Minmetals Germany GmbH v Ferco Steel Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J. |
| Judgment Date | 20 January 1999 |
| Date | 20 January 1999 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Colman J.
Duncan Matthews (instructed by Sinclair Roche & Temperley) for the plaintiff.
Michael Swainston (instructed by Ince & Co) for the defendant.
The following cases were referred to in the judgment:
Adams v Cape Industries plcELR [1990] Ch 433; [1990] BCC 786.
Apex Tech Investment Ltd v Chuang's Development (China) LtdUNK (unreported, 19 March 1996, HK CA).
Pemberton v HughesELR [1899] 1 Ch 781.
Westacre Investments Inc v Jugoimport-SDPR Holding Co Ltd [1998] CLC 409; [1999] QB 740.
Arbitration — Enforcing foreign arbitration award — Whether Chinese awards should not be enforced — Whether defendant unable to present its case — Whether arbitrators breached procedural fairness — Whether enforcement contrary to public policy — Arbitration Act 1996, s. 103(2)(c), (e), s. 103(3).
This was an application by the defendant, “Ferco”, to set aside leave to enforce two Chinese arbitration awards obtained by the plaintiff, “Minmetals”.
Ferco agreed to sell 10,000 metric tons of steel channels to Minmetals CFFO CQD Shanghai. Minmetals sub-sold the channels to a Chinese company. Inspection at Shanghai apparently showed that the channels did not conform to the dimensions specified in the contract and did not bear the right quality marks. Minmetals made a claim against Ferco which was referred to arbitration by the China International Economic and Trade Arbitration Commission (CIETAC). In the arbitration Minmetals claimed that the actual loss suffered by reason of Ferco's breach of contract included loss of profit and the amount of compensation payable to Minmetals' sub-buyers for breach of the sub-sale contract. The same tribunal heard the arbitration between Minmetals and its sub-buyer and between Minmetals and Ferco. The arbitrators awarded the sub-buyer some US$1.6m and on the basis of that award on the next day awarded Minmetals the same sum against Ferco. Ferco applied to the Chinese court for revocation of the award on the ground that the sub-sale award had not been referred to or put in evidence in the arbitration and that Ferco had not had an opportunity to consider it or make submissions on it. The Chinese court suspended the award and remitted the case to CIETAC for a resumed arbitration.
At the resumed arbitration Ferco's position was that there were serious deficiencies in the evidence as to what loss if any had been caused to Minmetals and that it was up to Minmetals or the tribunal to establish what loss was recoverable. On the basis that Minmetals did not rely on the sub-sale award at the resumed hearing, Ferco did not make submissions on the propriety of the arbitrators' reliance on the evidence of the sub-sale award. The arbitrators' second award maintained the first award. Ferco made a further application to the Chinese court to revoke that award. That application was dismissed on the basis that CIETAC had originally infringed the procedural rules of arbitration by not giving Ferco the opportunity to comment on the sub-sale award but in the course of the resumed arbitration CIETAC asked Ferco to state its views, thereby complying with the rules, but Ferco did not do so. An application by Ferco for a retrial was pending.
Minmetals obtained an order under s. 101 of the Arbitration Act 1996 to enforce the CIETAC awards which were New York Convention awards. Ferco argued that the awards should not be enforced because it had been unable to present its case under s. 103(2)(c), because CIETAC had breached its procedural rules under s. 103(2)(e), and because enforcement would be contrary to English public policy under s. 103(3).
Held, refusing to set aside the leave to enforce the awards:
1. Ferco had been able to present its case. Following the Chinese court's order for the arbitration to be resumed it was open to Ferco to ask to see the sub-sale award and the evidence on which it was based and make further submissions and adduce further evidence if necessary. It had been given an opportunity to present its case but had failed to take that opportunity. The inability to present a case within s. 103(2)(c) contemplated an inability caused by matters outside the party's control and not his own failure to take advantage of an opportunity.
2. In relation to the first award, the arbitrators did not act in accordance with “international practices and the principle of fairness and reasonableness” as required by art. 53 of the CIETAC rules. Their omission to give Ferco a prior opportunity to deal with the sub-sale award was not in compliance with those requirements. However following the Chinese court's order for a resumed hearing the evidence relied on by the arbitrators was open to challenge but was not challenged. That constituted a waiver by Ferco under art. 45 of the CIETAC rules of its right to object to the procedure and it was no longer open to Ferco to rely on the non-compliance with art. 53.
3. Ferco had applied to the Chinese court as the supervisory court to remedy the alleged defects in the arbitration procedure and to revoke the awards. The court had refused leaving the final award undisturbed. In the circumstances public policy was strongly in favour of enforcing convention awards and upholding the determinations of the supervisory court. In exceptional cases the English court would intervene but it would not normally re-investigate allegations of procedural defects which had already been considered by the supervisory court. Ferco had not acted reasonably and had waived its right to object and the enforcement of the awards would not lead to substantial injustice.
Colman J:
This application to set aside leave to enforce two Chinese arbitration awards raises matters of considerable importance with regard to the approach of the English courts to the enforcement of foreign awards generally and New York Convention awards in particular.
On 12 January 1998 Cresswell J made an order under s. 101 of the Arbitration Act 1996 giving leave to Minmetals to enforce an award dated 29 September 1995 in the initial arbitration and an award dated 20 March 1997 in the resumed arbitration conducted under the auspices of the China International Economic and Trade Arbitration Commission of Beijing (“CIETAC”). The total amount of the awards was US$692,953.78, including damages, the successful party's costs and expenses and the costs of the arbitration. Payment was to be made within 45 days, failing which interest was to accrue at the rate of 8.5 per cent per annum.
Before explaining the issues now before the court it is necessary to set out the history of the Chinese proceedings.
The dispute which gave rise to the arbitration awards arose out of a contract dated 3 March 1993 under which Ferco, an English company, agreed to sell to Minmetals of Dusseldorf a total of 10,000 metric tons of steel channels of various dimensions at a price of US$340 per metric ton CFFO CQD Shanghai. The contract, although made in Germany between an English seller and a German buyer, was on a form written in Chinese and English which included a term (cl. 13) giving the buyers the right to apply to the China Commodity Inspection Bureau for inspection after discharge of the goods. If on such inspection it were found that the quality or quantity did not conform to the contract or invoice, the buyers were to be entitled to lodge claims with the sellers on the basis of the Bureau's survey report within 90 days after discharge of the goods, except claims for which the shipping company or the marine insurers were liable. There was also an arbitration clause in the following form:
“Arbitration: All disputes in connection with this Contract or the execution thereof shall be settled by friendly negotiation. If no settlement can be reached, the case in dispute shall then be submitted for arbitration to the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade in accordance with the Provisional Rules of Procedure of the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade. The decision made by the Commission shall be accepted as final and binding upon both parties. The fees for arbitration shall be borne by the losing party unless otherwise awarded by the Commission.”
On 4 March 1993 Minmetals entered into a sub-sale contract under which they agreed to sell to China Resources Metals and Minerals Co (“China Resources”) steel of the same quantity, quality and description at a price of US$348 per metric ton.
Minmetals referred their claim against Ferco to arbitration by CIETAC on 27 December 1993. It appears from the initial arbitration award that an inspection certificate issued by the Inspection Bureau at Shanghai stated that there was a 100 per cent divergence between the actual dimensions of the steel channels and the dimensions specified in the contract. Further, some of the channels were not marked with a quality number at all or bore marks inconsistent with those quality marks specified in the contract. In the course of that arbitration submissions were made by the buyers, Minmetals, that the actual loss which they had suffered by reason of the sellers' breaches of contract included loss of profit and the amount of compensation payable to sub-buyers, China Resources, for breach of the sub-sale contract. It appears that Minmetals were seeking to recover damages on the basis that by reason of the non-conformity of the goods with the contractual quality and marks requirements the actual value of the steel could only be scrap value. They thus put forward a claim for damages amounting to US$2.5m against a total contract value of US$3.4m.
In so doing they were apparently passing on as against the sellers the sub-buyer's submission that, because the goods had not been marked with a heat number, a quality inspection could not...
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