On an admission that German law is the proper law of the said Contract, counsel elaborated, the Plaintiff must be able to establish what construction German law putson the provision under consideration in order to succeed. Counsel urged that in the absence of evidence of German law, this application must be refused.

7. Both the Plaintiff and the Defendant in effect extended the same invitation to the Court for judging the said Contract by Hong Kong law. The authorities cited by Mr. Bunting were hardly challenged. Whichever view one accepts, ultimately the clause in issue is to be construed by Hong Kong law. Thus, nothing of consequence seems to turn on the proper law of the said Contract.

8. Counsel for the applicant referred to the case of Tritonia Shipping Inc. v. South Nelson Forest Products Corporation, ⁽³⁾ in which the judgment of the Court of Appeal was delivered by Sellers L.J. and a similar clause in a Charty-party, "Arbitration: to be settled in London", was held to constitute a binding agreement to submit to arbitration in London. At page 116, Sellers L.J. had this to say:

"Three points are taken by the appellants, and the most appropriate one to consider first is whether there has been in this contract a binding submission to arbitration. It was not very strenuously argued because I think this clause, brief as it is, could only have the one meaning. It must be expanded, as was submitted before the learned Judge, to mean 'Any dispute under this charter-party to be settled by arbitration in London'. I think that was the agreement of the parties. It was an agreement and is binding."

9. In my view, no real distinction could be drawn between the clause in Tritonia's case and the provision under consideration. "Arbitration: Hamburger Friendly Arbitration and Schiedsgericht" must mean any dispute under the said Contract to be settled by arbitration by, inter alia, the Hamburger Friendly Arbitration.

10. At one time, counsel for the Defendant contended that "Hamburger Friendly Association" was the name of the designated venue in Germany, but it was finally conceded that it could embrace a body of businessmen within the Hamburg Chamber of Commerce. In fact, the Plaintiff's letter dated 4th January, 1976, referred to in the said affidavit of Mr. Fraser and therein marked "DAF-7", addressed "Hamburger Friendly Arbitration" as a group or a committee.

11. Plain common sence and business efficacy demand that provision to be construed as a binding agreement by both parties to submit their disputes under the said Contract to arbitration by, inter alia, the Hamburger Friendly Arbitration.

12. The Defendant complains of its ignorance of the arbitration rules said to be in use by the Hamburg Chamber of Commerce which provide for the appointment of an umpire in the event of a disagreement between the arbitrators. In this case, an umpire was appointed from the very inception without the knowledge or consent of the Defendant, and it would appear that the umpire so appointed had a role to play in the making of the award, subject-matter of these proceedings. Great exception is being taken to "the composition of the arbitral authority" under S.44(2)(e) of the Ordinance. Submissions have been made on behalf of the Plaintiff with special emphasis on "waiver", a matter yet to be explored, but the Defendant has in my view established "that the composition of the arbitral authority was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country (in the form of the arbitration rules) where the arbitration took place."

13. It was further protested that the Defendant was quite unaware of the onus of proof of good quality in German law which lies not on the accuser but on the accused. The decision of the German arbitral authority seems to have rested on a presumption rather than merits. An excerpt of the award reads as follows:

14. It is not so much what continental procedure the arbitral authority selected or what legal presumptions were permitted to roam. The fact remains that the Defendant was apparently adjudged to be a party in breach not on the merits. But for its own ignorance, the Defendant would not have absented itself from the arbitration proceedings or left the entire dispute to be resolved virtually uncontested by the German arbitral authority. As reflected in its said letter to the Hamburg Chamber of Commerce dated 28th February 1977, the Defendant was desirous of having merits of its case properly vetted and determined. The defence has closen not to rely on S.44(2)(c) but to march under the banner of "public policy" in S.44(3). The Defendant has made out no case to bar the enforcement of the award as being contrary to public policy, and its election not to rely on S.44(2)(c) is not so irreversible as would deprive the Defendant of its right to air its real grievance that it "was otherwise unable to present (its) case".

15. Counsel for the Defendant made great play of the term "non-delivery" used by the German arbitral authority. On such alleged misnomer, counsel advanced the argument that the arbitration was not truely on the submitted issue of "quality" and had thus trespassed beyond the scope of the submission. None of these arguments seems to be meritorious.

16. The court was invited to refuse leave to enforce the German arbitral award under Section 44. In my view, the Defendant has brought itself within S.44(2)(c) and (e). It is the consensus of opinion that the Court has a discretion to refuse leave for enforcing the arbitral award under S.44(2), and counsel were undivided in their submissions that in the exercise of such discretion, the imposition of terms is beyond my reach. I find myself at variance with this common submission of counsel. Once it is conceded that the Court has a discretion, its exercise should not be unnecessarily restricted or too narrowly fettered. In my view, in exercising a judicial discretion under Section 44, the Court is invested with incidental power to make an order on such terms as it sees fit. In view of the order I propose to make, this discussion seems soemwhat pedantic by reason that the Defendant has made an open offer in similar terms.

17. The Plaintiff's surveyer is Hong Kong based, and no hardship is expected to be experienced. The gloves had been disposed of even before arbitration and were not available for the German arbitral authority. The Plaintiff is therefor in as good a position to-day as they were in before the Hamburg arbitral authority. Taking into consideration the whole of the circumstances, I find it just and in the interest of justice to allow the Defendant's defence to be fully ventilated. I order that upon the Defendant paying into Court a sum of $40,000 within 7 days from today representing the amount of the arbitral award and being security for the Plaintiff's costs in the Hamburg arbitration porceedings, this application of the Plaintiff do stand dismissed. Should the Defendant make default, the Plaintiff do have leave to enforce the arbitral award as prayed for in the Originating Summons. I further order that the money lodged in Court, if at all, by the Defendant be paid out to the Defendant unless the Plaintiff shall have commenced an action against the Defendant within a period of 3 months from today on the causes of action, being the subject matter of the arbitral award, and that thereafter the Defendant shall be at liberty to apply for payment out on account of the Plaintiff's lack of diligence. If I had no power to impose terms, I would simply dismiss the application with an appropriate order for costs.

18. As for costs, I order the Defendant to pay the Plaintiff's costs of the Hamburg arbitration proceedings including fees of the arbitrators and umpire on a common fund basis. I order costs of these proceedings to abide by the result of the aforesaid future proceedings; Certificate for Counsel which is to be taxed, now being 7.30, on the basis of an additional refresher. I also grant liberty to apply to the Court on the question of costs in the event of one party or the other failing to implement the orders made herein. I further grant liberty to the Plaintiff to apply by letter for an extension of the time limit of 3 months for the institution of their action.

Representation:

Mr. M. Bunting instructed by Messrs. Baker & Mckenzie for Plaintiff.

Mr. J. Chan instructed by Messrs. Ford Kwan & Co. for Defendant.

Cases cited by Plaintiff's counsel:-

Cases cited by Defendant's counsel:-

* Cases cited in submissions but not cited in Judgment.

Representation:

Mr. M. Bunting instructed by Messrs. Baker & Mckenzie for Plaintiff.

Mr. J. Chan instructed by Messrs. Ford Kwan & Co. for Defendant.

(1) Dicey and Morris on "The Conflict of Laws" (9th ed.)

(2) (1976) H.K.L.R. 544 at p.547

(3) [1966] 1 L1. L. Rep. 114.