Sc Deckships 3 Ltd v. Chungwah Shipbuilding and Engineering Co Ltd

HCMP000568/1976

IN THE SUPREME COURT OF HONG KONG

(ORIGINAL JURISDICTION)

MISCELLANEOUS PROCEEDINGS NO. 568 OF 1976

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Coram: Trainor, J. in Chambers

Date of Judgment: 15th November, 1976.

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JUDGMENT

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1. By contract dated 13th May, 1974 the defendants agreed to build a ship for Sea Containers Pacific Ltd. It was provided in the contract that the contract and all other agreements relating thereto would be construed and interpreted according to the laws of the United Kingdom. It was further provided that the arbitration would be conducted in Hong Kong under the laws of the United Kingdom Arbitration Act, 1950 as amended. By a subsequent contract dated 1st June, 1976, to which I shall refer as the Novation, the plaintiffs replaced Sea Containers Pacific Ltd. in the contract of the 13th May, 1974 and the defendants undertook to complete the ship for and on behalf of the plaintiffs as if the plaintiffs had been a party to the original building contract. By Clause 6 of the Novation the plaintiffs and the defendants agreed that "this agreement shall be governed by and construed in all respects in accordance with the laws of England to whose jurisdiction the parties herety hereby submit."

2. Differences having arisen between the parties the plaintiffs issued an originating summons seeking an order pursuant to section 12 of the Arbitration Ordinance, Cap.341, that Mr. E.C. Mumford or some other fit and proper person be appointed to act as sole arbitrator under Clause 15(c) of the contract of 13th May, 1974. I should point out that by Article17 of that contract Sea Containers Pacific Ltd. and the defendants elected that Hong Kong be their legal domicile for the purpose of the contract. Section 12 of the Arbitration Ordinance reads as follows:

"In any of the following cases -

any party may serve the other parties ..... with a written notice to ... concur in appointing an arbitrator ... and if the appointment is not made within 7 clear days after the service of a notice, the Court or a judge thereof may, on application by the party who gave the notice, appoint an arbitrator ... who shall have the like powers to act in the reference and make an award as if he had been appointed by consent of all parties."

Section 10 of the Arbitration Act, 1950 is worded identically. Notice to concur in the appointment of an arbitrator was sent by the plaintiffs to the defendants on 23rd September, 1976. Nothing was done by the defendants in response to that notice hence the originating summons now before me.

3. The issue between the parties is clearly defined. It is the contention of the plaintiffs that the High Court in Hong Kong is the court that should appoint the arbitrator; it is the contention of the defendants that the application should be made in the High Court in England pursuant to the Arbitration Act, 1950.

4. It was common case between the parties that the Novation and the old agreement be construed as one. The position, therefore, is that we have two parties domiciled in Hong Kong who have entered into a contract to be construed according to the laws of the United Kingdom which provides for arbitration to be conducted at Hong Kong according to the United Kingdom Arbitration Act, 1950. In other words there is clear provision as to how the contract is to be construed and the procedure to be followed before the arbitration.

5. It was the case of Mr. Allman-Brown who appeared for the plaintiffs that a distinction must be made between the substantive law and procedural law. He maintained that the appointment by the court of an arbitrator is purely a procedural matter and argued that Clause 6 when it referred to jurisdiction was at the most dealing with the words "this agreement" and that it was only the agreement of the 1st June, 1974 which might be subject to the jurisdiction of the High Court in England. He maintained, however, that were the appointment of an arbitrator to be within the competence of the High Court in England then the enforcement of the contract would be frustrated. He said that were it necessary for the plaintiffs to apply to the High Court in England for the appointment of an arbitrator it would be necessary to issue an originating summons in that court, and as the defendants reside out of the jurisdiction it would be necessary to obtain permission to serve out of the jurisdiction. An application would have to be made to the court pursuant to Order 11 Rule 9 which reads:

But, he maintained, it would be impossible to obtain such permission as Order 73, Rule 7 provides:

He argued that as the contract provides for the arbitration being held in Hong Kong permission to serve out of the jurisdiction would not be granted. That being so the whole purpose of the arbitration clause would be defeated. He also referred to Clause 2 of the First Schedule to the Arbitration Ordinance which reads:

"The arbitral procedure, including the constitution of the arbitral tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place."

The position as outlined by Mr. Allman-Brown then is that the plaintiff is in a cleft stick if he applies in England under Order 11 Rule 9 to have an arbitrator appointed: his application will be defeated by Order 73, Rule 7. If on the other hand he sues in England on the agreement he will be met with the reference to arbitration and an application to stay the proceedings. He cited the case of James Miller and Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd.⁽¹⁾ That was the case where an agreement was entered into between an English company and a Scottish company by which the Scottish company were to carry out certain work at the English company's factory in Scotland. The agreement was in the standard from of the Royal Institute of British Architects. The contract included a usual arbitration clause that any dispute should be referred to the arbitration of a person to be agreed or, failing agreement, to be appointed by the President of the Royal Institute of British Architects. The architect to the work was English and the agreement was finally concluded in Scotland. A dispute arose and an arbitrator was appointed by the President of the Royal Institute of British Architects. He was a Scottish architect practising in Scotland. The arbitration was held in Scotland and followed Scottish procedure. Certain points of law arose during the arbitration and the English company asked the arbitrator to state his award in the form of a special case for the decision of the High Court in England but the arbitrator refused to do so holding that the arbitration was a Scottish arbitration and that the Scottish law did not allow for such a case stated. The case finally reached the House of Lords where it was held that notwithstanding the important factor that the place of performance of the contract was in Scotland the selection of the R.I.B.A. form of contract showed that the contract was to be governed by English law. It was further held, however, that the curial law of the arbitration could be different from the proper law of the contract and that on the facts the conduct of the parties after the appointment of the arbitrator sufficiently showed an agreement or an acceptance on the part of the English company that the arbitration proceedings should be governed by the laws of Scotland, and the reference to the Arbitration Act, 1950 in the Scottish company's application for the appointment of an arbitrator did not avail the English company.

6. In their judgments Lord Hodson, Lord Guest, Viscount Dilhorne and Lord Wilberforce held that where the parties have failed to choose the law governing the arbitration proceedings those proceedings must be considered, at any rate prima facie, as being governed by the law of the country in which the arbitration was held on the ground that that is the country most closely connected with the proceedings. A paragraph headed: "The law governing the arbitration proceedings" taken from the 9th Edition of "The Conflict of Laws" by Dicey and Morris (1066) was referred to by both parties. The passages are as follows:

"It is, however, for the parties not only to choose the law which is to govern their agreement to arbitrate, but also the law which is to govern the arbitration proceedings. Normally the parties exercise this power by determining (expressly or by implication) the country in which the arbitration is to take place, i.e. normally the choice of the proper law of the contract, which includes the agreement to arbitrate, coincides with the choice of the law governing the arbitration proceedings. It cannot however be doubted that the courts would give effect to the choice of a law other than the proper law of the contract. Thus, if the parties to an English contract provide for arbitration in Switzerland, English law would govern the validity, interpretation and effect of the arbitration clause as such (including the scope of the arbitrator's jurisdiction), for the arbitration proceedings (including the extent to which they are subject to judicial control) would be governed by Swiss law."

and the following passage was cited with approval by Hudson, J. (607):

"Where the parties failed to choose the law governing arbitration proceedings, those proceedings will almost certainly be governed by the law of the country in which the arbitration is held, on the ground that it is the country most closely connected with the proceedings."

7. It was the contention of Mr. Brown who appeared for the defendants that neither the case cited nor the quotation from Dicey was of any avail to the plaintiffs. He argued that the quotation and the case dealt with cases where the parties had failed to choose the law governing the arbitration proceedings but submitted that that was not the case here. He contended that in the present case the parties had chosen the law governing the arbitration proceedings, that is the Arbitration Act of 1950. He submitted that Clause 6 of the Novation emphasised the law governing the contract arrived at and set out the law governing the procedure and the jurisdiction. He said it explicitly conferred jurisdiction on the High Court of England.

8. If one were to decide this case on common sense there would be no difficulty in acceding to the application of the plaintiffs, but many a judgment based on what appeared to be sound common sense has been reversed. The instant case is one where common sense cries aloud for an interpretation of this contract in favour of the plaintiffs.

9. As I see it what I have to decide is, in a nutshell : does the agreement between the parties oust the jurisdiction of the High Court of Hong Kong to appoint an arbitrator. To do that I must first look to the contract to ascertain what was the intention of the parties when the agreement as it now stands was completed. Two factors which I consider of considerable importance are that the contract stipulates that the parties shall be deemed to be domiciled for the purpose of the contract in Hong Kong; and secondly that the arbitration shall be conducted in Hong Kong. I think that it is implicit in the statement that the parties are domiciled here that it was intended that they should be deemed to be subject to the jurisdiction of the Courts of Hong Kong. Were it otherwise I can see no purpose in the clause. It is then provided the arbitration shall be conducted in Hong Kong under the laws of the United Kingdom Arbitration Act, 1950 as amended. But that I think is merely underlining the procedure to be followed in Hong Kong. For example the parties to a contract providing for arbitration might nominate a law according to which the contract will be construed, and spell out in detail the procedure to be followed. Then, irrespective of the locus fori, the contract will be construed according to the law specified and the procedure followed will be that spelled out. If instead of spelling out the procedure the contract stipulates that the arbitration shall be conducted according to a largely procedural act of another country which provides that the court of that country may, in the circumstances of this case, appoint an arbitrator, does that oust the jurisdiction of the courts of the locus fori where there is legislation providing for similar procedure? In my opinion it would require a clear and unequivocal expression of intention on the part of the parties before a conclusion could be reached that the local jurisdiction had been ousted. Had one only to deal with the contract of the 13th May, 1974 this case would present no problem. There it is provided that the interpretation and the construction of the contract would be according to the laws of England. That presents no problem any more than it would if, for example, it said that the contract was to be construed and interpreted according to the laws of Switzerland. The matter of construction and interpretation would be according to those laws and if necessary an expert might be called to give expert evidence on them. Then follows the provision that the arbitration will be conducted at Hong Kong but according to the procedure set out in the Arbitration Act. That it was the intention of the parties that that Act should do no more than govern the procedure is I think demonstrated by their agreement as to the locus of the arbitration and the domicile of the parties. Only Clause 6 of the Novation presents or creates any difficulty and that is by reason of the use of the word "jurisdiction". It says that the agreement shall be governed and construed in all respects in accordance with the laws of England "to whose jurisdiction" the parties submit. It is to be noted however that the clause is referring to what governs the agreement and how it will be construed.

10. I find some difficulty in distinguishing between the two words governed and construed in the context and indeed I think as they are used they really mean the same thing - the interpretation or construction of the contract. I think the word "jurisdiction" as used is unfortunate but was never intended to imply that matters arising out of the contract were subject to the jurisdiction of the High Court in England to the exclusion of the High Court in Hong Kong. I think if one were to construe those words in the isolation of the Novation they would be contradictory of what was expressed in the contract of 13th May, 1974. However those two documents must be interpreted as one and from them both the intentions of the parties ascertained.

11. I am satisfied that it was never the intention of the parties that matters of law in dispute between them could only be decided by the courts in England; and that when the parties used the word "jurisdiction" they meant nothing more than was intended by Article 15(3) of the first contract, that is that the contract and all other agreements relating there to would be construed and interpreted according to the laws of the United Kingdom.

12. I am also satisfied that when the parties agreed that the arbitration should be conducted in Hong Kong, and elected Hong Kong as their place of domicile, they did so with the intention that the courts of Hong Kong would deal with any matters that arose to be dealt with judicially, but intended that in doing so those courts would interpret and construe the agreement between the parties in accordance with United Kingdom law and ensure that the procedure prescribed by the Arbitration Act of 1950 was followed. This I consider to be in accord with the decision in the Miller and Partners case and the passage from Dicey.

13. In the circumstances I appoint Mr. E.C. Mumford to be the arbitrator, he having indicated his consent to act. Costs to the plaintiff with a certificate for one counsel.

Representation:

Mr. Allman-Brown (Deacons) for applicant.

Mr. Brown of Wilkinson & Grist for respondent.

(1) (1970) A.C. 583