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Ocbc Wing Hang Bank Ltd v Kai Sen Shipping Co Ltd

Judgment Cited authorities 16 Cited in Precedent Map Related
Vincent
Judgment Date04 March 2020
Neutral Citation[2020] HKCFI 375
Citation[2020] 1 HKLRD 1217
Judgement NumberHCAJ5/2019
Subject MatterAdmiralty Action
CourtCourt of First Instance (Hong Kong)
HCAJ5/2019 OCBC WING HANG BANK LTD v. KAI SEN SHIPPING CO LTD

HCAJ 5/2019

[2020] HKCFI 375

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 5 OF 2019

____________

BETWEEN

OCBC WING HANG BANK LIMITED
(華僑永亨銀行有限公司)		 Plaintiff

and
KAI SEN SHIPPING COMPANY LIMITED
(凱晟船務有限公司)		 Defendant

____________

Before: Hon Au-Yeung J in Chambers
Date of Hearing: 27 November 2019
Date of Decision: 4 March 2020

_____________

D E C I S I O N

_____________

Introduction

1. This is the application of Kai Sen (“Kai Sen”) to stay this action in favour of arbitration as required under an arbitration agreement. OCBC (“OCBC”), as holder of the bills of lading, denies that it is a party to any arbitration agreement.

2. On 22 January 2019, OCBC issued the writ of summons in these proceedings, seeking damages against Kai Sen arising from alleged misdelivery of cargo carried on “YUE YOU 903” (“the Vessel”). The statement of claim was filed on 19 March 2019.

3. Kai Sen is the owner of the Vessel and carrier of Cargoes described in 4 tanker bills of lading all dated 12 April 2018 (“the Bills of Lading”). The Cargoes were to be shipped from Dumai, Indonesia to Huangpu, China. The Bills of Lading were negotiable bills marked “To order”.

4. OCBC claims to have granted facilities in late April 2018 to Twin Wealth Oils and Fats (Hong Kong) Ltd, with Twin Wealth Comercial Offshore de Macau Limitida named as guarantor (collectively the “Borrowers”) and received from the Borrowers the original Bills of Lading and commercial invoices. OCBC thus claims to be lawful holder of the Bills of Lading and entitled to immediate possession of the Cargoes.

5. Kai Sen released the Cargoes without presentation of the original Bills of Lading.

6. OCBC claims damages against Kai Sen for breach of the contracts of carriage contained in or evidenced by the Bills of Lading, and breach of Kai Sen’s duty as carrier or bailee.

7. On 16 April 2019, Kai Sen applied for a stay of this action pursuant to Section 20 of the Arbitration Ordinance (Cap 609) (“the Ordinance”) on the grounds that OCBC’s claim is subject to an arbitration agreement that has been incorporated into the Bills of Lading by reference. Kai Sen also claims that OCBC has unequivocally elected to proceed with arbitration by issuing a notice to commence arbitration dated 28 March 2019 (“the Arbitration Notice”).

8. OCBC submits that the validity of the purported arbitration agreement in this case is to be governed by English law, which provides that an arbitration agreement can only be incorporated into a bill of lading by specific words of incorporation. The position under Hong Kong law is the same. There are no such specific words of incorporation in respect of the Bills of Lading. Further, OCBC had no knowledge of the terms of the Charterparty until this dispute arose. OCBC only processed documents on D/P basis (documents against payment) subject to the Uniform Rules for Collections. The Arbitration Notice was issued to beat the limitation time and was not a submission of OCBC to arbitration.

The relevant arbitration clause

9. The relevant provision of the Bills of Lading provides as follows:

“This shipment is carried under and pursuant to the terms of the Contract of Affreightment/ Charter Party dated 2nd March 2018 between [Kai Sen] as owner and TWIN WEALTH MACAO COMMERCIAL OFFSHORE LTD As Charterers, and all conditions, Liberties and exceptions whatsoever of the said Charter apply to and govern the rights of the parties concerned in this shipment…”

10. Clause 36 of the Charter Party dated 2nd March 2018 (“Charterparty”) as referred to in the Bills of Lading provides an arbitration clause as follows:

“ARB, IF ANY, IN HONGKONG UNDER ENGLISH LAW.”

The relevant provisions under the Ordinance governing arbitration agreements

11. The Ordinance applies to an arbitration under an “arbitration agreement”, whether or not the agreement is entered into in Hong Kong, if the place of arbitration is in Hong Kong: Section 5 of the Ordinance.

12. Section 20(1)(1) of the Ordinance (which gives effect to Article 8 of the UNCITRAL Model Law) provides that:

“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.”

13. Section 19 of the Ordinance (which gives effect to Article 7 of the UNCITRAL Model Law (Option I) defines “arbitration agreement” as follows:

(1) Section 19(1)(1): “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.”; and

(2) Section 19(1)(6): “The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.” (emphasis added)

14. In Yun Kwan Construction Engineering Ltd v Shui Tai Construction Engineering Co Ltd [2019] HKCFI 1841, §5, G Lam J explains the legal position as follows:

“(1) By Art 8(1) of the UNCITRAL Model Law, given effect by s 20(1) of the Arbitration Ordinance (Cap 609), this court must refer any matter which is the subject of an arbitration agreement and, therefore, stay further proceedings in the action to that extent.

(2) Art 7 of the UNCITRAL Model Law (Option I), given effect by s 19(1) of the Arbitration Ordinance, makes provision as regards what constitutes an “arbitration agreement”. In particular, Art 7(6) prescribes how an arbitration clause in a separate document may be incorporated as part of the contract:

“The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.”

Section 19(3) of the Arbitration Ordinance likewise provides:

“A reference in an agreement to a written form of arbitration clause constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement.”

(3) For the purpose of Art 7(6), it is not essential for there to be an explicit reference to the arbitration clause itself. Reference to a document, which contains the arbitration clause relied upon, may be sufficient, provided “the reference is such as to make that clause part of the contract”: Astel-Peiniger Joint Venture v Argos Engineering & Heavy Industries Co Ltd [1995] 1 HKLR 300, 305-307; Gay Construction Pty Ltd & Another v Caledonian Techmore (Building) Ltd (Hanison Construction Co Ltd, Third Party) [1994] 2 HKC 562, 566D.

(4) The document referred to need not be a contract between the same two parties. It is possible under Art 7(6) to incorporate into a contract between A and B an arbitration clause, by reference to an agreement between B and C or even between X and Y or to an unsigned standard form of contract, which contains the arbitration clause: Astel-Peiniger, p 307.

(5) Insofar as authorities in other jurisdictions suggest that for incorporation of an arbitration clause into a contract between A and B by reference to an agreement between B and C or X and Y, there must be a specific reference to the arbitration clause itself, they do not reflect the law of Hong Kong which is based on Art 7(6) and which has been established since Astel-Peiniger for 25 years.

(6) The question of incorporation, in particular whether the reference is such as to make the arbitration clause part of the contract, is one of construction. The task of the court is to ascertain, with no preconceived notions, the parties’ intentions when they entered into the contract by reference to the words that they used: Astel-Peiniger, pp 311 & 313.

(7) Like other questions of contractual construction, this involves examining the wording of the documents against the relevant background to identify what a reasonable person would have understood the parties to be using the language in the contract to mean: see eg Building Authority v Appeal Tribunal (Buildings) (ENM Holdings Ltd) (2018) 21 HKCFAR 194, §53.” (Underline added)

15. The onus is on an applicant seeking a stay in favour of arbitration to show that there is a prima facie case that the parties are bound by an arbitration clause. Unless the point is clear, the court should not attempt to resolve the issue and the matter should be stayed for arbitration. See Truearns Co Ltd v Wealthy Fountain Holdings Inc [2019] HKCFI 1840, at §14, DHCJ MK Liu.

16. The applicant only needs to show an arguable case. If whether or not an arbitration clause has been incorporated is capable of giving rise to respectable arguments from both sides, the issue should be resolved in favour of arbitration. See §24 of Truearns.

The parties’ respective case and the issues

17. Mr Hau, solicitor advocate for Kai Sen, submits that in view of the statutory provisions, the arbitration clause in the Charterparty had been incorporated into the Bills of Lading and so this action should be stayed for arbitration.

18. OCBC does not dispute the above general principles but heavily relies on T W Thomas & Co Ltd v Portsea Steamship Co Ltd [1912] AC 1 for the proposition that an arbitration clause can only be incorporated into a bill of lading by express reference. Mr Luxton, counsel for OCBC, submits that to see if an arbitration clause has been...

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