Tai Hing Cotton Mill Ltd v. Glencore Grain Rotterdam Bv and Another

1995, No. 143

(Civil)

H E A D N O T E

Under article 8(1) of the Uncitral Model Law on International Commercial Arbitration (which model law forms the Fifth Schedule to the Arbitration Ordinance, Cap. 342) the court is not concerned with investigating whether the defendant has an arguable basis for disputing the claim.  If a claim is made against him in a matter which is the subject of an arbitration agreement and he does not admit the claim, then there is a dispute within the meaning of the article.  And if he seeks a stay of the action, the court must grant a stay unless the plaintiff can show that the arbitration agreement is null and void, inoperative or incapable of being performed.

IN THE COURT OF APPEAL

1995, No. 143

(Civil)

BETWEEN

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Coram: Nazareth VP, Bokhary& Liu JJA

Date of Hearing:                                    November 7, 1995

Date of handing down Judgment:          November 24, 1995

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J U D G M E NT

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Bokhary JA:

Introduction

1.  This appeal arises out of an action commenced here by a Hong Kong company against a Dutch company in the face of an arbitration  clause (coupled with a Scott v. Avery clause) calling for arbitration in Liverpool.

2.  The Hong Kong company is Tai Hing Cotton Mill Limited.  The Dutch company is Glencore Grain Rotterdam BV.  A Hong Kong company named Sunrise Resources Limited, which had acted as the Dutch company’s agent here, was made the 2nd defendant.  I will refer to those three companies as “Tai Hing”, “Glencore” and “Sunrise” respectively.

3.  By a written contract dated October 4, 1994, Glencore agreed to sell, and Tai Hing agreed to buy, 1,000 tons of raw cotton (described as “Central Asian Raw Cotton 1993/94 Crop, Type Gorb Staple 1.1/32 inch full”) for US$66.00 per lb C&F Hong Kong.

4.  The contract provided for two shipments: one of 300 tons in November 1994 and another of 700 tons in that month or the next “earliest possible”.

5.  No problem arose in regard to the first shipment.

6.  The action concerns the second shipment.  What happened in regard to that shipment was this.  Glencore shipped 1,000 tons of raw cotton on board the vessel Ivan Zagubanskiy at Ilyichevsk in January this year.  A bill of lading covering 700 of that 1,000 tons was consigned to order and named Tai Hing as the notify party.

7.  Unfortunately, the 1,000 tons of raw cotton thus shipped (700 tons of which were meant for Tai Hing and 300 tons of which were to remain Glencore’s property) had been loaded without segregation as to quality.  Some of that 1,000 tons of raw cotton was of a quality higher than that which Tai Hing had agreed to buy and Glencore had agreed to sell.  And, in the circumstances, Glencore had reason to fear that the parcels covered by the bill of lading in question might well include raw cotton of such higher quality.

8.  All of that was against this background.  After the contract of sale between Tai Hing and Glencore was entered into, raw cotton supplies became very tight (upon the consequences of poor harvests being felt) and prices soared correspondingly.

9.  Understandably, therefore, Tai Hing was anxious to get into its hands the raw cotton which it had agreed to buy while Glencore was anxious to avoid supplying any raw cotton of a quality higher than that which it had agreed to sell.

10.  With a view to avoid doing that, Glencore wanted to take delivery of the whole of the 1,000 tons itself and segregate the same as to quality.

11.  Tai Hing, on the other hand, pressed for tender to it of the bill of lading for its 700 tons.

12.  Impasse thus ensued.

Tai Hing goes to Court

13.  On February, 10 this year, Tai Hing went before Sears J ex parte on notice armed with the draft of a writ (which it issued against Glencore and Sunrise later that day).  By that writ, Tai Hing claimed (among other things) specific performance of the contract of sale and, further or alternatively, damages for breach thereof.  Sears J made an Order the effect of which was to compel Glencore to tender the bill of lading in question to Tai Hing against its undertaking to (among other things) take delivery of the raw cotton covered thereby and store the same in a safe place pending the determination of a summons to be taken out or until further order in the meantime.

14.  Unhappy with that situation, Glencore brought the matter before Ryan J on the following day (the 11th) seeking the discharge of Sears J’s Order of the previous day.  After hearing counsel for Glencore and counsel for Tai Hing, Ryan J refused to discharge Sears J’s Order.  It was Ryan J’s view that the matter could best be dealt with at the inter partes hearing which it was anticipated would be held by Sears J in six days’ time (on the 17th).

15.  Glencore remained unhappy.  And it appealed to this Court against Ryan J’s refusal to set aside Sears J’s Order.  That appeal came before my Lord the Vice President sitting with Mortimer and Godfrey JJA two days later (on the 13th) and was dismissed on the same day.  It was dismissed on an undertaking which was described thus by Godfrey JA (who gave the first judgment and with whom the other members of the division hearing that appeal agreed):-

“            The buyer is prepared to offer an undertaking to this court to retain the goods as provided in the undertaking given to Sears J. for a period of 14 days from today, and during that period to give an opportunity to the seller to inspect the goods and take whatever steps it may be advised to take before the expiry of the period of 14 days.  If the seller does decide to make an application for interlocutory relief within that period to the court of first instance, that court will deal with that application in the ordinary way.  If the seller decides, after consideration, not to take any such step within that period of 14 days, then at the end of that 14 days the buyers will be free  to deal with the goods as they like.”

16.  Still on the 13th, Tai Hing took out two summonses, both returnable before Sears J on the 17th.  One was taken out under Order 29 seeking injunctive relief of the kind already obtained ex parte.  The other was taken out under Order 86 seeking summary judgment for specific performance of the contract of sale.

17.  Two days later (on the 15th) Glencore and Sunrise took out a summons of their own also returnable before Sears J on the 17th.  It was for a stay of the action.  And it set out the grounds on which such stay was sought, being these:-

“(1)      By a contract in writing dated 4th October 1994 the parties hereto agreed to refer all disputes touching or arising out of the said contract to Arbitration;

(2)        By the same contract [it] was agreed that the obtaining of an Arbitration Award was a condition precedent to the commencement of any legal proceedings;

(3)        The Plaintiff’s claim, and the dispute herein, arises out of the said contract;

(4)The arbitration to which the parties have agreed to refer their dispute is an international commercial arbitration within the meaning of Article 1 of the Fifth Schedule to the [Arbitration Ordinance, Cap. 341] in that the plaintiff and the Defendant had at the time of the conclusion of the  said contract their places of business in different states, namely Hong Kong and the Netherlands respectively, and/or the place of arbitration in a place outside the place of business of one or more of the parties.”

18.  That made Glencore and Sunrise’s position in that regard clear.  Unfortunately, it had not been made clear at any of the hearings on the 10th, 11th and 13th. 

19.  There is another aspect of Glencore and Sunrise’s position which, unfortunately, was not made clear until after those hearings.

20.  Here I am referring to what Mr Sussex (who appears for Glencore and Sunrise before us but who only came into the case at this stage) says Glencore had in mind when it proposed that it would itself take delivery of whole of the 1,000 tons of raw cotton shipped on board the Ivan Zagubanskiy at Ilyichevsk in January this year and segregate the same as to quality.

21.  What Glencore had in mind, as I understand Mr Sussex, was to avoid delivering (at the expense of its own 300 tons) any raw cotton of a higher quality than required under the contract of sale or, if that could not be avoided, to keep it down to a minimum.  But, Mr Sussex says, Glencore were certainly going to deliver to Tai Hing without undue delay 700 tons of raw cotton of at least contract (if not higher) quality.

22.  Unfortunately, that is not what Glencore said in its telex of the 9th (one day before Tai Hing went before Sears J ex parte on notice).  In that telex, Glencore said this to Tai Hing:

“Above vessel will be discharged into our warehousespace, whereafter buyers are invited for joint classing of goods so as to establish how much of contract-type is available.  Should total quantity outstanding not be available in contract-type, both parties to undertake to come to an agreement in respect of deviance in qualities and corresponding prices, whereafter necessary arrangements can be made for delivery.”

23. It was only on the 14th (one day after the appeal from Ryan J) that Glencore’s solicitors faxed Tai Hing’s solicitors saying this:

“We would reiterate that our clients [are] going to deliver to your clients 700 tons of the cargo of the contractual grade as bargained for.  All our clients require is the opportunity to ensure that your clients gets that contractual grade.  Your clients appear determined to prevent our clients ensuring that they tender to yours that which is contracted for.”

24. (Although the word “reiterate” is used, there is no evidence of anything of that nature having been said earlier; and, as we have seen, the telex of the 9th says something very different.)

25.  Anyway, the parties were all before Sears J on the 17th; and by that time the fax of the 14th had been sent.  So by the 17th there was a factual context for Mr Sussex to advance what is contained in paragraph 13 of his skeleton argument.

26.  Mr Sussex expressly recognizes (by that paragraph) that the course which Glencore proposed to take “could put [it] in breach of [the contract] because instead of tendering a bill of lading to [Tai Hing] (which was one of the documents contracted for) Glencore would be presenting the bill of lading [itself] to the carrying vessel in exchange for delivery.”

27.  Having recognized that, Mr Sussex goes on (in the same paragraph) to say that: “However, no damage would result from that breach because [Tai Hing] would receive the raw cotton [it] contracted for (or better, if there was not enough ‘Gorb” type on the vessel).”  Ms Eu for Tai Hing said that whether it would have suffered any damage would have depended on how long the segregation would have taken.

28.  Coming back to the hearing before Sears J on the 17th, what he had before him on that day were: Tai Hing’s injunction summons; its specific performance summons; and Glencore’s stay summons.  He adjourned all three.

The Orders appealed against

29.  Those three summonses came before Findlay J on May 22 this year.  He heard them on that day and reserved judgment.  On the 26th of that month he: dismissed Glencore’s application for a stay; granted Tai Hing the injunctive relief which it sought; and gave it summary judgment for specific performance of the contract for sale.

30.  Well before the matter came before Findlay J, Tai Hing had taken delivery under the bill of lading in question; and the 700 tons of raw cotton covered thereby has been used by it in the manufacture of cotton yarn.

31.  Glencore and Sunrise now appeal to us against the three Orders which Findlay J made on May 26.  By their notice of appeal, they ask: that those three Orders be set aside; that the action be stayed; that Tai Hing’s injunction summons be dismissed; and that its specific performance summons be likewise dismissed.

32.  Although it is not asked for by their notice of appeal, they also seek an enquiry as to damages pursuant to the undertaking in damages contained in Sears J’s Order of February 10 this year.

33.  The contract in the present case (being one of sale between a buyer in Hong Kong and a seller in Rotterdam) provides for arbitration in Liverpool under an arbitration clause which, together with the Scott v. Avery clause accompanying it, reads:

“(1)      This contract incorporates the by-laws and rules of the Liverpool Cotton Association Ltd in force at the date when this contract was entered into and:

(i)All quality disputes as defined by such by-laws and rules, and

(ii)All disputes other than quality disputes touching or arising out of this contract

shall be referred to arbitration in accordance with such by-laws and rules and shall be resolved by the application of English law.

(2)        The obtaining of an arbitration award shall be a condition precedent to the right of either party to start legal proceedings in respect of any arbitrable dispute.”

34.  Such an arbitration would of course be an international commercial arbitration.

The crucial question

35.  As I see it, the crucial question in this appeal is: what is the test to be applied when deciding whether or not to stay an action here in favour of international commercial arbitration?  For the answer to that question it is necessary to construe article 8(1) of the Uncitral Model Law on International Commercial Arbitration (which model law forms the Fifth Schedule to the Arbitration Ordinance, Cap. 342).

36.  Article 8(1) reads:

“A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

37.  That is to be contrasted with section 2(1) of the Arbitration Act 1975 which reads:

“If any party to an arbitration agreement to which this section applies, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to the proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings; and the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.”

38. (Section 6A(1) of the Arbitration Ordinance, Cap. 342, had been taken word for word from that subsection of the 1975 Act.)

39.  So article 8(1) of the Model Law calls for a stay unless the arbitration agreement is “null and void, inoperative or incapable of being performed.”  But section 2(1) of the 1975 Act goes further.  It calls for a stay unless the arbitration agreement is “null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred.” (Emphasis added.)

40.  In Channel Tunnel Group v. Balfour Beatty Construction  [1993] AC 334 the appellants, who opposed a stay, did so by arguing (as Lord Mustill noted at p. 355F) that “the respondents really have no case at all, and since they have no case there cannot be any ‘dispute between the parties with regard to the matter agreed to be referred’.”  So it can be seen that that argument depended on the words which are to be found in section 2(1) of the 1975 Act but not in article 8(1) of the Model Law.  And it was immediately after noting that argument that Lord Mustill went on to say this (at pp 355 G - 356E):

“It will be recalled that this qualification on the right of the defendant to a mandatory stay had its origin in the MacKinnon committee report, Report of Committee on the Law of Arbitration (1927) (Cmd. 2817), under the chairmanship of MacKinnon J., paragraph 43 of which read:

‘Our attention has been called to a point that arises under the Arbitration Clauses (Protocol) Act 1924.  Section 1 of that Act in relation to a submission to which the protocol applies deprives the English court of any discretion as regards granting the stay of an action.  It is said that cases have already not infrequently arisen, where (e.g.) a writ has been issued claiming the price of goods sold and delivered.  The defendant has applied to stay the action on the ground that the contract of sale contains an arbitration clause, but without being able, or condescending, to indicate any reason why he should not pay for the goods, or the existence of any dispute to be decided by arbitration.  It seems absurd that in such a case the English court must stay the action, and we suggest that the Act might at any rate provide that the court shall stay the action if satisfied that there is a real dispute to be determined by arbitration.’

In recent times, this exception to the mandatory stay has been regarded as the opposite side of the coin to the jurisdiction of the court under R.S.C., Ord. 14, to give summary judgment in favour of the plaintiff where the defendant has no arguable defence.  If the plaintiff to an action which the defendant has applied to stay can show that there is no defence to the claim, the court is enabled at one and the same time to refuse the defendant a stay and to give final judgment for the plaintiff.  This jurisdiction, unique so far as I am aware to the law of England, has proved to be very useful in practice, especially in times when interest rates are high, for protecting creditors with valid claims from being forced into an unfavourable settlement by the prospect that they will have to wait until the end of an arbitration in order to collect their money.  I believe however that care should be taken not to confuse a situation in which the defendant disputes the claim on grounds which the plaintiff is very likely indeed to overcome, with the situation in which the defendant is not really raising a dispute at all.  It is unnecessary for present purposes to explore the question in depth, since in my opinion the position on the facts of the present case is quite clear, but I would endorse the powerful warnings against encroachment on the parties’ agreement to have their commercial differences decided by their chosen tribunals, and on the international policy exemplified in the English legislation that this consent should be honoured by the courts, given by Parker L.J. in Home and Overseas Insurance Co. Ltd. v. Mentor Insurance Co. (U.K.) Ltd. [1990] 1 W.L.R. 153, 158-159, and Saville J. in Hayter v. Nelson [1990] 2 Lloyd’s Rep. 265.”

41.  Lord Mustill’s observation (in the passage quoted above) as to the jurisdiction in question being unique to the law of England is, I find, instructive.

42.  As I see it, the jurisdiction springs from the formula “or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred” which is found in section 2 (1) of the 1975 Act but not in article 8(1) of the Model Law.

43.  The inclusion in that formula of the words “in fact” is, I think, of some significance.  Where the question is whether there is “in fact any dispute”, there is nothing unnatural in saying that there is in fact none if one side is indisputably right and the other is indisputably wrong.  Hence the meaning to be attributed to the word “dispute” as it appears in section 2(1) of the 1975 Act naturally admits of the jurisdiction to entertain an application under Order 14 despite the existence of an arbitration clause and, where the plaintiff can show that there is no arguable defence, to refuse the defendant a stay and give the plaintiff summary judgment.

44.  But where the word “dispute” appears in article 8(1) of the Model Law, it bears, in my view, the meaning which that word bears in the context of an ordinary arbitration clause.  And as to the word’s meaning in that context, I gratefully adopt what Saville J said in Hayter v. Nelson [1990] 2 Lloyd’s Rep. 265 at p. 268:

“            The proposition must be that if a claim is indisputable then it cannot form the subject of a “dispute” or “difference” within the meaning of an arbitration clause.  If this is so, then it must follow that a claimant cannot refer an indisputable claim to arbitration under such a clause; and that an arbitrator purporting to make an award in favour of a claimant advancing an indisputable claim would have no jurisdiction to do so.  It must further follow that a claim to which there is an indisputably good defence cannot be validly referred to arbitration since, on the same reasoning, there would again be no issue or difference referable to arbitration.  To my mind such propositions have only to be stated to be rejected - as indeed they were rejected by Mr Justice Kerr (as he then was) in the M. Eregli, [1981] 2 Lloyd’s Rep. 169, in terms approved by Lords Justices Templeman and Fox in Ellerine v. Klinger (sup.).  As Lord Justice Templeman put it (at p. 1383):-

‘There is a dispute until the defendant admits that the sum is due and payable.’

In my judgment in this context neither the word “disputes” nor the word “differences” is confined to cases where it cannot then and there be determined whether one party or the other is in the right.  Two men have an argument over who won the University Boat Race in a particular year.  In ordinary language they have a dispute over whether it was Oxford or Cambridge.  The fact that it can be easily and immediately demonstrated beyond any doubt that the one is right and the other is wrong does not and cannot mean that that dispute did not in fact exist.  Because one man can be said to be indisputably right and the other indisputably wrong does not, in my view, entail that there was therefore never any dispute between them.”

45.  Now, the Model Law governs the position of parties to international commercial arbitration agreements.  Its policy, as I understand it, is to leave such parties to do what they agreed to do i.e. take their disputes to arbitration.  That being so, it would be odd if the word “dispute” where it appears in the Model Law were to receive a narrower meaning than it receives where it appears in an ordinary arbitration agreement.

46.  The view that the word “dispute” bears that meaning where it appears in article 8(1) of the Model Law - which is the view I take - is also, I should mention, the view taken in two recent first instance decisions: that of Barnett J in Guangdong Agriculture v. Conagra International [1993] 1 HKLR 113 and that of Kaplan J in Zhan Jiang E & T Dev Area Service Head Co. v. An Hau Co. [1994] 1 HKC 539.

The answer

47.  Under article 8(1) of the Model Law, the court is not concerned with investigating whether the defendant has an arguable basis for disputing the claim.  If a claim is made against him in a matter which is the subject of an arbitration agreement and he does not admit the claim, then there is a dispute within the meaning of the article.  And if he seeks a stay of the action, the court must grant a stay unless the plaintiff can show that the arbitration agreement is null and void, inoperative or incapable of being performed.

Result

48.  What it boils down to is this.  Neither Glencore nor Sunrise admitted any part of the claim.  A claim is made up of the right asserted and the remedy sought.  Neither Glencore nor Sunrise have ever unequivocally admitted the right asserted by Tai Hing, difficult as it may be to deny.  Certainly, both of them deny that Tai Hing is entitled to specific performance.  Nor do either of them admit that Tai Hing has suffered any damage.  And if Tai Hing has suffered any damage, then there would be an issue as to how much i.e. quantum.

49.  So unless it was shown that the arbitration agreement in the present case is null and void, imperative or incapable of being performed, Findlay J should have stayed the action and refused Tai Hing any relief therein.  That was not shown.

50.  In the result, I am of the view that, even without taking the Scott v. Avery clause separately into account, this appeal must be allowed so as to set aside Findlay J’s three Orders, stay the action and dismiss Tai Hing’s two summonses.

51.  That leaves the question of an inquiry as to damages.

52.  Mr Sussex says that Glencore could recover in arbitration proceedings in Liverpool such damages as it suffered by reason of Tai Hing’s breach of the arbitration agreement in commencing this action.  And, he says, such damages would extend to those which he could recover in an enquiry as to damages pursuant to the undertaking in damages contained in Sear J’s Order of February 10 this year.  Nevertheless, he asks us to order such an enquiry so that Glencore need not arbitrate in Liverpool or at least need not do so for the purpose of recovering such damages as it could recover in an inquiry here.

53.  I have come to the conclusion that it would not be right to order such an enquiry.  That leaves Glencore free to pursue the matter in arbitration if so advised.  Therefore, I must guard against saying anything which might prejudice the issue one way or the other if and when it goes to arbitration.  Accordingly, I will say no more than this for the purpose of indicating why I would not order an enquiry as to damages.  I am not persuaded, on the material before us at the moment, that Glencore has suffered any loss by reason of Sears J’s Order of February 10 this year in respect of which Tai Hing ought to pay damages.

54.  Accordingly, I would simply allow this appeal so as to set aside Findlay J’s three Orders, stay the action and dismiss Tai Hing’s summons for injunctive relief and its summons for summary judgment for specific performance.

55.  As to costs, the parties asked us to deal with the same on a date to be fixed after the handing down of judgment.  So costs will be dealt with then.  And it remains only for me to thank counsel on both sides for their assistance.

Nazareth VP:

56.  I agree.

Liu JA:

57.  The facts in this appeal are fully set out in the judgment of my Lord Mr Justice Bokhary.  I need refer to no more than what is necessary for explaining my approach to the solution.  The parties entered into a contract for the supply of 1,000 tons of raw cotton. 300 tons had been shipped.  When the remaining 700 tons were on their way to Hong Kong, the seller informed the plaintiff, inter alia, that the ship had “been loaded without segregation as to qualities, whereby actual qualities themselves could not have been accurately established at time of loading due to circumstances beyond [their] control”.  What was in essence suggested was that different qualities of raw cotton had been mixed in the loading so that the bills of lading for the remaining 700 tons shipped to the plaintiff under contract could possibly include raw cotton of a much superior quality.  That gave rise to difficulty for the seller who, however, was proposing some less than equitable arrangements.  These arrangements so proposed would, if accepted, bring about a variation of contractual obligations and liabilities.

58.  The contract contained what is commonly called a “Scott v. Avery” clause which in this case stipulated that the obtaining of an arbitration award should be a condition precedent to the right of either party to commence legal proceedings in respect of any arbitrable dispute.  A “Scott v. Avery” clause is not a jurisdiction exclusionary clause and therefore whilst a plaintiff suing on a contract containing a “Scott v. Avery” clause such as that in this case would be in breach of it, the court’s jurisdiction to entertain proceedings so wrongfully commenced by any party to the contract would not thereby be abrogated.  See Mantovani v. Carapelli S.P. A. [1980] 1 LL. L. Rep 375 at 379.  It is also settled principle that goods readily obtainable in the ordinary course of placing an order in the market would not be, as a rule, a proper subject-matter for specific performance.  Damages would be a sufficient remedy.  See Societe Des Industries Metallurgiques SEA. v. The Bronx Engineering Co. Ltd [1975] 1 LL. L Rep. 465.  Benjamin on Sale of Goods, 4th edition at p. 1213 para 19 - 179 carries the following interesting passage:

“It has been noted previously that an agreement to transfer bills of lading as security (or an hypothecation of them) may be specifically enforceable but this rule does not seem ever to have applied to a simple undertaking to deliver bills of lading under a contract of sale”.

59. Without more assistance from counsel, I would feel diffident in seeking to link “a simple undertaking to deliver bills of lading” to a seller’s contractual obligation to hand over bills of ladings for taking delivery.

60.  What was intimated by the seller would be, unless agreed, tantamount to a threatened breach of contract.  The buyer immediately applied to Sears, J on Friday, 10 February 1995 for an ex parte injunction.  Notice was given to the defendants.  Sears, J granted, inter alia, a mandatory order requiring the defendants to deliver to the plaintiff bills of ladings and other shipping documents to enable goods to be taken delivery of.  The very next day, a Saturday, the defendants applied to the duty judge Ryan J for the mandatory injunction in the ex parte order to be lifted.  Ryan J refused the application, then made inter partes, but allowed a temporary stay until the following Monday.  The Court of Appeal was convened on Monday, 13 February at the request of the defendants to entertain their appeal from the order of Ryan J refusing to lift the mandatory injunction in the ex parte order.  The Court of Appeal dismissed the appeal of the defendants but gave them 14 days to inspect the goods.  The Court of Appeal sat on appeal from an order refusing to vary the ex parte order granted initially by Sears, J.  The plaintiff’s ex parte application on notice for the ex parte order was itself returnable inter partes on 17 February.  Therefore, when the Court of Appeal, differently constituted, entertained the appeal from the order of Ryan J refusing to vary the ex parte order by lifting the mandatory injunction, the proceedings before the Court of Appeal were a continuation of the ex parte application.  The inter partes hearing of that ex parte application had yet to be heard on 17 February. 

61.  The defendants had offered to purchase raw cotton afloat in the market to satisfy the plaintiff.  The Court of Appeal, in a continuation of the ex parte application, recognised the unusual feature of the mandatory injunction granted in interlocutory proceedings, particularly on an ex parte application even though on notice.  The Court of Appeal noted the matter as being “highly unusual” and not to “be taken as establishing any sort of precedent”.  The dismissal of the defendants’ appeal in a continuation of the ex parte application was granted almost exclusively on the view taken by the Court of Appeal that “the seller (appeared) to have no defense whatsoever to the buyer’s claim” or that “to the contractual application, the seller (raised) no defence”.  The “Scott v. Avery” clause in this case was not drawn to the attention of the Court of Appeal, which would clearly provide a good defence to the defendants in the action instituted by the plaintiff.

62.  Came 17 February, the ex parte order was returned inter parties before Sears, J who adjourned it with liberty to restore, costs reserved.  On 22 May 1995 the parties came before Findlay, J on 3 summonses.  The plaintiff’s inter parte summons to continue with the ex parte order under Order 29 RSC, the plaintiff’s summons under Order 86 for specific performance by way of summary judgment and the defendants’ summons to stay proceedings pursuant to Article 8 of Schedule 5 to the Arbitration Ordinance.

63.  Our repealed section 6A of the Arbitration Ordinance had virtually been taken from section 1 of the English Arbitration Act, 1975.  The repealed section 6A read as follows:

“6A.            (1)  If any party to an arbitration agreement to which this section applies, or any person claiming through or under him commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to the proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings; and the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.  (Emphasis added)

(2)Subsection (1) -

(a)does not apply in relation to a domestic arbitration agreement. but

(b)applies, in relation to other arbitration agreements, instead of section 6(1).

(3)            In this section ‘domestic arbitration agreement’ means an arbitration agreement which does not provide, expressly or by implication, for arbitration in a State or territory other than Hong Kong and to which neither -

(a)an individual who is a national of, or habitually resident in, any State or territory other than Hong Kong; nor

(b)a body corporate which is incorporated in, or whose central management and control is exercised in, any State or territory other than Hong Kong.

is a party at the time the proceedings are commenced.“

64.  The words “there is not in fact any dispute between the parties with regard to the matter agreed to be referred” do not appear in Article 8 of Schedule 5 to our Arbitration Ordinance, which applies to International Commercial Arbitration.  Article 8(1) reads as follows:

“Arbitration agreement a substantive claim before court

(1)            A court before which an action is brought in a manner which is the subject of an arbitration agreement shall, if a party so requests nor later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

65. Therefore before a party submits his first statement on the substance of the dispute to the court before which an action has been commenced, that party to an international commercial arbitration agreement may request a stay.  And upon the request so made, the court “shall refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed”.

66.  Clearly there is a arbitrable dispute when any matter under the contract within the arbitration clause is disputed or not admitted.  In other words, generally when issue is joined on liability or quantum, an arbitrable dispute would arise.  An arbitrable dispute does not have to be an issue which has in fact to be disputable.  That would seem to be logical because as Kerr, J, as he then was, said in the “M. Eregli” [1981] 2 LL. L Rep 169 at p. 174 RHC:

“Arbitrators are appointed every day by claimants who believe - rightly or wrongly - that the claim is indisputable.”

67.  That an arbitrable dispute would arise when an issue within the contract and the arbitration clause is denied or not admitted is a view universally held by the High Court.  See Guangdong Argiculture Co. Ltd. v. Conagra International (Far East) Ltd. [1993] 1 HKLR 113 and Tian Gian Medicine and Health Products Import and Export Cooperation v. JA Moeller (Hong Kong) Ltd. [1994] 1 HKC 546.

68.  As a continuation of the ex parte application, in refusing to lift the mandatory injunction from the ex parte order the Court of Appeal made  no determination binding on the judge entertaining the inter partes hearing of the ex parte order granted, at the inception, by Sears, J.  Clearly, the Court of Appeal was also less than fully assisted when it made the observation regarding the defendants’ unmeritorious resistance to the plaintiff’s claim.  In conclusion, all the three summonses before Findlay, J stood uninhibited by any decision of a superior court.

69.  In the circumstances, the mandatory injunction should not have been granted.  The matter did not seem to have been fully canvassed before the order to continue the ex parte order of Sears, J was made.  The arguments before Findlay, J were over-shadowed by the plaintiff’s application for specific performance under Order 86.  Even though no arbitrators had then been appointed, from whom an approval might be sought for preserving the status quo  (see the Lady Muriel [1995] 2 HKC 320 at p. 324 D/E to G/H), the seller was at all material times ready and willing to warehouse the cargo pending the resolution of the arbitrable dispute.  Findlay, J had really no alternative but to refer it to arbitration under Article 8 of Schedule 5 to the Arbitration Ordinance.  In any event, the defendants had a good defence under the “Scott v. Avery” clause, and damages would be a sufficient remedy.  It follows that specific performance should not have been granted.  I would set aside the ex parte order granted by Sears, J.  I would also set aside the orders of Findlay, J continuing the said ex parte order, granting specific performance and refusing the defendants’ application for a stay.  The proceedings ought to have been stayed and the dispute referred to arbitration pursuant to Article 8 of the Fifth schedule to the Arbitration Ordinance.

70.  Mr Sussex discloses the defendants’ intention to seek an enquiry for damages under the plaintiff’s cross-undertaking as to damages.  That is a matter which should be left in the hands of the defendants.  Mr Sussex also invites us to grant a higher scale of costs to the defendants in all the proceedings, but the parties desire to have the question of costs fully ventilated after judgment.

Representation:

Mr Charles Sussex (instructed by Messrs Sinclair Roche & Temperley) for the appellants, Glencore and Sunrise

Ms Audrey Eu QC & Mr Michael Liu (instructed by Messrs P.C. Woo & Co.) for the respondent, Tai Hing