Sinochem International Oil (London) Co Ltd v. Fortune Oil Co Ltd [1999] EWHC Commercial 204 (3rd August, 1999)

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Fortune Oil Co Ltd [1999] EWHC Commercial 204 (3rd August, 1999) Folio No 512/1999 IN THE HIGH COURT OF JUSTICE QUEEN’S BENCH DIVISION COMMERCIAL COURT St Dunstan’s House Fetter Lane London Tuesday 3 August 1999 B e f o r e: MR JUSTICE COLMAN B E T W E E N: SINOCHEM INTERNATIONAL OIL (LONDON) CO LIMITED Applicant - v - FORTUNE OIL CO LIMITED Respondent MR MICHAEL SULLIVAN appeared on behalf of THE APPLICANT MR DUNCAN MATTHEWS appeared on behalf of THE RESPONDENT J U D G M E N T MR JUSTICE COLMAN: 1. The problem to which this application gives rise is one which unfortunately is becoming increasingly prevalent in this court. Shortly stated, it is this. Where an application is made for the appointment of an arbitrator or for a declaration that there is a binding arbitration agreement between the parties, the underlying issue is not infrequently whether the parties ever made any agreement between themselves at all. There may be many cases where the main issue between the parties is whether there was a binding contract of sale or whatever else. Where the parties have included in that apparent agreement an arbitration agreement, the determination of whether they are bound by the arbitration agreement necessarily involves determination of the main substantive issue between them, which otherwise would be referred to arbitration. 2. In those circumstances the court is confronted with a problem which can give rise to difficulties of principle. In particular, in determining whether to appoint an arbitrator or whether there is a valid arbitration agreement between the parties, the court is being asked to determine the main issue in dispute between the parties. If it does so upon the application, then a dispute which, if there is a binding agreement between them the parties would agree should be determined by arbitration, is being determined by the court. 3. There has been some discussion in the course of the hearing this morning as to whether in such a case the determination by the court that there should be an arbitrator appointed would necessarily give rise to a determination binding on the parties that there was a underlying contract between them. If that determination gave rise to an issue estoppel, it would then not be open to the party challenging that contract to raise that issue again before the arbitrators when the arbitration proceeded. 4. For these reasons the approach which the court should take in deciding how to conduct the hearing of applications for the appointment of arbitrators, and indeed applications for declarations that there is a binding arbitration agreement, may in some cases have to be tailored to take account of the fact that it may be those applications be required to determine the whole substantive issue between the parties. 5. What has happened in the present case is a signal example of the difficulties which can arise where this sort of issue is in play. The applicants, for the appointment of an arbitrator, served their affidavit in support of their application in the course of April 1999. For this purpose they needed to apply for leave to serve outside the jurisdiction because the respondents to the application are located in Hong Kong. Service was duly effected in Hong Kong and subsequently an affidavit was served on behalf of the respondents challenging the appointment of an arbitrator on the basis that there was no valid binding contract at all between Sinochem, the applicants, and the respondents, Fortune Oil Co Ltd. That affidavit was served more than the required period of 28 days from the service of the application. Indeed, it was served on 7 July 1999. There was then certain correspondence between the parties. A hearing which originally was fixed to take place on 18 June was postponed, both parties assuming that it might be necessary for further evidence to be served. Further evidence was indeed served. On 23 July 1999 three affidavits were served by the applicants. One of them by Shen Juxian was a detailed exposition of the circumstances in which the agreement for the sale of crude oil by instalments was made in the course of 1998. That affidavit refers to the agreement having been made between the applicants and the respondents by reference to the negotiations and further by reference to another contract which was made between the applicants and another company, Chester, which is said by the respondents to have been the other contracting party under the contract in dispute. 6. Then, late in the afternoon of 28 July, there were served a number of affidavits on behalf of the respondents, which included a detailed account of the trading relationship between the respondents and Chester, and also between both the respondents and Chester, on the one side, and Sinochem, the applicants, on the other. A substantial number of documents are referred to both in the affidavits filed on behalf of Sinochem and in those filed on behalf of Fortune. These documents include a substantial number of other contracts which were brought into existence between Sinochem, on the one hand, and either Fortune or Chester, on the other, and which were made prior to the contract in question in this case. That was three working days before this hearing. 7. The matter now comes before the court on the basis, as it is submitted on behalf of Fortune, that everybody is now ready for the issue to be determined as to whether there was a binding agreement or not; that all the evidence is before the court; and that the court should now determine on the basis of that evidence whether any such agreement existed. 8. On behalf of Sinochem, on the other hand, it has been submitted by Mr Michael Sullivan that it is inappropriate that the courts should now determine the question whether there was a binding agreement; that there ought now to be discovery and disclosure of such further relevant documents as may exist and perhaps further witness statements; and that the issue as to whether or not there was a binding contract should be tried with either party being permitted to call its witnesses to give evidence. It is to be observed that there has been no application on behalf of Sinochem to cross-examine any of the witnesses whose statements have been adduced by Fortune in support of the challenge to this application. 9. It seems to me that the approach which the court ought to take in cases such as this should take fully into account the fact that, because of the need to determine whether the parties are indeed bound by an arbitration agreement, the court finds itself in the position of having to determine the underlying substantive issue between the parties. Whether there is or would be a defence to this claim, if it were found that Fortune Oil Co Ltd was indeed the other contracting party, is not at all clear. No such defence emerges from the material that I have seen; but it may well be that there is a defence. Be that as it may, it now appears on the evidence before me that the probability is that the determination of who is party to the contract which was unquestionably entered into by Sinochem in 1997 will finally resolve the claim against Fortune. 10. In those circumstances I have come to the conclusion that the court must proceed on the basis that in the interests of justice it is necessary that if either party wishes, without undue prejudice to the other, to adduce the fullest possible evidence in support of its case as to the existence or non-existence of any such contract, it should be afforded the opportunity to do so. In the present case the substance in procedural terms of what Mr Sullivan on behalf of Sinochem is asking is that there should be, first, disclosure of documents, and second, that there should be oral evidence. Had the position arisen where the parties had proceeded for many months (or even many weeks) on the basis that the whole issue could be determined simply on the basis of affidavit evidence, and had served all their affidavit evidence (or the substantial part of it) that period of time before the hearing, I should have hesitated long before concluding that Mr Sullivan’s application to have this matter adjourned and for a fuller trial of this issue should be acceded to. 11. However, in view of the fact that the great bulk of the detailed evidence has emerged in this case since 23 July, it seems to me that, it now only being 3 August, it would be quite wrong for this matter simply to proceed as a trial of the issue on affidavit or witness statement evidence alone. Accordingly, the appropriate course is for this application to be adjourned and for directions to be given as to the disclosure of further documents (if such is required), and secondly, as to any further evidence that should be adduced prior to a hearing. It is also necessary in the interests of efficient case management that a hearing date should be fixed (at least on a not before basis) here and now, otherwise the matter is likely to be delayed unacceptably and the issue between the parties be postponed in a way which would be inconsistent with the philosophy of the CPR. It is unfortunate that this situation has arisen. 12. I conclude this judgment by saying that where there is an issue on the application for the appointment of an arbitrator as to whether there is indeed a binding contract between the parties, solicitors and counsel involved in the case should immediately become alive to the need to explore whether the ordinary procedural approach to such applications should be followed or whether it would not be more sensible in the interests of justice for a procedural timetable to be worked out ending in a full trial of the issue between the parties. If this need is identified at an early procedural stage, a great deal of time will be saved and, inasmuch as there will be saving of a great deal of time, there will also be saving of substantial legal costs. 13. I will now hear submissions as to what further directions should be given in this case. ____________________ © 1999 Crown Copyright BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII URL: https://www.bailii.org/ew/cases/EWHC/Comm/1999/204.html