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HCA 1526/2010
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IN THE HIGH COURT OF THE

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HONG KONG SPECIAL ADMINISTRATIVE REGION
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COURT OF FIRST INSTANCE

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ACTION NO. 1526 OF 2010 F
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BETWEEN
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KLÖCKNER PENTAPLAST GMBH & CO KG Plaintiff
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and
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ADVANCE TECHNOLOGY (H.K.)
COMPANY LIMITED Defendant
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M Before: Hon Saunders J in Chambers M

Date of Hearing: 7 September 2011
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Date of Decision: 7 September 2011
O Date of Reasons for Decision: 9 September 2011 O

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__________________________________
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R EASONS F O R DECI SI ON
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B 1. I am not satisfied either that Klöckner’s proposed appeal has a B

reasonable prospect of success, or that there is any reason in the interests

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of justice why an appeal should be heard. Leave to appeal and a stay of
D the arbitration pending appeal are refused. D

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2. I accept that the applicant for leave to appeal does not have to
F demonstrate that the appeal will probably succeed: see Apple Daily Ltd v F

Oriental Press Group Ltd, unreported, HCA 1396/2009, Chu J, 3 January

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2011, but the applicant must show that there is a reasonable prospect of
H success in the appeal. H

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3. Two questions arose in the decision sought to be appealed,
J first what was the proper law of the arbitration agreement, and second J

whether the dispute fell within the scope of the arbitration agreement. A
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subsidiary question, whether as a result of Chinese law the arbitration
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agreement was incapable of performance arose only if the answer to the
first question was that Chinese law was the proper law of the arbitration M
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agreement.
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4. Mr Khaw correctly identified three factors as pointing O
overwhelmingly to German law being the proper law of the arbitration
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agreement. They were:

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(i) that the MoU expressly provided that: “all of the obligations
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contained herein shall be governed in its entirety by the laws

S of the Federal Republic of Germany.” (My emphasis) S

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B (ii) that the arbitration clause provided that the third arbitrator B

shall be a person admitted to practice German law;

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D (iii) that both the governing law clause and the arbitration clause D

were set out under a heading in the MoU entitled “Governing

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Law and Jurisdiction”.
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5. Against this, the only factor upon which Mr Cheng can rely to
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argue that the proper law of the arbitration agreement should be Chinese
H law is the fact that the seat of the arbitration is stated in the MoU to be H

Shanghai. While I accept that an argument can be mounted, indeed has

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been mounted, based upon this point alone, I am satisfied that it has no
J reasonable prospect of success. That is particularly so when regard has J

had to the statement in Dicey and Morris, §16-017, cited at §24 of the
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decision.
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6. Mr Cheng referred me to Article 58 of the Minutes of the M

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Second National Working Conference on the Trial of Foreign-Related
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Commercial and Maritime Case promulgated by the PRC Supreme

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People’s Court on 26 December 2005. The Article reads: O

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P “The lex causae agreed to by the parties to a contract for settling
disputes arising from the contract cannot be used for determining
Q the validity of foreign-related arbitration clauses. Where parties Q
to a contract have specified the lex causae for determining the
validity of arbitration clauses, the laws agreed shall apply;
R where parties to a contract have not specified the lex causae for R
determining the validity of arbitration clauses, the arbitration
place, the laws of the country or region of the arbitration place S
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shall apply.” (My emphasis).

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B 7. Consequently, said Mr Cheng, the Chinese courts being the B

supervisory courts to the arbitration process would be bound to conclude

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that Chinese law was the appropriate law for determining the validity of
D the arbitration clause. Other than pointing to the fact that the seat of the D

arbitration was in Shanghai he could not suggest any reason why that
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should be so.
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8. The argument is unsustainable. This is a plain case where the

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parties to the contract have specified the appropriate law for determining
H the validity of the arbitration clause. They do so by saying that the entirety H

of the contract, plainly including the arbitration clause, is to be governed

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by the laws of the Federal Republic of Germany. There is nothing in the
J evidence to suggest that in the application of its own law the Chinese J

courts would find that the law governing the arbitration clause was K
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anything other than that agreed to by the parties.
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9. I accept Mr Khaw’s submission that the three authorities M

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relied upon by Mr Cheng do not lay down any principle to the effect of the
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governing law of an arbitration, but are simply cases decided on their own

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particular facts. O

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10. In Black Clawson International Ltd v Papierwerke Waldhof-

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Aschaffenberg AG [1981] 2 Lloyd’s Rep 446, the arbitration was to take Q

place in Zurich Switzerland. The arbitration agreement provided that any

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question of construction or effect should be decided according to English

S law if the reference was by the purchasers but the law of the Federal S

Republic of Germany if the reference was by the sellers. In that situation,

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it is not at all surprising that the lex arbitri was found to be Swiss law. In
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B XL Insurance Ltd v Owens Corning [2000] 2 Lloyd’s Rep 500, the contract B

contained a London arbitration clause and a jurisdiction clause requiring

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the policy could be construed in accordance with New York law. The case
D is simply an example of the usual rule that if there is no stipulation as to D

the law of the arbitration agreement that law would normally be the law of
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the seat of the arbitration. C v D [2007] 2 Lloyd’s rep 239, is precisely the
F same category. F

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11. In none of the three cases relied upon were expressions such
H as those set out in §4(i) above used. H

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12. Next, Mr Cheng seeks to say that it is reasonably arguable
J that the Court of Appeal is likely to disagree with my finding a that the J

dispute falls within the scope of the arbitration agreement.

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13. Again, an argument can be mounted, but I am not satisfied
that it has any reasonable prospect of success. M
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14. The relevant expression in the MoU is:

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“any dispute, controversy, or claim between the parties hereto
arising out of or relating to this MoU.” (My emphasis). P
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Q Mr Khaw was right to draw my attention again to Fiona Trust & Holding Q

Corp v Privalov [2008] 1 Lloyd’s Rep 254 CA, and the following passage
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from the speech of Lord Hoffmann, at 257, with whom the other law lords
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B “In my opinion the construction of an arbitration clause should B

start from the assumption that the parties, as rational
businessman, are likely to have intended any dispute arising out
C of the relationship into which they have entered or purported to C
enter to be decided by the same Tribunal. The clause should be
construed in accordance with this presumption unless the D
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language makes it clear that certain questions were intended to
be excluded from the arbitrator’s jurisdiction.”
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15. There is nothing in the language of the MoU to suggest that

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following the making of the MoU disputes in respect of the sale and
G purchase of goods between Klöckner and Advance Technology should be G

dealt with other than by arbitration. Such sales plainly relate to the MoU
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and consequently it is not reasonably arguable that a dispute arising from
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such sales should not go to arbitration as the parties have agreed.

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16. Mr Cheng relies upon the decision of the House of Lords in
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K Union of India v E. B. Aaby’s A/S (The Evje) [1975] AC 797, as an

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example of the case where Aaby’s, relying on a subsequent undertaking to L
pay general average, given independently of the contract containing the
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arbitration clause, was held not to be bound by the arbitration clause,

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which contained a limitation provision. That was so, because the court N

found that the undertaking constituted a fresh contract varying the contract
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containing the arbitration clause, and that fresh contract contained no

P limitation period. P

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17. But the situation in the present case is quite different. First,
R the particular expressions contained in the present MoU, to which I have R

already referred, were not contained in the charter party. Second, the case
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is simply demonstrates that the subsequent undertaking given to pay
T general average constituted a separate contract which contained no T

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B limitation provision.. It does not lead me to conclude that it is reasonably B

arguable that the arbitration clause was not intended to cover the present
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dispute.
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18. Finally, Mr Cheng says that the arguments advanced by him

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have not been definitively considered by the Court of Appeal, and a
F judgement will give guidance. I suspect the reason that the matter has not F

gone before to the Court of Appeal is because in most cases the answer is
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clear, and in any other case, well-established principles are simply applied
H to facts. It is simply not necessary to give leave in order to obtain the H

guidance of the Court of Appeal.

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J 19. For these reasons, leave to appeal is refused. J

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20. Klöckner must pay Advance Technology’s costs on the
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application for leave, to be taxed on a party and party basis.

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(John Saunders)
P Judge of the Court of First Instance P
High Court
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Mr Alfred C P Cheng, instructed by Messrs DLA Piper Hong Kong, for the
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Plaintiff

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Mr Richard Khaw and Ms Angel Mak, instructed by Messrs Patrick Mak
& Tse, for the Defendant
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