Link Wide International Investment(Hong Kong) Ltd v. Devi Trading Co Ltd

DCCJ 3509/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.3509 OF 2010

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BETWEEN

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Coram : Acting Chief District Judge S. T. Poon in Chambers

Date of Hearing : 16^th December 2010

Date of Handing Down of Decision : 17^th December 2010

DECISION

1.This is the Defendant’s appeal against Registrar Lee’s order dismissing its application to stay the proceedings for arbitration and unless order to file its Defence.

2.The Plaintiff engages in the trading of metallic ores and raw materials and the Defendant is its supplier.  By a written contract dated 8^th December 2009 the Plaintiff agreed to buy and the Defendant agreed to sell 48,000 metric tons of iron ore lumps  (“the Sales Contract”).  The subject goods was not delivered and the Plaintiff suffered damages in that it has to compensate the loss of its purchaser.   

3.According to the Defendant, the reason for the non-delivery was because of an export ban imposed by the Bolivian Government. 

4.The Plaintiff’s case is that, upon the demand for payment of compensation by the Plaintiff to the Defendant and after some negotiations, the parties had entered into a settlement agreement that the Defendant is to pay USD92,880 to the Plaintiff as compensation (“the Compensation Agreement”).  Pursuant to the Compensation Agreement, up to today, the Defendant has just paid USD20,000 and hence, the Plaintiff took out the present proceedings to enforce the settlement agreement.

5.Instead of filing a Defence, the Defendant took out an application to stay the proceedings for the dispute to be submitted for arbitration, pursuant to Clause 14 of the Sales Contract.  It provides, inter alia, that:

“All disputes or differences whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of this contract or the breach thereof shall be settled by friendly negotiations between the two parties. If no settlement can be reached, the case in dispute shall then be submitted for arbitration to London under their rules with English law to apply which shall be agreed upon by both parties.”

6.In its affirmations in support for the application, the Defendant only stated that there was no oral settlement agreement reached between the parties but made no response or comment to the evidence adduced by the Plaintiff in proving the existence of the Compensation Agreement.  There is nothing from the Defendant to explain the email sent by one of its staff to the Plaintiff, apparently confirming the existence of a settlement agreement and there is also nothing from the Defendant to counter the Plaintiff’s allegation that the Defendant had paid USD20,000 as partial payment of the agreed compensation.

7.With respect to Mr. Wong, counsel for the Defendant, contrary to his suggestion that the evidence shows prima facie no settlement agreement, in my view, there is ample evidence suggesting the existence of a settlement agreement.

8.Mr. Lam, counsel for the Plaintiff, submitted that the Plaintiff is not suing on the Sales Contract but the Compensation Agreement and hence, Clause 14 of the Sales Contract shall have no relevance. There is no arbitration clause or agreement in respect of the Compensation Agreement.

9.I agree.  In the present action, the issue before the court is whether the parties had entered into the Compensation Agreement.  For determination of this issue, it is not necessary for the court to consider “the construction, meaning and operation or effect of the Sales Contract or the breach thereof” and hence Clause 14 shall not be operative.  As agreed by Mr. Wong, the disputes before this court if the matter is to proceed here are likely to be factual.  Probably there will be a forensic exercise on the conduct of the parties at the material times to see whether a settlement agreement had been reached.  There is no need for the court to investigate on the underlying breach.

10.Mr. Wong argued that in order to determine whether there was a valid settlement agreement the court has to consider whether there was consideration from the Plaintiff and in that case, the court will have to look at the Force Majeure clause (Clause 13) of the Sales Contract to see whether the Plaintiff has a valid claim under the Sales Contract.

11.With respect, the waiver of a valid claim in itself can be sufficient consideration for a compromise even if the chance of success of the claim is doubtful[1].  Besides, even if the claim is invalid in law, forbearance to sue can still be sufficient consideration if the party in good faith believes that he has a fair chance of success[2]. From the evidence before me, the parties have all along been having genuine negotiations for the compensation to be paid as if there was no dispute on liabilities.  It was only in July 2010, after the alleged Compensation Agreement had been reached, that the Defendant first mentioned about Clause 13 but still, without saying that it will rely on it as a defence.  There is absolutely nothing in the evidence to suggest that the Plaintiff had not a genuine belief that it has a valid claim.  In my view, Clause 13 has no role to play in determining the issue in the present proceedings.

12.As this simple point will dispose of the Defendant’s application, I do not find it necessary to deal with other arguments raised by Mr. Wong regarding whether this court should defer to the arbitral tribunal for determination of the jurisdictional ambit of the tribunal.

13.The order of Registrar Lee is therefore affirmed save that the latest time for filing the Defendant’s Defence in the unless order be extended to 4:00 pm on 28^th December 2010. 

14.I make an order nisi that costs of this application be to the Plaintiff with certificate of counsel.  The order nisi will become absolute if no application is made by either party within 14 days.  Parties are directed to submit by joint letter the Plaintiff’s Statement of Costs and the Defendant’s objections thereof, if any, within 14 days thereafter for summary assessment of costs.    

Mr. Kenneth Lam instructed by Messrs S.K. Lam, Alfred Chan & Co. for the Plaintiff.

Mr. Brian C.W. Wong instructed by Messrs Simon Si & Co for the Defendant.