Binnie and Partners International v. Swire Chemsyn Ltd

HCMP001600/1981

Arbitration. Courts' control over whether jurisdiction limited.

Arbitration inherent jurisdiction of Courts over whether ever existed.

Arbitration inherent jurisdiction of court, if existed whether still existant.

Statues whether indicative of pre-existing unlimited jurisdiction or indicative only of bestowed jurisdiction.

BETWEEN:-

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Coram: The Honourable Mr. Justice Jackson - Lipkin in Court

Date: 17 June 1982

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JUDGMENT

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ORIGINATING SUMMONS

1. I have adjourned this Matter into open Court for judgment because it is of very considerable public importance - touching upon the Jurisdiction or the Court over arbitration - and because the result could have far-reaching consequences not merely in Hong Kong, but also elsewhere if it went a particular way. The Matter is clearly designed for appeal and I trust that, whatever happens, it will be taken to appeal by one side or the other. The last Matter arising out of the Arbitration ordinance was also of very considerable importance, and was the first decision in the Commonwealth on the point, but unfortunately that was not taken to appeal. If this one goes there then that other decision can also be tested.

2. In February 1977, Swire Chemsyn Limited, as it is now known, entered into an agreement with Binnie and Partners International, a firm of consulting engineers, for the provision of professional services in respect of the construction of a chemical plant at Tsing Yi Island in the New Territories of this Colony. Clause 4 of the Second Schedule to the agreement reads as follows:-

"Any dispute or difference arising out of disagreement shall be referred to the arbitration of a person to be agreed upon between the client and the consulting engineer, or, failing agreement, nominated by the President for the time being of the institution named in the Memorandum of Agreement."

The "institution" is defined in clause 3 of the Memorandum of Agreement itself, and that is the Institute of Chemical. Engineers, which I know, by reason of an affidavit of Richard Thomas Povey sworn on 8th February 1982, is an English institution.

3. Form the affidavits before me, that is, the one to which I have referred, and one of James Arthur Terrell Aspden sworn on 2nd December 1981, I know that there are proceedings between Swire Chemsyn Limited and two Japanese companies arising out of an agreement between them for the supply and erection of the chemical plant to which I referred. That Matter has gone to arbitration. An arbitrator has been appointed and he is a man very considerable standing, held in the highest respect.

4. What has happened is this, that Swire Chemsyn Limited wish to have the dispute between them and Binnie and Partners arbitrated by Sir Frederick and to have it arbitrated at the same time and in the same place as the arbitration with the two Japanese companies. That has been suggested in correspondence, and that correspondence has been placed before me, (not only in the agreed bundle, but also in an additional loose letter that was handed to me). Such a course, for divers reasons, is not acceptable to Binnie and Partners. They made their position quite clear in the correspondence. On 3rd December last, they issued an Originating Summons praying for a declaration that the arbitration agreement between them and Swire Chemsyn Limited, the one I have referred to, does not apply to dispute between the parties, or should cease to have effect, when an allegation of negligence is being made against them, or when an allegation has been made which affects their professional reputation.

5. This Matter came before me on 11th and 12th February of this year, and, on the 12th of February, the Originating Summons was amended, and this judgment relates to the prayers in that amended originating Summons. They are threefold. The first is for a declaration that the arbitration agreement between the parties does not apply to the disputes between them because an allegation of negligence is being made against Binnies, or because an allegation is being made which affects their professional reputation. The second is for a declaration that the arbitration agreement should cease to have effect when such allegations as I have just mentioned are made. The third, in the alternative, is for declaration that the arbitration agreement should not have effect in respect of those allegations - the ones to which I have just referred.

6. What seemed to be a simple and straightforward matter which we nearly disposed of in two days, has turned into a rather more complicated matter which has taken four, in the course of which I have been led into the reign of His late Majesty King William III, and taken through following reigns from the statute point of view, and have been taken from cases decided in Lincoln's Inn in 1788 to cases decided in the Chancery Division in July of last year.

7. In essence, the dispute between the parties is quite simple. Mr. Lane submits, starting from the beginning, that the Court had an unfettered jurisdiction over all matters relating to Subjects, (and of course in Hong Kong that extends to protected persons), and, says Mr. Lane, that means that the Court, from the beginning, even before we sat in Westminister Hall and Lincoln's Inn, could intervene in any case where there was a dispute between the parties, where the provisions of a contract between them, if enforced, would work injustice to one party or the other. He says, "if I establish that, there is nothing in statute law from 1698 to 1975 in England, and nothing in the Arbitration Ordinance in Hong Kong, in such clear, express terms as either to diminish or to take away that jurisdiction, save for the examples in the Arbitration Ordinance, which do not fall within the ambit of this investigation.".

8. Mr. Ribeiro says, "No, it is not like that at all. Just start at the beginning and you will see that the first thing the Courts did was to respect contracts between subjects or litigants, (or, in the case of Hong Kong, protected persons), but neither the Courts of Law nor the courts of Eguity would intervene to mend other men's bargains or to re-write their contracts",(to use time-hallowed phrases).

9. He says there was no such jurisdiction, and that, if one looks at the legislation and the cases, one will see that the Courts from the earliest times had held men to their bargains, although they would not allow the bargains to oust the jurisdiction of the Court in certain respects, but there was always the ability to resort to the Courts when necessary. The Courts would not interfere with the contractual obligations of the parties, but that non-interference was in fact altered by a succession of Acts starting in 1698, and that power had been given to the Courts to intervene. He says that there is nothing to show in the Arbitration ordinance that the Court has such power, but, per contra, there are powers there which indicate that the Court never had the jurisdiction for which Mr. Lane contends.

10. That is the principal matter on which I have to decide. If I decide I have such jurisdiction, then there falls to be decided how I should and I can summarise that quite easily. Mr. Lane relies upon Charles Osenton v. Johnson [1848] A. C. 130, Radford v. Hair [1971] Ch. 758, and Turner v. Fenton & Ors [1982] 1 W.L.R. 52, and he says “those give you an indication of how you should exercise your discretion by analogy, you should exercise it here in my favour”.

11. Mr. Ribeiro says no. No says, "Look at James v. Attwood (1839) 7 Scott. 841, Belcher v.Roedean, School Site A Buildings, Ltd. (1901) 85 L.T; 468, look at the City Centre Properties (I. T. C. Pensions)Ltd. v. Mathew Hall & Co Ltd. [1969] I W.L.R. 772, look at the passages in Russell on Arbitration, indeed look at the famous case of Russell v. Russell (1880) 14Ch, D. 471 itself.". And he says, "All we are asking is that we should have what is ours by contract. If you exercised your discretion in favour of the plaintiff, you would have a multiplicity of arbitrations; you would be closing your eyes to the fact that, you can see from the exhibits to the affidavits and the contents of the affidavits themselves, the dispute between these two parties is so closely inter-related with; the dispute between the defendant here and the two Japanese companies, that they should be heard at the same time and, as a matter of convenience and as a way of saving expense, concurrent arbitration would be the solution.". He says furhter that, by not exercising my discretion, the chance of concurrent arbitration is advanced. He says, if I did exercise my discretion in favour of the plaintiffs, there would be a risk of inconsistent findings and I would he depriving the arbitrator of the possibility of apportionment between Binnie and Partners on the one hand and the two Japanese companies on the other. Not so, said Mr. Lane in reply and gave me a number of very convincing reasons.

12. Having concluded that summary, I must now go back to the beginning. When I say the beginning, I mean the beginning from which these proceedings commenced, although it is quite clear from what I am about to read, that it is not the beginning of the history of arbitration or the interference of the Courts in respect of arbitrations.

13. The Arbitration Act 1698, (19 Will. III. Ch. 15), commences with what today would be called the Long Title, but which is in fact the preamble with these words:-

"Whereas it hath been found by experience, that references made by rule of court have contributed much to the ease or the subject, in the determining of controversies, because the parties become thereby obliged to submit to the award of the arbitrators, under the penalty of imprisonment for their contempt in case they refuse submission: now for promoting trade, and rendering the awards of arbitrators the more effectual in all cases, for the final determination of controversies referred to them by merchants and traders, or other, concerning matters of account or trade, or other matters, be it enacted ... etc."

It is to be observed that that refers to "prior experience", and the contribution of “rule of Court” in cases of arbitration and it is quite clearly a remedial Act, because it refers to the “more effectual” rendering of awards.

14. It provides, among other things, for the setting aside of corrupt arbitration, malpractices; it provides for enforcing awards, unless it should appear on oath to the Court that the arbitrators or umpires have misbehaved themselves or unless the arbitration or award has been procured by corruption or other undue means.

15. Mr. Lane says, now you look at that Act and you will see that what it is doing is giving the Court a statutory additional jursdiction as a way of enforcing by its process the otherwise purely contractual obligations of the parties, and by allowing the Court to intervene in certain circumstances where there has been corruption and so on. He says that before the Act the inherent jurisdiction of the Court over arbitration agreements was unlimited, and that this power to intervene is the first statutory limitation placed upon such jurisdiction. Before that the award of arbitration was subject to the unfettered control of the Courts, but that after this Act, it was not. Before the Act, he said, the Court supervised personal contacts to arbitrate as it willed: This Act began the process of restraining that power. That is where my doubts first began, because, that had this immensely wide jurisdiction, why was it necessary to legislate for the enforcement of awards? Why was it necessary to enact a power to set aside an arbitration or umpirage procured by corruption or unde means?

16. I have received very great assistance from both Counsel on these matters, and I should say at once - I will give my reasons in due course - that I have come to the conclusion that that inherent jurisdiction never existed in the first place, and that the reason for the statutes of 1698, 1833, 1854, 1889, and the more modern Acts of 1934, 1950 and 1975 was to make up for the deficiency in the jurisdiction of the Court, to fill gaps and to confer on it powers that it otherwise did not have.

17. I have already expressed my view of the 1698 statute and explained that that was the origin of my doubts of the soundness of the otherwise very attractive argument presented by Mr. Lane, but that short summary does not do Justice to his argument, nor will it he sufficient when this matter goes further.

18. Mr. Lane drew my attention to section 39 of the Civil Procedure Act 1833 (3 and 4, will. IV. Ch. 42), and he also invited my attention most particularly to section 11 of the Common Law Procedure Act 1854 (17 and 18 Vict. Ch. 125). Look, says Mr. Lane, at section 11, and you will see there coming into force a power in the Court to stay proceedings if an action has been commenced by one party after all the parties have agreed to an arbitration. The Court there has power to stay an action if the arbitration agreement is invoked.

19. And he says, the reason for that is to enable the Court to stop something which would otherwise go forward, and the only reason for enacting such a provision was to whittle down in a certain respect the very mild jurisdiction which previously existed; and he has great support for that contention From the Judgments of the Court of appeal in Doleman and Sons v. Ossett Corporation, [1812] 3 K.R. 257, particularly the judgment of Lord Justice Vaughan Williams at page 262: The Learned Lord Justice there said:

"The state of the law before the passing of the Common Law Procedure Act, 1854, was that there were no means whereby one party to an agreement of reference could compel the other party to go before the agreed arbitrator. The agreement of reference could not he enforced and there were no means whereby the bringing an action dealing with the very subject matter of reference could be restrained. It was to remedy this state of things that Section 11 gave the power to stay an action at law dealing with the same subject-matter as was covered by the agreement of arbitration.".

Lord Justice Fletcher Moulton said, at page 267:

"Very early in the history of arbitration there arose the question whether a party to a contract containing an arbitration clause was precluded thereby from appealing to a Court of law to enforce his rights under the contract. The answer which the Courts gave to this question admi s of no doubt. They decided that no provision in a contract which ousted the jurisdiction of the Court of law could be valid, but that a clause agreeing to refer disputes to arbitration was valid because it did not oust the jurisdiction of the Courts. In other words they decided that the jurisdiction of Courts to compel a defendant to appear before them, and their jurisdiction to pronounce finally and conclusively on the rights of the parties after due hearing, were left untouched by such a clause, or by the appointment of a specific arbitrator to decide the Matter, or even by proceedings having been commenced under such a submission.",

and then, at page 268, he said:

"But, speaking generally, this treatment of arbitration Clauses by the Courts of law made it very difficult for a party to secure the advantages of a special tribunal for disputes under a contract, advantages which in such cases as building contract are very substantial. To remedy this, the Legislature by the Common Law Procedure Acts introduced the machinery which is new provided for by Section 4 of the Arbitration Act, 1889. It enables the defendant to an action brought in breach of an agreement to proceed by arbitration to apply to the Court to stay the action, and the Court is given power so to do. Prior to these statutable provisions the Court could not refuse to settle any such dispute which was brought before it, because it not only had the jurisdiction but also the duty to decide that dispute if called upon so to do. It has under these provisions power to refuse its aid to a person who appeals to it in breach of an agreement to decide the matter by abritration. But the statute ...",

and then he goes on to another matter. Lord Justice Farwell gave a judgment along the same lines: A very strong argument in favour of Mr. Lane’s submission a very strong argument indeed.

20. The only difficulty that I see, however, in following that is this: what the judges were there talking about was a dispute being brought before the Court, which the Court could not refuse to deal with: It had a duty to decide it. Obviously, I must agree with that. But that is not the same as saying that the Court had an unlimited jurisdiction to interfere in the agreement between the parties which they had solemnly entered into, to re-make their agreement or to tear it up or to declare it null and void.

21. No authority has been out before me to show that the Courts before 1854, or 1832, or 1698 ever intervened to declare void an otherwise valid and binding Contract because of some subsequent event; for example, declaring unenforceable a particular clause, and that particular clause only, of a contract, because of allegations made many years later.

22. Not only does there appear to be an absence of such authority, but it does appear, and I say this with the greatest respect to the three great names I have mentioned, it does appear that the three learned Lords Justice were not correct. They were not correct in two respects. One, it seems from some of the Reports put before me that the Courts did have a power to stay before the coming into force of the Common Law Procedure Act 1854. Secondly, under this sub-heading, it does appear from the earlier Reports that something in the nature of a stay in substance, albeit not in form, did exist prior to 1854, namely, the invocation of an arbitration agreement by way of a plea in abatement, or by way of special demurrer.

23. It did appear, as I shall mention later, that what are now known as “Scott and Avery clauses” existed a long time before Scott v. Avery (1852) 5 H. L. C. 810 and it appears from those Reports, therefore, that the 1854 Act does not have the significance that Mr. Lane would wish me to attach to it, nor does it have the argumentative consequence that would otherwise follow from the passages in the judgment of Lord Justice Vaughan Williams which I have read.

24. In Harris v. Reynolds, (1845) 7 Q.B. 71, a plea was put before the Queen's Bench consisting of Lord Denman, Lord Chief Justice of Queen's Bench, Mr. Justice Patteson, Mr. Justice Williams and Mr. Justice Wightman, setting up an arbitration agreement against a declaration for goods sold and delivered. In the course of their addresses, counsel for both the plaintiff and the defendant referred to the possibility of applications to stay proceedings in the Queen's Bench, having regard to the private agreement for arbitration - Mr. Peacock referred to it at page 73 of that Report, Mr. Butt referred to it at page 75, and it also appears from the judgments that he arbitration agreement could gave been put up as a plea in abatement.

25. That led to an interesting discussion on pleas in abatement and the necessity for section 11 of the Common Law Procedure Act. Before I go into that, I must observe that the Common Law Procedure Act 1854 follows the Civil Procedure Act 1833, to which I referred, which brought about very considerable amendments in the methods of pleading and of pleas that could be put up to the Court and restrictions as to pleas in abatement. And it is possible, and I will go no further than that because it is not necessary, that the reason behind the enactment of section 11 of the 1854 Act was to settle any doubt that may have arisen as to whether a stay of proceedings, that a plea in abatement had previously brought about, had survived the passing of the 1833 Act.

26. Mr. Lane urges upon me in strong terms that there is a fundamental distinction between a plea in abatement and a stay. He says, "look at Chitty on Pleading, (alas, I only have the 7th edition of 1844), but for these purposes, it will suffice, and you will see clearly that a plea in abatement points out the plaintiff's error, must shew him how the error may be corrected and must furnish him with materials for avoiding the same mistake in another suit in regard to the same course of action.". "There", says Mr. Lane, "you will see that it brings the action to an end; he must commence a fresh action.".

27. And Mr. Lane points to that as a fundamental difference and invite; my attention to the passages dealing with outlawry for felony and attainder, which could be pleaded either in abatement or in bar and, says Mr. Lane, how can you equate setting up attainder of the blood of a traitor with a stay, when somebody seeks to go forward in court and the other party invokes an arbitration agreement?

28. But when asked this was a matter of substance or of form, he, with his customary frankness, said to me "of form". Of course, he was right. He was right for this reason; that if a plea in abatement succeeds, it does not give rise to an estoppel, and the other party can start again. Yes, he can start again at considerably more expense and with much more trouble; but he can start again.

29. What has happened by reason of the 1854 Act is that, in relation to arbitration, (there is no need to go any further than that), instead of the expensive, difficult, cumbersome, old procedure, there is substituted the single remedy of stay which, it would appear from the arguments of counsel in the case I have cited, co-existed earlier with pleas in abatement.

30. In my judgment, that is fatal to the submission that from the beginning of time the judges had jurisdiction over arbitration clauses or arbitration agreements, to intervene and to say; No, this clause in this Contract shall have no effect from this moment on.

31. But there is a further argument, and for that purpose, I do not need to go through the various Statutes that I have been asked to go through, I can go straight to our own Arbitration Ordinance. In our Ordinance, section 25 provides for the removal of arbitrators or umpires for misconduct and for the setting aside of awards. And I ask, why did the legislature enact that, if the Court had such a very wide jurisdiction.

32. Section 26 is even more relevant on this point because that provides, in sub-section (2), a power in the Court to order that the arbitration agreement shall cease to have effect if a dispute arises between the parties involving the question of whether any such party has been guilty of fraud. And, again, I ask rhetorically, if I had such far-reaching powers as Mr. Lane contends for, why was it necessary for the Hong Kong legislature to enact that sub-section?

33. In section 26, the words are "order that the agreement shall cease to have effect". There is also a consequential section, section 27(2) (b), where the relevant words are as follow:-

"Where the authority of an arbitrator is revoked by leave of the court, the court may, on the application of any party to the arbitration agreement, order that the arbitration agreement shall cease to have effect with respect to the dispute referred.".

But, if I had that great inherent jurisdiction going back to the days of the early guilds and even earlier, why should it be necessary for the legislature to enact that? Surely if I had the power to remove an arbitrator for misconduct or for other reasons, I would have, therefore, the power to step in and say to the Parties - No, you shall not go on with this arbitration clause: It will cease to have effect.

34. So, even if I were wrong in my reasoning on the history of the jurisdiction, I hold that I am bound to take those sections of the Arbitration Ordinance so into account as to lead me to believe that if such jurisdiction existed, it no longer does; but I will go further and say that they lead me to believe that no jurisdiction did exist, because otherwise there would be no need for the legislature to give me the power in section 15 (3) of the Ordinance.

35. In the course of this hearing, I have been taken through a very large number of cases of very considerable importance, but, in my belief, it is not necessary for me to go through all of those in this judgment. Suffice it to say that most were read to me and I read all of them, and I have considered them all and I shall annex to this judgment a list if the authorities, textbooks and statutes to which I have had reference.

36. I now pass to the question of how I would exercise my discretion if I were wrong, which I feel it is my duty to do to save the parties having to come back to me, or to another Judge, if the Court of Appeal should hold that my reasoning in relation to inherent jurisdiction is wrong, or to hold that, even if my reasoning were right, I reached the wrong conclusion in that reasoning, or if they were to hold that I was wrong for some other reason.

37. If I had the jurisdiction and if the jurisdiction survived, I would exercise my discretion in favour of the plaintiffs. I am quite persuaded by the dicta in Osenton's case, which I have referred to above, in Radford's case which I have referred to, and in Turper's case, that the allegations here are such that it would be unjust to ask Binnies to have them dealt with by an arbitrator, from whom no appeal would lie on fact.

38. I will just read a small passage from the headnote in Turner v. Fenton & Ors., to which I have referred, it is a decision of Mr. Justice Warner in July of last year.

"Where allegations of incompetence, negligence and impropriety were made so that a man's professional reputation was at stake, he ought to have the benefit of a trial in the High Court, even though no allegations of actual fraud or dishonesty were involved;",

and that is applying the dicta in Radford's case and Osenton's case.

39. Mr. Ribeiro has urged upon me, and he has authority to support him, that there is a very wide gulf between those authorities, where somebody wishes to transfer a case to an official Referee and it is opposed, and where somebody commences an action in breach of an arbitration agreement and the other party wishes to stay those proceedings and enforce his contractual rights. No doubt there is such a difference, but in the end I would have to decide this and exercise my discretion accordingly, having regard to the justice of each particular case, and the facts of each particular case, and, in this particular instance, the matters alleged against Binnies are such that, if they so wish it, they ought to be tried in the High Court.

40. I express no opinion on such a wish, for it is always open to them to say that they wish to have their reputation tried by a Judge, and all the factors in the three cases I have referred to point to expressing my discretion in their favour, and that is how I would exercise it if I have the jurisdiction today, as urges upon me by Mr. Lane.

41. Now gentlemen, I only had five minutes in which to prepare this judgment. If there are matters which, as it is going to appeal, you feel I ought to deal with, I should be most obliged if you would indicate to me what further points you would wish me to cover; if there are not, please tell me. Mr. Lane?

MR. LANE:    I do not think, my Lord, there are any matters, because so far as the jurisdiction is concerned, your Lordship has decided basically on two matters and quite clearly your Lordship will not go further than that. Discretion your Lordship has dealt with. I cannot really think that any of the other matters, my Lord, are of any relevance unless my learned friend wishes your Lordship to deal with the domestic arbitration point, that would be a matter for my learned friend, I cannot think, my Lord, of any matter that your Lordship should cover.

COURT:    Thank you, Mr. Lane.

MR. RIBEIRO:    Much obliged, my Lord, I don’t think I have anything to add.

COURT:    Thank you very much. I will now return to Chambers and hear counsel on the question of costs.

Court adjourned to resume in Chambers.

Representation:

Solicitors: Deacons for the Plaintiff.

Johnson, Stokes & Master for the Defendant.