#5004 - Egon Oldendorf V. Libera Corporation - Conflict of Laws BCL

Egon Oldendorf v. Libera Corporation

Facts

The plaintiffs are a German commercial partnership with unlimited liability based in Lübeck. The defendants are a Japanese corporation based in Kure, near Hiroshima. This action was commenced by the plaintiffs by writ endorsed with points of claim issued Feb. 22, 1994. The plaintiffs claim damages for breach of an agreement said to have been made for a 10-year charter to the plaintiffs of two Panamax bulk carriers to be built for the defendants in Japan. The defendants by summons dated July 12, 1994 apply under R.S.C., O. 12, r. 8 for, inter alia, an order setting aside the writ, discharging the order for leave for service out of the jurisdiction and declaring that the Court has no jurisdiction, or declines to assume any, over the defendant in respect of the action.

It is common ground that the parties in March, 1993 reached an agreement which provided for the charter of two such Panamax vessels (and also for the plaintiffs as charterers to have a purchase option) subject to conditions. The parties are however at issue whether the conditions were satisfied or waived.

The agreement was recorded in fax messages sent by brokers, Tokyo Shipbrokers Ltd. ("TSL"), to the defendants on Mar. 19 and to the plaintiffs on Mar. 22, 1993. TSL are an English company.

The two conditions in the agreement read as follows:

Sub owners finally signing newbuilding contracts with owners' board approval declarable latest 15th April 1993, cob Japan. [and]

Moa to be mutually agreed and attached to c/p. .

The plaintiffs, as TSL envisaged might be the case, preferred to use their own recent fixture of Chemi Ocean, and sent TSL a copy accordingly on Mar. 22, 1993. This was in turn copied to the defendants and was then used in discussions on charter-party details. The Chemi Ocean charter was also on the NYPE form but with the arbitration clause amended to provide for London arbitration, as follows:

17. That should any dispute arise between Owners and the Charterers, the matter in dispute shall be referred to as per Clause 75.

75. Any dispute arising under the Charter to be referred to arbitration in London

The discussions on charter-party terms were successfully concluded by Apr. 23, 1993. There was no express reference to either cl. 17 or cl. 75. But it is apparent, as one would expect, that there were detailed discussions on many individual clauses which raised matters of concern, both earlier and later in numbering than cll. 17 and 75. The obvious inference is not that cll. 17 and 75 were in some way overlooked, but that they were read by the defendants and found acceptable. The defendants' evidence contains no suggestion to the contrary. They do not suggest that they were either unaware of or failed to understand cl. 17 and 75.

On May 20, 1993 the defendants reached heads of agreement subject to contract for the construction of the two vessels by Sasebo Heavy Industries Corporation Co. Ltd. ("Sasebo") at a total price of Yen 6250m.

The plaintiffs' case is that Mr. Fukada, who was at the time the defendants' managing director, agreed to the lifting of the signing subject in the light of these heads of agreement. They say that he agreed to this during a telephone conversation with Mr. Suzui (who happened at that date to be in London), the contents of which Mr. Suzui immediately passed on to the plaintiffs. Mr. Suzui has confirmed this account in an affidavit. The defendants' case is that Mr. Fukada never agreed, and that there must have been some confusion.

After his return to Japan, Mr. Suzui on May 25, 1993 sent a fax stating inter alia as follows to the defendants for Mr. Fukada's attention:

Ref. various phone conversation, just for sake of good order, we lifted owners' subject on the 20th May 1993 on your behalf which was acknowledged by charterers thus the deal stands now clean and we just have to sort out MOA details technically for mutual agreement.

Discussions then took place on the terms of the MOA. The negotiations were based on a pro forma Norwegian Saleform, 1987 MOA which the plaintiffs at some point also supplied to the defendants. This form provided in lines 133-150 for arbitration of disputes in a city left blank in line 135, and for the proper law to be the law of the country agreed as the place of arbitration. The discussions on the terms of the MOA were successfully concluded by May 27, 1993, on which day TSL faxed to the plaintiffs: "So we finally wrap up the deal".

The dollar-yen exchange rate moved unfavourably to the defendants in early June, 1993, creating unforeseen difficulties in the way of their intended contract with Sasebo, which was not as a result signed on or by June 3, 1993. On June 8, 1993, the defendants reported to the plaintiffs that they had failed to overcome their difficulty with Sasebo, regretting the delay and asking the plaintiffs to be patient, saying that they were doing their best in order to fix the contract [with Sasebo] as soon as possible.

Mr. Suzui's reaction to this on June 10, 1993 was to make clear his view that the defendants had lifted the signing subject and agreed the details and to suggest that they "confirm the recap from which we cannot turn down the deal technically". Defendants continued their stance that the ship building contract could be fixed sooner or later, and the plaintiffs ultimately claimed to treat the defendants as in repudiatory breach, and commenced this action.

Leave to serve the writ out of jurisdiction was obtained under R.S.C., O. 11, r. 1(1)(d)(iii) on the basis that the contract sued upon was "by its terms, or by implication, governed by English law".

Holding

Applicable Law

Court proceeded to determine the applicable law on the basis of application of the Rome Convention.

It is convenient to mention at this point, that, quite apart from the effect on jurisdiction if Japanese law applies, the defendants also contend that, under Japanese law and shipbroking practice, an agreement "subject to details" is not binding unless and until details have not only been agreed, but also recapitulated and confirmed by both parties.

I find unconvincing the suggestion that what was contemplated was that the arbitration tribunal should apply a foreign law, whichever party's, to resolve disputes entrusted to them in these circumstances.

But with or without these additional factors, the matters relied on by the defendants would be inadequate in my judgment to lead to a conclusion that the parties intended London arbitration under Japanese law. The critical question is thus whether the arbitration clause should be treated as validly incorporated in any contract, if any contract was validly made. The plaintiffs clearly have a good arguable case for saying that the signing subject was lifted on May 20, 1993, while the details subject was on the face of it satisfied under English law on May 27, 1993 when all details had been agreed. There is nothing in the concept of "subject to details" in English or under English law which requires details so agreed to be recapitulated, still less which requires any recapitulation.

In considering the impact of art. 8(2), I shall for the moment assume that it is. The basic question remains: does it appear from the circumstances that it would not be reasonable to determine the effect of the defendants' conduct in accordance with English law, either in considering whether any contract at all was agreed or in considering whether any contract which may have been agreed contained a valid arbitration clause? Clearly this question cannot be answered from the viewpoint of Japanese law. Nor ex hypothesi can it be answered from the purely domestic viewpoint of the law which would otherwise govern under art. 8(1). It can only be answered by the Court before which it comes adopting a dispassionate, internationally minded approach…. In the present case, wherever the onus lies, there seem to me to be very strong reasons for regarding it as unreasonable to determine in accordance with Japanese law the effect of the defendants' conduct in this case on either the formation of a valid contract or the agreement on a valid arbitration clause. Japanese law can only conceivably be relevant if one starts by ignoring the English law arbitration clause in the Chemi Ocean charter-party, with its natural implication that English law governs. I say this, I hope, without falling into the trap of thinking that, because this would also be the attitude of English domestic law, therefore it is necessarily the appropriate attitude in applying art. 8(2).

The court on this basis concluded that the law applicable to the contract was English law and rejected the recapitulation argument based on Japanese law.

Appropriate Forum

I turn to the issue of appropriate forum. This being a case under O. 11, and subject also to the specific requirement of O. 11, r. 4(2), it is common ground that the burden rests on the plaintiffs to satisfy the Court that the case is one where England is "clearly" the appropriate forum for the resolution of the disputes which have arisen: Spiliada Maritime Corporation v. Cansulex Ltd. (The Spiliada), [1987] 1 Lloyd's Rep. 1 at pp. 12-14; [1987] A.C. 460, at pp. 478-482 per Lord Goff. Formal jurisdiction exists, as I have held, because the plaintiffs have, at the least, a good arguable case for saying that the contract which they allege was subject to English law. But when it comes to considering the appropriate jurisdiction, the importance of that ground as a connecting factor may vary from case to case: in some...