Nova (Jersey) Knit Ltd v Kammgarn Spinnerei G.m.b.H.
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE STEPHENSON,LORD JUSTICE BRIDGE |
| Judgment Date | 08 April 1976 |
| Judgment citation (vLex) | [1976] EWCA Civ J0408-1 |
| Date | 08 April 1976 |
| Court | Court of Appeal (Civil Division) |
[1976] EWCA Civ J0408-1
The Master of the Rolls
(Lord Denning)
Lord Justice Stephenson
Lord Justice Bridge
In The Supreme Court of Judicature
Court of Appeal
On Appeal from Mr. Justice Bristow
MR. J. WILMERS Q.C, and MR. J. MANCE (instructed by Messrs. Oppenheimer, Nathan & Vandyke) appeared on behalf of the Appellants.
SIR JOHN FOSTER Q.C. and MR. D. DONALDSON (instructed by Messrs Herbert Smith & Co.) appeared on behalf of the Respondents.
(As approved)
Two companies are locked in combat, one English, the other German. Both are manufacturers of knitted garments.
In 1970 they became associated in a joint venture in Germany as partners. The English company supplied machines for the partnership operations in Germany which was at a place called Bietigheim. But in 1973 the joint venture collapsed. The German company put the blame on the English company, and in particular on a Mr. Paul Burg, who was closely connected with the English company.
In April, 1974 the German company in pursuance of the partnership agreement, started an arbitration in Germany, claiming over 2,000,000 Deutsch marks from the English company. Pleadings were exchanged in that arbitration. But six months later, in November, 1974, the English company retaliated. They started an action in England claiming monies due on bills of exchange. The German company now ask that the action in England be stayed and that the claim on the bills be dealt with in the German arbitration. On this one question, simply whether or not there should be a stay, we have spent the last five days. Much money has been spent on English lawyers and on German lawyers, much paper has been read and reread simply on this preliminary point of a stay without getting to grips with the real dispute. It is nothing to be proud of.
In outline the facts are these: In December, 1972 the English knitting company sold twelve machines to the German knitting company, and in return received twenty-four bills of exchange for sums totalling in Sterling £173,558. These were Sterling bills drawn in London bythe English knitting company on the German knitting company and accepted by the German knitting company payable at Barclays Bank in Fenchurch Street in London, and maturing at dates running from March, 1973 to December, 1975. The first six bills maturing between March, 1973 and September, 1973 were all duly honoured. But the German company refused to pay the bills which fell due in December, 1973 and thereafter. On 21st December, 1973 their solicitor wrote to the English company giving their reasons. They said that, owing to the manipulations of Mr. Paul Burg, they had suffered big losses. They claimed to set off their losses against the bills of exchange. About March, 1974 the German company wrote to Barclays Bank giving their reasons. They said that they knew that in English law as in German law, bills of exchange were enforced much more readily than other debts, but in this case the bills were obtained by fraud or some other means constituting a criminal offence in both Germany and England; and they wanted all questions decided in overall proceedings.
It is significant that, when these differences arose, it was the German company who first took proceedings. In April, 1974 they launched an arbitration in Germany in pursuance of an arbitration clause in the partnership agreement between the parties. Each side appointed an arbitrator. The English company appointed a very respected German lawyer, Dr. E. J. Cohn. The two arbitrators appointed an umpire, a German lawyer of high repute. Pleadings were exchanged. In them issues were raised about the twelve knitting machines. The German companysaid that under the contract, all the twelve machines should have been brand new machines; but the English company only delivered six new machines. The remaining six were second hand which had already been used by the English company for some nine months. The German company also raised in the arbitration all their allegations about the manipulations of Mr. Paul Burg which had caused them great loss. It was not for some months that the English company issued a writ in England. In November, 1974 the English company issued a writ for service out of the jurisdiction on the German company. They claimed in the first part of their writ payment of the six bills which matured between December, 1973 and July, 1974, up to the date of the writ; £44,544 and interest. In the second part of their writ they claimed damages for a libel in the letter which the Defendant company wrote to Barclays Bank when they refused to pay the bills.
Before that writ was served, there was a preliminary hearing before the arbitrators in Germany. In February, 1975 the German arbitrators gave a ruling as to their jurisdiction. They made an interim award in which they held that the arbitration proceedings were to be construed by German law; that they covered all the disputes, including the claims on the bills of exchange, and that they would deal with them in the course of the arbitration.
The German company desire the arbitrators in Germany to deal with everything. So they have entered a conditional appearance in the English action and have applied to stay the English proceedings on the bills. In answer the English company say that the bills of exchange are notcovered by the arbitration clause in the partnership agreement. Every bill of exchange is, they say, a separate contract governed by English law and can be sued on here, and not sent to arbitration. The law on this point is now governed by Section 1 of the Arbitration Act, 1975. Under that section the court is bound to stay proceedings if there is any dispute about any matter agreed to be referred. Under the old Section 4 (1) of the 1950 Act the court used to have a discretion whether to stay or not. But in the new 1975 Act, following the New York Convention, the court has no discretion, it is bound to send the dispute to arbitration if it is a dispute with regard to any matter agreed to be referred. The Master and the Judge both refused to stay the English action so far as the bills of exchange were concerned. Now the German company appeal from that decision. We expedited the appeal so that the German arbitrators should know whether to consider the claim on the bills of exchange or not.
Sir John Foster, on behalf of the English company, says that there is no dispute on these bills of exchange. The only dispute, he says, is about this cross-claim about the machines and so forth. He prays in aid the long line of cases whereby in English law a bill of exchange is treated as equivalent to cash. If bills are given for goods supplied it is no answer for the buyer to say that there are, defects in the goods. The buyer must honour the bills of exchange: and then bring a separate action, if he likes, for the defects in the goods. That principle is established by cases such as James Lamont and Co. Ltd. -v- Hyland Ltd. (1950) 1 King's Bench Division, 585; Brown, Shipley and Co. Ltd. -v- Alica Hosiery Ltd. (1966) 1 Lloyds List, 668; Barclays Bank Ltd. -v- Aschaffenburger Zellstoffwerke A. G. (1967) 1 Lloyds List, 387; Saga Ltd. -v- Avalon Promotions (1972) 2 Queen's Bench Division, 327 to 328. None of those cases, however, consider the position when the contract of sale contains an arbitration clause. In many contracts there are provisions under which bills of exchange are given payable at future dates for the goods, but there is an arbitration clause under which any dispute arising out of the transaction is to be referred to arbitration. Is the seller then entitled to sue upon the bills and let the defects only go to arbitration? Or ought not everything, bills and all, go to arbitration, at any rate when the bills have not been negotiated?
This is a troublesome point but I think we can in this court get help from the decision in Russell -v- Pellegrini in 1856, best reported in 6 Ellis and Blackburn, page 1020. It was not a claim under a bill of exchange but a claim for freight due under a charter. Yet freight is like a bill of exchange in this respect that the shipowner is entitled to be paid down in cash. The charterer is not entitled to hold up payment pending a cross-claim. See Henriksens Rederi (1974) 1 Queen's Bench, 233. Now in Russell -v- Pellegrini there was a claim by the shipowner for freight with a cross-claim by the charterer saying that the ship was not seaworthy. But there was an arbitration clause saying that, should any difference of opinion arise between the parties to this contract, thesame shall be referred for arbitration. The shipowner said there was no dispute as to the claim for freight and it ought not to go to arbitration. But the court rejected that argument. Lord Campbell, the chief justice, said at page 1026. "Though there is no dispute that the monthly hire is due at law yet it appears there is a bona fide cross-claim for damages; and though these could not be set off against a demand for monthly hire it must have been in the contemplation of the parties to this agreement that in such a case the reference" - that is the reference to arbitration - "should include everything".
That case was followed in 1866 by Seligmann -v- Le Boutillier, Law Reports 1 Common Pleas, page 681, by a very strong court. It shows that both the claim for freight and the cross-claim for damages must all go to arbitration. But Sir John Foster says that that does not apply to bills of exchange. Freight is not negotiable whereas bills of exchange are. So bills of exchange should be governed by a different principle. I am afraid I cannot agree with him. The courts in those cases were interpreting words very similar to those which we have in the Arbitration Act, 1975....
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