Pccw Global Ltd v. Interactive Communications Service Ltd

CACV 18/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 18 OF 2006

(ON APPEAL FROM HCA NO. 2826 OF 2004)

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BETWEEN

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Before : Hon Tang JA and Barma J in Court

Date of Hearing : 24 October 2006

Date of Judgment : 16 November 2006

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J U D G M E N T

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Hon Tang VP (giving the judgment of the Court):

1.Beyond The Network, Limited’s (“Beyond”) claim against the Vectone Limited (“Vectone”) arose out of an agreement dated 4 April 2003 whereby Beyond and Vectone agreed to supply to and purchase from each other international long-distance services, with the net amount due from one party to the other to be billed and settled periodically.

2.It is Beyond’s claim that there is a net amount of US$718,999.26 due and payable by Vectone.  That has been disputed by Vectone.  This has been referred to in the submissions as a billing dispute.

3.The writ was issued on 14 December 2004 and served on Vectone on 17 December 2004.  On 16 February 2005, Vectone gave formal notice that it wished to go to arbitration under clause 11.3 of the agreement.

4.On 31 March 2005, Vectone applied to have the action stayed under section 34C of the Arbitration Ordinance, Cap. 341.

5.Reyes J refused a stay on 13 December 2005.

6.This is Vectone’s appeal.

7.The agreement is contained in a document headed “Master Service Agreement for International Voice Services”.  It is clear from the document that the agreement was based on a standard form in respect of which Beyond claimed copyright.

8.The relevant provisions in the agreement are set out below:

“	4.	SETTLEMENT AND PAYMENT
	4.3	Each party will be responsible for payment of all undisputed charges as reflected on any billing statement....  Neither party shall have an obligation to pay any amount which has been disputed in good faith until such time that the dispute is satisfactorily resolved by the Parties....  In the event the Parties are unable to resolve the dispute amicably with[in] a reasonable period of time and havin[g] exchanged their respective call detail records, not to exceed 14 days, then, the parties will submit the difference to the Hong Kong Courts.
	5.	REGULATIONS.  This Agreement is made expressly subject to all present and future valid orders, regulations of any regulatory body having jurisdiction over the subject matter of this Agreement, and to the laws of the Hong Kong, SAR.  The Parties hereby submit to the exclusive jurisdiction of the courts of Hong Kong, SAR.
	11.	GENERAL PROVISIONS
	....
	11.2	GOVERNING LAW.  This Agreement will be interpreted in accordance with the laws of the State of New York, USA, notwithstanding the principles of conflicts of laws thereof, and any dispute shall be submitted to the courts in the State of New York.  The Parties agree that the United Nations Convention on Contracts for the International Sale of Goods will not apply to this Agreement.
	11.3	ARBITRATION.  Either Party may require that any dispute arising hereunder be settled by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association provided that alleged breaches of Section 7 (Confidentiality) may be settled by injunctive relief in a court as provided in Section 11.2.  The arbitral tribunal shall be composed of a sole arbitrator.  The English language shall be used throughout the arbitral proceeding.  The arbitration shall take place in New York, NY, USA.  The cost of the arbitration, including the fees and expenses of the arbitrator(s), shall be shared equally by the Parties unless that award provides otherwise.
	....
	11.8	CAPTIONS.  Captions of the sections and subsections of this Agreement are for reference purposes only and do not constitute terms or conditions of this Agreement, and shall not limit or affect the terms and conditions hereof.
	11.9	WAIVER.  No provision of, right, power or privilege under this Agreement shall be deemed to have been waived by any act, delay, omission or acquiescence on the part of either Party, its agents, or employees, but only by an instrument in writing signed by an authorized officer of each Party.  No waiver by either Party of any breach or default of any provision of this Agreement by the other Party shall be effective as to any other breach or default, whether of the same or any other provision and whether occurring prior to, concurrent with, or subsequent to the date of such waiver.”

9.It is obvious that there is an apparent conflict between clause 5 where the parties “submit to the exclusive jurisdiction of Hong Kong, SAR”, and clause 11.2 which provided that “any dispute shall be submitted to the courts in the State of New York”.

10.Mr Beresford, who appeared for Beyond, accepted that provided an election to arbitrate was made within a reasonable time and within the scope of clause 11.3, there would have been a binding agreement to arbitrate such that the court would be obliged to stay the action.  We agree.

11.The principal point in this appeal is whether or not clause 11.3 covered a billing dispute.

12.Mr Sussex SC, who appeared for Vectone, submitted that under clause 11.3, once one has elected to have a dispute referred to arbitration, the court must give effect to it.  In other words, the submission to the jurisdiction of the Hong Kong courts in clause 4.3 is overridden as soon as an election to arbitration is made under clause 11.3.

13.The effect of a clause similar to clause 11.3 was considered in The Messiniaki Bergen [1983] 1 Lloyd’s Law Rep. 424, a decision of Bingham J (as he then was).  There the relevant provisions were:

“	40(a)	This charter shall be construed and the relations between the parties determined in accordance with the law of England.
	(b)	Any dispute arising under this charter shall be decided by the English Courts to whose jurisdiction the parties agree … Provided that either party may elect to have the dispute referred to the arbitration of a single arbitrator in London in accordance with the provisions of the Arbitration Act, 1950 … Such election shall be made by written notice by one party to the other not later than 21 days after receipt of a notice given by one party to the other of a dispute having arisen under this charter.”

14.Bingham J said at page 426:

“… The proviso is not an agreement to agree because upon a valid election to arbitrate (and assuming the clause to be otherwise effective) no further agreement is needed or contemplated. It is, no doubt, true that by this clause the parties do not bind themselves to refer future disputes for determination by an arbitrator and in no other way.  Instead, the clause confers an option, which may but need not be exercised.  I see force in the contention that until an election is made there is no agreement to arbitrate, but once the election is duly made (and the option exercised) I share the opinion of the High Court of Delhi in the Bharat case that a binding arbitration agreement comes into existence.  Where the option agreement and the exercise of the option are both, as here, expressed in writing, the statutory requirement of a written agreement is in my view satisfied.”

15.The judge read clause 11.3 as providing that although the party may require a dispute to be arbitrated, “but there is no obligation on the other party to accede to the invitation to arbitrate”.  The judge arrived at that conclusion because he took the view that under clause 5 the parties had submitted to the exclusive jurisdiction of the Hong Kong courts.

16.In Paul Smith Ltd v H & S International Holding Inc [1991] 2 Lloyd’s Law Rep. 127, Steyn J (as he then was) was concerned with similar provisions which provided as follows:

“	13.	SETTLEMENT OF DISPUTES  If any dispute or difference shall arise between the parties hereto concerning the construction of this Agreement or the rights or liabilities of either party hereunder the parties shall strive to settle the same amicably but if they are unable to do so the dispute or difference shall be adjudicated upon under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more Arbitrators appointed in accordance with those Rules.
	14.	LANGUAGE AND LAW  This Agreement is written in the English language and shall be interpreted according to English law.
The Courts of England shall have exclusive jurisdiction over it to which jurisdiction the parties hereby submit.”

17.He resolved the submissions that the provisions were inconsistent with these words at 129:

“Fortunately, there is a simple and straight forward answer to the suggestion that cll. 13 and 14 are inconsistent. Clause 13 is a self-contained agreement providing for the resolution of disputes by arbitration. Clause 14 specifies the lex arbitri the curial law or the law governing the arbitration, which will apply to this particular arbitration. The law governing the arbitration is not to be confused with (1) the proper law of the contract, (2) the proper law of the arbitration agreement, or (3) the procedural rules which will apply in the arbitration. These three regimes depend on the choice, express or presumed, of the parties. In this case it is common ground that both the contract and the arbitration agreement are governed by English law. The procedural rules applicable to the arbitration are not rules derived from English law. On the contrary, the procedural regime is the comprehensive and sophisticated ICC rules which apply by virtue of the parties’ agreement.

What then is the law governing the arbitration? It is, as Martin Hunter and Alan Redfern, International Commercial Arbitration, p. 53, trenchantly explain, a body of rules which sets a standard external to the arbitration agreement, and the wishes of the parties, for the conduct of the arbitration. The law governing the arbitration comprises the rules governing interim measures (e.g. Court orders for the preservation or storage of goods), the rules empowering the exercise by the Court of supportive measures to assist an arbitration which has run into difficulties (e.g. filling a vacancy in the composition of the arbitral tribunal if there is no other mechanism) and the rules providing for the exercise by the Court of its supervisory jurisdiction over arbitrations (e.g. removing an arbitrator for misconduct).

If cl. 14 is read as specifying the law governing the arbitration; there is no inconsistency between cll. 13 and 14. Admittedly, the language is not felicitous: it provides for the exclusive jurisdiction of the English Courts ‘over it’, i.e. the agreement. Strictly, it should refer to the law governing the arbitration. This incongruity pales into insignificance, however, when compared to the unfortunate consequences of treating the arbitration clause in a non-domestic commercial agreement as pro non scripto.”

18.We too, would resolve the apparent inconsistency between clause 5 and clause 11.3 in the same way.

19.However, clause 5 is inconsistent with clause 11.2.  The judge resolved that inconsistency by saying that:

“… despite clause 5, the parties (if they agree) may bring their dispute to the New York Court.  Obviously, if the parties do not agree to a relaxation of clause 5, the Hong Kong Court will retain its ‘exclusive jurisdiction’.”

20.We return to the principal point which is whether or not clause 11.3 covered a billing dispute.  The proper approach to interpretation is to consider the agreement as a whole, then decide whether billing disputes are covered by clause 11.3.  The parties agreed that there are no material difference between the rules of interpretation in the laws of the State of New York and the laws of Hong Kong.  We were told that New York law requires that in interpreting the contract, a court must read the contract as a whole, and give effect to all of the language used by the parties, and must avoid an interpretation that would leave contractual clauses meaningless and that one must give unambiguous provisions their plain and ordinary meaning.

21.Mr Sussex also accepted that the authoritative statement of the law by Lord Hoffmann in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 – 913 are applicable.  There Lord Hoffmann said “almost all the old intellectual baggage of legal interpretation has been discarded” (912):

“Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.”

22.But, Lord Hoffmann also said:

“

(3)

The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent.  They are admissible only in an action for rectification.  The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life.  The boundaries of this exception are in some respects unclear.  But this is not the occasion on which to explore them.”  page 913.

23.Mr Sussex submitted that clause 11.3 is clear in its terms.  It permits a party to require any dispute arising under the agreement to be settled by binding arbitration.

24.Equally, one could say that clause 11.2 also expressly provided that “any dispute shall be submitted to the courts in the State of New York”.  However, Mr Sussex agreed that having regard to the terms of clause 4.3, a dispute over billing charges is an exception to clause 11.2.

25.So, whether in either clause, “any” means “all” cannot be resolved without considering the agreement in its entirety.  What we have to consider is whether a billing dispute is also an exception to clause 11.3.

26.Clause 4.3 provides that in relation to the billing dispute, “the parties will submit the difference to the Hong Kong Courts”. 

27.But whether clause 4.3 is ambiguous or not, it should be construed in its factual matrix.  Thus, we believe it is permissible to have regard to the fact that in the standard form agreement, on which the agreement was based, clause 4.3 provided that:

“In the event the parties are unable to resolve the dispute amicably, it shall be resolved by arbitration in accordance with section 11.3”.

28.Those words have been replaced in the agreement by:

“… In the event the Parties are unable to resolve the dispute amicably with[in] a reasonable period of time and havin[g] exchanged their respective call detail records, not to exceed 14 days, then, the parties will submit the difference to the Hong Kong Courts.”

29.In Team Services PLC v Kier Management and Design Ltd [1993] 63 BLR 82, Lloyd LJ said (with the concurrence of Kennedy LJ) at page 88, a deliberate omission “is as much a surrounding circumstance as a deletion” and hence admissible as an aid to interpretation.

30.Here, the judge said:

“… Vectone’s communication to Beyond that Vectone was not prepared to enter into an agreement in the absence of a provision enabling billing disputes to be brought before the Hong Kong Court, forms part of the factual matrix against which I am entitled to construe the present contract.”

31.And then:

“… I do not think that I can ignore, as inadmissible, evidence about Vectone’s stance on jurisdiction which actually led to a change in the language of the original version of clause 4.3.”

32.The evidence of Beyond came from affidavit of Ms Cynthia Rich Perkinson dated 4 May 2005.  She said, in January 2003, she had had presented to her a document entitled “Vectone Reciprocal Minutes Agreement 16 July 02 clean”.  That document was exhibited to her affidavit and marked “CP-1”.  Clause 4.3 of CP-1 provided that:

“In the event, the parties are unable to resolve the dispute amicably, [billing disputes] shall be resolved by arbitration in accordance with section 11.3”.

33.However, it is relevant to note that in CP-1 clause 11.3 provided for arbitration “in United Kingdom”.  There, clauses 11.2 and 11.3 provided:

“	11.2	GOVERNING LAW.  This Agreement will be interpreted in accordance with the United Kingdom and any dispute shall be submitted to the London Courts.  The Parties agree that the United Nations Convention on Contracts for the International Sale of Goods will not apply to this Agreement.
	11.3	ARBITRATION.  Either Party may require that any dispute arising hereunder be settled by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association provided that alleged breaches of Section 7 (Confidentiality) may be settled by injunctive relief in a court as provided in Section 11.2.  The arbitral tribunal shall be composed of a sole arbitrator.  The English language shall be used throughout the arbitral proceeding.  The arbitration shall take place in United Kingdom.  The cost of the arbitration, including the fees and expenses of the arbitrator(s), shall be shared equally by the Parties unless that award provides otherwise.”

34.Ms Perkinson then went on to say in para. 7:

“	7.	There were protracted negotiations on commercial and legal terms with the Defendant from January 2003 through March 2003.  On 3 April 2003, I received an e-mail from Ramy Caspi of the Defendant attaching some comments and further revisions that the Defendant wanted to make to the draft service agreement.  In the e-mail, Ramy Caspi stated that the comments and revisions had been made by the Defendant’s legal department.  A copy of the said e-mail and this attachment are now shown to me and marked ‘CP-2’.  The notations which can be seen in the electronic copy of the document indicate a Miguel Gulave of the Defendant, who I understand was from the Defendant’s legal department, made all of the revisions and comments which were shown as mark-ups in the document.  At the end of Clause 4.3 of the draft service agreement, the following comment had been inserted by the Defendant in relation to the mechanism for resolving billing disputes:-
		‘	This is not acceptable, if we do not agree, we will submit our difference to the Hong Kong Courts as per Art 5.’”

35.It is necessary to set out the relevant part of clause 4.3 in CP-2, which provided:

“… In the event the Parties are unable to resolve the dispute amicably with a reasonable period of time, not to exceed 14 days, then in the absence of manifest error, the call detail records of the owed Party shall be deemed conclusive and the owing Party will immediately render payment of the disputed amounts.”

36.Thus, what was not acceptable to Vectone at the time was the provision that:

“… in the absence of manifest error, the call detail records of the owed Party shall be deemed conclusive and the owing Party will immediately render payment of the disputed amounts …”

37.It was in relation to that that Miguel Gulave of Vectone’s legal department commented:

“This is not acceptable, if we do not agree, we will submit our difference to the Hong Kong Courts as per Art 5.”

38.In the affirmation of Mr Fernandez affirmed on 17 June 2005, he said at para. 21:

“

21.

I have seen the draft affidavit of James Berenthal.  I understand that, as a matter of the law of New York – which law Mr Berenthal has advised me applies to interpretation of the Agreement – Miss Perkinson’s evidence is even if it is correct, inadmissible as a question of construction of the Agreement, if it is unambiguous, and of the parties’ intentions.  Therefore I shall not set out the full history of the negotiations leading up to completion of the Agreement – consisting of the preparation of seven draft versions of that Agreement – which would explain the factual context in which each party negotiated, and made suggestions, as to the appropriate wording used in the Agreement.  However, I do not accept that Miss Perkinson has set out, in full, that factual context or that the wording of Section 4.3 should be construed against Vectone.”

39.Even so, the omission, in clause 4.3, of the reference to arbitration in clause 11.3, remained part of the background and hence may be referred to as an aid to interpretation.

40.The judge took the view that since it was Vectone who suggested the inclusion of the last sentence of clause 4.3, if there is any ambiguity, the ambiguity should be construed against Vectone (See para. 37).

41.Although it appears that the suggestion that the parties should submit their difference to the Hong Kong courts came from Vectone, there is no evidence that they were responsible for the language which was eventually adopted.  If Beyond was responsible for the language, or that the language was the result of negotiation between the parties, we do not believe it would be right to read clause 4.3 against Vectone.

42.Indeed, we believe it is helpful to return to the evidence of Ms Perkinson.  She said:

“

6.

The Plaintiff has a standard form service agreement for international voice services which formed the basis of the negotiations with the Defendant.  The document that was presented to me in January 2003 was entitled ‘Vectone Reciprocal Minutes Agreement 16 July 02 clean]’.  A copy of the said document is now shown to me and marked ‘CP-1’.  I would point out that Clause 4.3 of the said document states that ‘In the event the Parties are unable to resolve the dispute amicably, [billing disputes] shall be resolved by arbitration in accordance with Section 11.3’.  This language is consistent with the Plaintiff’s standard form agreement in use at the time.  The arbitration referred to was arbitration in the U.K. in accordance with American Arbitration Association (AAA) rules.  The reference to the U.K. was inconsistent with the Plaintiff’s standard terms, which would have provided for arbitration in Hong Kong, and appears to have been the result of prior negotiations between the Plaintiff and the Defendant.”

43.One notes therefore that, according to her, Beyond’s standard terms provided for arbitration in Hong Kong and that, that “CP-1” provided for arbitration in the UK, which “appears to have been the result of prior negotiations between the Plaintiff and the Defendant”.

44.Since Beyond’s standard terms provided for arbitration in Hong Kong, presumably, clause 11.2 would have provided for the agreement to be interpreted in accordance with Hong Kong law.  In that case, if it went on to provide that “any dispute shall be submitted to the Hong Kong courts”, that would not be repugnant to clause 5, though possibly, superfluous.

45.It seems, though there is no evidence on it, as a result of further negotiation, the venue for arbitration was changed to the State of New York, with consequential changes to clause 11.2 (see e.g. CP-2).  There is no evidence who was responsible for this further change.

46.It may be that changes were made to clauses 11.2 and 11.3, first to arbitration in London, e.g. in CP-1, and then to the State of New York, e.g. in CP-2, but the parties had omitted to consider clause 5 and decide whether any changes were necessary.

47.In such circumstances, we do not believe the agreement should be read against any particular party.

48.We return to clause 11.3 in the agreement.  As noted, it provided for “any dispute arising hereunder be settled by binding arbitration”.

49.Mr Sussex submitted that the correct approach is for the court to determine on a prima facie basis whether there is a valid arbitration agreement.  In Private Company ‘Triple V’ Inc v Star (Universal) Co Ltd and Anor [1995] 3 HKC 129, a decision of this court, Litton VP (as he then was) said with the concurrence of the other members of the court:

“	The judge said this:
	‘	There is prima facie evidence of a dispute between the plaintiff and D1 in relation to contract 93RV-1034HK and an arbitrator ought to be appointed to arbitrate their dispute. It will be for the arbitrator to decide the effect, if any, of the alleged subsequent agreement cancelling the contract.’
	I agree. If the judge were to go into the matter more deeply, he would in effect be usurping the function of the arbitrator. Whilst, clearly, the judge had to make a judgment as to whether there existed an underlying agreement to arbitrate, he could do no more than to form a prima facie view.”

50.The same approach was adopted by Burrell J in Pacific Crown Engineering Ltd v Hyundai Engineering and Construction Co Ltd [2003] 3 HKC 659.  There Burrell J was concerned with the proper test to be applied in determining the question whether it was for the court on a stay application or the arbitrator to decide whether an arbitration agreement existed.  He said, after reviewing the Hong Kong authorities:

“

12.

The proper test is therefore is there a prima facie or plainly arguable case that the parties were bound by an arbitration clause.  The onus being on the defendant to demonstrate that there is.”

51.We are bound to and would adopt the same approach.

52.In relation to the submissions that the court should stay these proceedings to an arbitrator who can then determine whether or not he has jurisdiction, the judge said at para. 43:

“	43.	While I accept that is a possible course, it does not strike me as appropriate here.  A decision by an arbitrator on his jurisdiction would still be open to challenge before this Court.  The matter would simply return to me.  Where (as here) a question of construction is involved and little (if any) extrinsic evidence is sought to be adduced in aid of construction, it would be conducive to saving time and cost to determine the question of jurisdiction now.
	44.	The writ was issued in December 2004.  It is presently December 2005 and a Defence has yet to be filed.  Given my views on clauses 4.3, 5, 11.2 and 11.3, it would be wrong to refrain from deciding the jurisdictional issue now.  To remit the question to an arbitrator would only lead to unjustifiable delay and expense.”

53.Support for the judge can be found in Ahmad Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyd’s Law Rep. 522, a decision of the English Court of Appeal.

54.At that time, in England, O. 73, r. 6(2) of the Rules of the Supreme Court provided that:

“Where a question arises as to whether an arbitration agreement has been concluded or as to whether the dispute which is the subject matter of the proceedings falls within the terms of such agreement, the court may determine that question or give directions for its determination, in which case it may order the proceedings to be stayed pending the determination of that question.”

55.We do not have a similar provision in Hong Kong.  But what Waller LJ said at page 524 is applicable here.  He said:

“… if it is clear on the evidence that a contract did or did not exist then the court should so decide for it cannot be right either to direct an issue pursuant to order 73, rule 6(2) or to leave the ‘dispute’ to be determined by an arbitral tribunal.”

56.The judge regarded the point as clear.  He held there was no agreement to arbitrate at all.  There was not a prima facie or arguable case otherwise.  If so, the judgment must be upheld.

57.So we turn to decide whether it is clear that there was no agreement to arbitrate billing disputes.

58.We remind ourselves of Litton VP’s dictum quoted in para. 49 above.

59.Since we are of the view that clause 11.3 provided for enforceable though permissive arbitration, the only remaining question is whether a billing dispute falls within the ambit or scope of clause 11.3.

60.It is important for the court not to usurp the function of the arbitrators, and unless the point is clear, the matter should be stayed for arbitration.  In that respect, the absence of provisions similar to O. 73, r. 6(2), is significant.  In Hong Kong, we do not believe the court should attempt to resolve that issue, even though under Article 16(3) of the Model Law, the court has power to decide the question of jurisdiction after determination of the question by the arbitral tribunal as a preliminary question.

61.Only if it is clear that clause 11.3 does not cover billing disputes, should the court refuse a stay.

62.It is necessary to look at clause 4.3 as a whole.  It provided:

“

4.3

Each Party will be responsible for payment of all undisputed charges as reflected on any billing statement.  Any request for a billing adjustment must be made in good faith and in writing within thirty (30) days of the invoice date, together with its call detail record including date, time, duration and destination of each call.  Any such request for adjustment shall not be cause for delay in the payment of the undisputed balance due.  Neither Party shall have an obligation to pay any amount which has been disputed in good faith until such time that the dispute is satisfactorily resolved by the Parties.  Service Partner’s notification of any contested or disputed amount must be in writing and sent to: Billing Disputes, BtN Ltd., 41/F The Sun Group’s Centre, Place, Quarry Bay, 200 Gloucester Road, Wanchai, Hong Kong or to 852 2621 5686 by confirmed facsimile with duplicate notification to follow via overnight delivery.  BtN’s notification of any contested or disputed amount must be in writing and sent to: Mr V. Mahalingam, Vectone Limited, 58 Marsh Wall, London E14 9TP, United Kingdom by confirmed facsimile with duplicate notification to follow in accordance with Section 11.4.  Written notification must be accompanied with a detailed written support, for any service interruption credit or other credit to which the Party requesting the billing adjustment believes itself entitled, and both Parties will promptly address and attempt to resolve the claim.  In the event the Parties are unable to resolve the dispute amicably with[in] a reasonable period of time and havin[g] exchanged their respective call detail records, not to exceed 14 days, then, the parties will submit the difference to the Hong Kong Courts.”

63.We believe clause 4.3 is a self-contained provision on how any dispute or contest over billing should be determined.  It provided for formal notification of disputes, a tight timetable for amicable settlement “not to exceed 14 days” and “then, the parties will submit the difference to the Hong Kong Courts”.

64.Our view is fortified by, though it is not dependent on, the fact that in the standard terms, clause 4.3 provided for arbitration in accordance with clause 11.3.  That has been replaced by “then, the parties will submit the difference to the Hong Kong Courts”.

65.Mr Sussex submitted that what the parties intended was that the difference should be submitted to the Hong Kong courts unless one party required arbitration.  He submitted since the fact that clause 11.2 provided for “any dispute shall be submitted to the courts in the State of New York” would not affect the operation or binding effect of clause 11.3, so too, clause 4.3 should be read subject to clause 11.3.  Despite the force of Mr Sussex’s argument, we are of the view that reading clause 4.3 as a whole it is clear that the parties had agreed that billing disputes should be dealt with differently and separately from clause 11.3.

66.We acknowledge that it is difficult to reconcile clause 5 with clause 11.2.  But reconciliation of clause 5 with clause 11.2 is not essential to the resolution of the issue before us.  It may be that the judge’s view that ‘shall’ in clause 11.2 cannot be mandatory, may provide the only satisfactory answer.

67.Lastly, Mr Sussex submitted that the judge was wrong in holding that in any event, it was too late for Vectone to seek arbitration.  The judge held that since Vectone did not give formal notice of its wish to go to arbitration until 10 February 2005, which was nearly 5 months after disputing Beyond’s invoices on 24 September 2004, Vectone had waived any right under clause 11.3 to arbitrate.  The judge came to that view because he held that the right to require arbitration under clause 11.3 must be exercised within a reasonable time.

68.If clause 11.3 covered billing disputes, there was no necessity to imply any term into the agreement or clause 11.3 which is inconsistent with Article 8 of the Model Law.  In our view, an election for arbitration, may be made “not later than when submitting his first statement on the substance of the dispute”.

69.Nor can we agree that, time should begin to run after Vectone had queried Beyond’s invoices on 24 September 2004.  It would make good commercial sense for Vectone to wait for Beyond’s next move, which might never come or it might be an election to go for arbitration.  So in any event, time should not begin to run until commencement of proceedings by Beyond.  That being so, the latest time at which an election for arbitration may be made must be that provided by Article 8.  There is no justification for the implication of any different term.

70.In the result, the appeal is dismissed with costs.

Mr Roger Beresford, instructed by Messrs Richards Butler, for the Plaintiff.

Mr Charles Sussex, SC, instructed by Messrs Holman, Fenwick & Willan, for the Defendant.