Nova (Jersey) Knit Ltd v Kammgarn Spinnerei G.m.b.H.
| Jurisdiction | UK Non-devolved |
| Judge | Lord Wilberforce,Viscount Dilhorne,Lord Salmon,Lord Fraser of Tullybelton,Lord Russell of Killowen |
| Judgment Date | 16 February 1977 |
| Judgment citation (vLex) | [1977] UKHL J0216-3 |
| Date | 16 February 1977 |
| Court | House of Lords |
[1977] UKHL J0216-3
Lord Wilberforce
Viscount Dilhorne
Lord Salmon
Lord Fraser of Tullybelton
Lord Russell of Killowen
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Nova (Jersey) Knit Limited against Kammgarn Spinnerei GmbH, That the Committee had heard Counsel, as well on Monday the 6th, as on Tuesday the 7th, Wednesday the 8th, Thursday the 9th, Monday the 13th, and Tuesday the 14th, days of December last, upon the Petition and Appeal of Nova (Jersey) Knit Limited of Marcol House, 289/293 Regent Street, London W1A 1BP, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 8th of April 1976, except so far as regards the words "(2) the costs of the hearing before this Honourable Court on the 15th day of March 1976 be taxed by a Taxing Master and paid by the Defendants to the Plaintiffs", might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, except so far as aforesaid, might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament, might seem meet; as also upon the Case of Kammgarn Spinnerei GmbH, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 8th day of April 1976, in part complained of in the said Appeal, be, and the same is hereby, Reversed except as to Costs on the 15th day of March 1976, and that the Judgment of the Honourable Mr Justice Bristow, of the 12th day of December 1975, thereby set aside, be, and the same is hereby, Restored: And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Courts below, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Queen's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.
My Lords,
The appellants/plaintiffs are suing the respondents/defendants in an English court upon six bills of exchange drawn by the appellants on and accepted by the respondents. The respondents wish to have the proceeding stayed, under section 1(1) of the Arbitration Act 1975, in order that the claim may be referred to arbitration in Germany. The Court of Appeal, reversing a judgment of Bristow J., gave effect to the respondents' application for a stay, and the appellants are appealing against that order. No question arises as regards any future steps which may or may not be taken if the action is allowed to proceed.
The bills were given in part payment for the price of twelve textile machines sold by the appellants to the respondents. The bills themselves of course contained no arbitration clause (they would not be valid bills if they did) and there was no arbitration clause in the (oral) contract for the sale of the machines. To find the agreement for arbitration on which the respondents rely it is necessary to look further into dealings between the parties.
In 1969 the appellants, an English company, and the respondents, a German company, agreed to a joint venture for the manufacture of jersey material in Bietigheim, Germany, where the respondents carried on business. This venture was organised through a German limited partnership (Kommanditgesellschaft) which was formed on 20 January 1970, by a partnership agreement in writing. The parties to this agreement were, as limited partners, the appellants and a trustee company ("R.T.G."), and (in accordance with a requirement of German law) an unlimited partner, a newly formed company called Nova-Knit Jerseystoffe GmbH. The respondents were not parties to the agreement, or partners, (the learned Master of the Rolls appears to be under a misapprehension as to this) but, as the appellants were certainly aware, they were one of several "beneficiaries" for whom R.T.G.'s interest in the partnership was held. The respondents later, but not until February 1973, became partners by assignment from R.T.G. The agreement established the new limited partnership under the name Nova Knit Jerseystoffe GmbH, Fabrik textiler Stoffe K.G. ("the K.G.") and provided for the contributions in capital and know-how to be contributed by the partners. It contained an arbitration clause in the following terms (in translation):
"18. Arbitration agreement
All disputes arising from the partnership relationship or occasion by (or 'in connection with') the partnership relationship between the partnership and the partners shall be decided by the arbitration tribunal provided for in a separate document."
The "separate document" was not executed until 20 March 1972. It opened with a recital in the following terms (in translation):
"A Limited Partnership Agreement was made between the undersigned on 20. 1.1970. Under Clause 18 of that agreement all disputes arising out of this partnership relationship between the partnership and the partners, or among the partners shall be decided by an arbitration tribunal. Accordingly the parties make the following agreement:"
There followed the usual type of clauses for the constitution and working of the tribunal. This document was signed by the three partners. It was not signed by the respondents.
It is on clause 18 of the partnership agreement as implemented by the 1972 document that the respondents found their argument for a stay.
Before coming to the argument in law, it is necessary to outline briefly the origin and nature of the disputes which have arisen. The twelve machines already referred to were sold by the appellants to the respondents in October�December 1972: they were then leased by the respondents to the K.G. in accordance with a previously executed leasing agreement (dated 11 August 1970). The machines were invoiced at £16,000 each, and in part payment for them the defendants in January 1973 accepted 24 bills of exchange payable in pairs at monthly intervals from 31 March 1973�31 December 1975, which totalled £173,568 inclusive of interest. Thus, both the agreement for sale and the acceptance of the bills took place before the date (February 1973) when the respondents were partners.
The first six of the bills were paid on maturity, but on 21 December 1973 the respondents, through their lawyer, informed the appellants that the remaining bills would not be met. The appellants issued the writ in these proceedings on 13 November 1974 claiming the money due on six bills totalling £44,544 plus interest. Later they issued further writs relating to the remaining bills which depend for their result on the present action. The claims which the respondents wish to assert against the appellants by way of defence, set off or counterclaim fall under two heads:
(1) They claim damages in respect of the alleged mismanagement of the business of the K.G. which has in fact collapsed for which they say the appellants are responsible.
(2) They claim that some of the machines supplied by the appellants were not new machines but second-hand.
These claims are undeniably unliquidated claims for damages. They are being pursued in Germany in arbitration proceedings, brought initially (April 1974) by the K.G. against the appellants to which, it appears, the respondents have been joined as co-claimants (November 1975 which, in fact, is subsequent to their application for a stay). The substance of the respondents' claim is that the whole of their dispute with the appellants ought to be dealt with by the arbitrators in Germany and that they ought not to be ordered by an English court to pay money due on the bills of exchange until their cross-claims have been dealt with. It was this argument that was accepted by the Court of Appeal.
The appellants, on the other hand, contend that whatever is the nature and merit of any cross-claims the respondents may have, these cannot be set up against a claim on bills of exchange and that the latter claim is not submissible to arbitration.
The application for a stay is based on section 1(1) of the Arbitration Act 1975. [There is an alternative contention based on section 4(2) of the Arbitration Act 1950, repealed by the 1975 Act, but there is no material difference between the provisions and it is not necessary to decide which applies.]
There is no doubt that the relevant arbitration agreement is not a domestic arbitration agreement so that, prima facie, section 1(1) applies and a stay is mandatory. It remains however open to the appellants to show, the onus being upon them, that
"there is not in fact any dispute between the parties with regard to the matter agreed to be referred".
If they succeed in this, the stay will be refused. Either way, no discretion enters in the matter and the, unknown, merits of the respondents or demerits of the appellants are irrelevant.
The appellants take, inter alia, two points:
(1) That the agreement for arbitration does not extend to the claim now before the English court, viz., the appellants' claim on the bills.
(2) That there is no dispute as to the claim on the bills.
In my opinion they are right on both.
As a preliminary it is necessary to ascertain the applicable law. First, there is no dispute that the partnership agreement of 1970 and the separate document of 1972 are both governed by German...
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