Case No.:

AC-REV-159- 1962

Court:

Court of Appeal

Issue No.:

1962

Principles

· Conflict of Laws—Contract—Arbitration clause—Validity to be determined by law of the contract

· Conflict of laws—Contract—Law of place chosen by’ parties if law has factual connection with the contract

· Conflict of Laws—Contract—Arbitration clause—If valid under law of contract, enforceable in the Sudan

Plaintiff, incorporated in England, contracted to buy sesame seeds and ground- nuts from defendant, a firm in Khartoum. The contract contained clauses which stated that English law should govern the contract and an arbitration clause requiring that “all disputes between the parties . . . shall be referred to arbitration according to the rules appended to this contract . . .“ Plaintiff brought suit in Khartoum for recovery of money owed by defendant. At the return date the parties agreed to consider reference to arbitration, and when a week later no agreement had been reached, defendant filed application to stay the proceedings pursuant to Civil Justice Ordinance 1929, S. 164, based on the arbitration clause. Two questions arose before the Court of Appeal:
(a) \Vas the arbitration clause valid?
(b) If so, have applicants properly invoked Civil Justice Ordinance. s. 164?
Held: (I) The validity of an arbitration clause must be determined by the law of the contract,

(ii) Because the parties chose English law in the contract as the law of the contract and because English law “has the greatest factual connection” with the contract since England is the domicile of buyers, the place of delivery and the country of the currency involved. English law is the law of the contract and governs the validity of the arbitration clause.

(iii) Since such an arbitration clause is valid in English law, the law of the contract, the clause is enforceable in the Sudan.

(iv) Since arbitration was discussed at the return date and since defendant filed application for a stay pending arbitration a week tater before issues were framed, proper application was made under Civil Justice Ordinance. S. 164. and an order should enter staying the suit.

Judgment

(COURT OF APPEAL) *

EL SHEIKH \IUSTAFA EL AMIN & SONS v. PRODUCE BROKERS

CO. LTD.

AC-REV-159- 1962

Advocates: Henry Riad Sikla for defendants-applicant

Mahgoub and Dafalla ... for plaintiffs-respondent

Babiker Awadalla 1. November 12, 1962: —Defendants are a firm in Khartoum and plaintiffs-respondent, the Produce Brokers Co., Ltd., are a company incorporated in England.

It appears that during the months of December 1955 and January I9 the parties entered into three agreements for the sale by defendants-applicant to plaintiffs-respondent of sesame and groundnut kernels. The terms of each of these contracts were embodied in a printed stereotyped form issued by the Incorporated Oil Seed Association of England. It is significant to point out that this form was not at all signed by defendants- applicant, but as they have not contested it I am going to assume that they have agreed to be bound by its terms. Paragraphs i and i6 of each of these contracts reads as follows:

Para. 15. “Buyers and sellers agree that, for the purpose of proceedings, either legal or by arbitration, this contract shall be deemed to have been made in England and to be performed there, any correspondence in reference to the offer, the acceptance, the place of payment or otherwise notwithstanding, and the courts of England or arbitrators appointed in England, as the case may be, shall, except for the purpose of enforcing any award made in pursuance of the arbitration clause thereof, have exclusive jurisdiction over all disputes which may arise under this contract. Such disputes shall be settled according to the law of England, whatever the domicile, residence, or place of business of the parties to this contract may be or become. Any party-to this contract residing or carrying on business in a foreign country shall, for the purpose of proceedings, be considered as ordinarily resident or carrying on business at the Consulate in London of the country of his residence or place of business. Any party to this contract residing or carrying on business either in Scotland or Ireland. or any Colony or Dependency of the United Kingdom, shall, for the purpose of such proceedings; be considered as ordinarily resident or carrying on business at the office of the Incorporated Oil Seed Association, and being a party residing or carrying on business in Scotland shall be held to have prorogated jurisdiction, as against himself, to the English courts, and being a party residing or carrying on business in Ireland, shall be held to have submitted to the jurisdiction, and to be bound by the decision of the English courts. The service of proceedings upon a party residing or carrying on business in a foreign country, by leaving the same at such Consulate, and upon a party residing or carrying on business either in Scotland or Ireland, or in any Colony or Dependency of the United Kingdom, by leaving the same at the offices of the Incorporated Oil Seed Association, together with the posting, in a registered cover, of a copy of such proceedings to the address abroad, or in Scotland or Ireland, or in any Colony or Dependency of the United Kingdom, of such party, shall be deemed good service, any rule of law or equity to the contrary notwith standing.”

Para. 16. “All disputes from time to time arising out of this contract, including any question of law appearing in the proceedings, whether arising between the parties hereto or between one of the parties hereto, and the trustee in bankruptcy of the other party, shall be referred to arbitration according to the rules appended to this contract, and this stipulation may be made a rule of any of the divisions of Her Majesty’s High Court of Justice in Ireland on the application of either contracting party, for the purpose of enforcing an award against a party residing or carrying on business in Ireland. Neither buyers, sellers, trustee in bankruptcy, nor any other person claiming under either of them, shall bring any action against the other of them in respect of any such dispute until such dispute has been settled by the arbitrators, umpire, or committee or board of appeal, as the case may be, and it is expressly agreed that the obtaining of an award from either tribunal, as the case may be, shall be a condition precedent to the right of either contracting party to take any legal proceedings against the other in respect of any claim arising out of this contract. All costs of or connected with the stating and argument of any special case for the opinion of the court on any question of law arising in the course of the reference shall be borne and paid by the party requiring the same to be stated unless or except so far as otherwise determined by the award to be made in the reference.”

The rules to be followed in case of arbitration are contained in 15 clauses appended to the contract.

On July 19, 1958, plaintiffs-respondent in the suit, instituted proceedings before the Khartoum High Court for recovery of a sum of £S.4.418.465m/ms. alleged to be money due on an “I.O.U.” contained in letters dated May 30. 1956, and November 20, 1956. Defendants- applicant appeared in answer to summons on August 3, and the Honour- able Judge of the High Court made the following entry on the record:

After discussion agreed to consider, reference to arbitration.”

The parties again appeared before the court seven days later, i.e., on August 10, 1958. The following entry appears on the record: “There is no agreement as to arbitration.” This entry is then followed by an objection by defendants’ advocate to the proceedings and a statement that he had already filed the written reasons for such objection. I take it that he is referring to statement of defence, dated August 9, 1958, in which he applied for a stay of proceedings under Civil Justice Ordinance. S. 164, on the ground that there is an agreement to refer to arbitration, i.e., para. 15 On August 14, 1958, plaintiffs-respondent amended their claim contending that the “I.O.U.” relates only to a sum of £S.2, 266.628m/ms. and that the remainder of the claim (i.e., £S.2, 144.I3om/ms.) is based on a “balance of current account between the parties.” This amendment was allowed on August 16, 1958. On October 12, 1958, defendants’ advocate asked for particulars of balance of account and an order was made by the court for supplying such particulars and case adjourned sine die. This statement, which clearly shows items of deliveries and payments made under the contracts referred to, was only filed more than two months later, i.e., on January 26, 1959, and parties were summoned for February 7, 1959. Both parties then appeared on February 15. 1959, and the court ordered statement of defence to be filed within to days and reply within five days thereafter. Case was also ordered to be brought forward for mention on March 12, 1959. A statement of defence was duly filed on March 12, 1959, in which defendants-applicant denied claim and again applied for stay of proceedings. It appears that on the day the statement of defence was filed in the office of the court, plaintiffs’ advocate appeared before the Honourable Judge of the High Court and defendants’ advocate did not, and there was certainly no obligation on him to appear. Plaintiffs’ advocate applied for a decree under Civil Justice Ordinance, Order I Rule 14, and that application was granted.

In my view it was absolutely wrong for the court to apply that rule so strictly simply because defendants’ advocate filed his statement, which was then before the court, some days later than the time fixed, especially because the jurisdiction of the court itself to entertain the suit was called in question. On March 26, 1959, defendants’ advocate applied to the court to have the decree of March 12, 1959, set aside and the court, after hearing objections from plaintiffs-respondent, set aside the decree on the ground. if I understand it correctly, that it was essentially a default decree. The court was apparently conscious of the fact, or so it ought to have been, that a decree passed pursuant to Civil Justice Ordinance, Order II, Rule ‘4, cannot be expunged by the court, which passed it. However, the court on August 20, 1959, framed preliminary issues as follows:

. Is there a provision in the agreement of the parties that litigation

or arbitration in respect of any disputes arising between the parties should take place only in England?

“2. If so, has the Sudan High Court no jurisdiction to deal with the case?

3. If answer to No. 2 is in the affirmative, is this case not entertain- able under Civil Justice Ordinance, s. 6?

The case was then referred by the Honourable Judge of the High Court to Muhammadi, District Judge, who simply confined himself to the question whether or not there was an improper ouster of jurisdiction by virtue of paragraph 15, and, purporting to base his decision on Misr Printing Press v. Kamil Mohamed Kamil, AC-REV-27-1958, (1959) S.L.J.R. 5, he found that the said paragraph cannot operate to deprive the Sudan courts of their jurisdiction to deal with the matter. On July 17, 1960, the case came before Tewfik, District Judge, for a trial of the substantive issue framed by him as to defendants’ liability to pay the amount claimed, and the advocate for defendants-applicant objected to a hearing of the substance of the matter before the question of stay of proceedings was disposed of. Cotran, District Judge, therefore, proceeded to deal with the issue which Muhammadi, District Judge, failed to deal with, and he therefore called for further submissions on the question of arbitration. Defendants-applicant filed their submission on July 30, 1960, and it took plaintiffs-respondent more than six months to file theirs. The main theme of defendants’ sub mission is that there is no dispute between the parties within the meaning of paragraph 16 of the agreement. The case then came before Dafalla El Radi Siddig, District Judge, for a ruling, and he, basing himself on the English Arbitration Act, 1889, S. 4, which apparently precluded a party from moving the court for a stay of proceedings once the stage of pleadings had been reached, decided the point against defendants –applicant. At the bottom of the first page of his judgment, Dafalla El Radi Siddig, District Judge, said:

“Thus it is unequivocally clear in the action before me that it started on July 19, 1958, and that it was defended after asking for particulars of the claim and furthermore submissions were exchanged and my learned predecessor decided upon a dispute as to whether the courts of England or our courts here are the appropriate place for bringing this action.”

Defendants-applicant then applied for revision to the Honourable Judge of the High Court who dismissed their application. The Honourable Judge of the High Court correctly found that the English Act is irrelevant. He then proceeded to state that the matter is solely governed by our Civil Justice Ordinance, s. 164, which requires that the application to stay should be made at the earliest possible opportunity, and where issues are settled at or before such settlement. The earliest opportunity of defendants- applicant in this case was, in the Judge of the High Court’s view, lost to them when, on July 2, 1960, their attention was drawn to the fact that issues would be framed and circulated and they failed to invoke paragraph

16. The Honourable Judge of the High Court, if I understand him correctly, then proceeded to state that even if defendants-applicant were found as having properly invoked Civil Justice Ordinance, s. 164, then they would have failed in their attempt to transfer the case out of the Sudan on the ground alleged by them that English law is the proper law of the contract. It is against this decision that this application is now being made.

In my view a correct decision in this case bad been made impossible by a failure to view the questions involved in their correct order and perspective. I would like to state from the outset that the question of ouster of jurisdiction on which Muhammadi, District Judge, made a pronouncement is not at all relevant to the matter in controversy. The two questions material for determination of the present case are:

(i) Is the arbitration clause valid?

(ii) If so, have defendants -applicant properly invoked Civil Justice Ordinance, s. 164?

The Honourable Judge of the High Court, although he has correctly covered the matters involved, yet in my view he has reversed their order. This is because if in accordance with the rules of private international law, defendants-applicant are unable to invoke the arbitration clause, then Civil Justice Ordinance. s. 164 would be completely out of place. I shall therefore deal with the above points in their proper order.

Point No. (i)

As this contract is one involving a foreign element, the rules governing the validity of the arbitration clause are the principles of private inter national law. Russell, Arbitration 33 (i6th ed. 19ç7) under the heading “Conflict of Laws.” says:

“Where a contract is made between parties resident in different countries, or is made in one country to be performed in another, the validity and effect of an arbitration clause in the contract are to be determined… by the ‘proper law’ of the contract as a whole…’’

What then is the proper law- of a contract? According to Cheshire, Private International Law 208 (5th ed. 19g) the modern criterion for deter mining the proper law of a contract depends upon the parties own choice. The same authority goes on to say (p. 214) that the parties’ own choice will be respected unless the law that was chosen has no factual connection whatsoever with the contract under consideration. It is a peculiar feature of this branch of private international law that arbitration cases themselves appear to provide the literature for the determination of the question to what effect the choice of the parties is to be respected. Cheshire, Private International Law 2I5 (5th ed. 1957), goes on to say:

The view that the choice of the parties is unfettered derives what at first sight appears to be support from arbitration cases, i.e., cases in which the parties have agreed that any dispute arising between them shall be submitted to the courts or to an arbitrator in a particular country. This is a common feature of international commerce -

“An agreement of this nature is more than a mere submission to the jurisdiction of the judicial or arbitral tribunals in the specified country. It is an express choice of the law of that country, for English courts are committed to the view that qui elegit judicem elegit Jus. It is well established that such an agreement is effective and there can be little doubt, if the case ‘arises, it will still be regarded as effective even though the contract in other respects is totally unconnected with the designated forum. The implication, therefore, is that by the device of an arbitration clause the parties may arbitrarily select any law in the world to govern their contract.”

In the present case, the parties have by paragraph i expressly provided that their disputes “shall be settled according to the law of England.” Furthermore, this law, i.e., the law of England, is a law with which the contract has the greatest factual connection. It is not only the law of the place where the buyers reside and the goods are to be delivered, but it is also the law of the currency determining the amounts payable under the contract. What then is the view of that law regarding an arbitration clause of the type under consideration? There is. in my view, no doubt about the validity of such clauses in English law and therefore it has to be decided in favour of defendants-applicant that the arbitration clause in this case is binding on both parties.

Point No. (ii)

It cannot be, as the Honourable Judge of the High Court seems to have found, that defendants-applicant raised the question of stay of proceedings for the first time on July 2, 1960, because as early as August 3, r9 the question of arbitration was discussed and the parties agreed to ‘adjourn to consider the matt&r. Again on August 9, I9 and before any issues were framed, defendants-applicant did raise the question of stay of proceedings in their last paragraph of their statement of defence.

I can therefore see no reason whatsoever why defendants’ contention that the matter should first be referred to arbitration should be rejected.

To do justice to them, 1 would like to mention that defendants-applicant appear to have had no choice in, the form of the contract which was no doubt first proposed by plaintiffs-respondent and simply agreed upon by defendants-applicant. Both paragraphs i and i6 are inserted for the convenience of plaintiffs-respondent rather than defendat3ts-applicant and if defendants-applicant are now ready and willing to do all things necessary to the proper conduct of the arbitration in accordance with the tenor of paragraph r6, then I can see no justification for .the court’s refusal to stay proceedings.

Before I finish this judgment, I would like to deal with just one last point. Plaintiffs-respondent have repeatedly been pressing the point that here there is no “dispute” within the meaning of paragraph 16. I am really unable to follow this argument, because if there is really no “dispute” then plaintiffs-respondent would certainly never have taken the trouble and expense of coming to court. I could have followed their argument had they stated that part of the claim (amounting to £S.2, 266.628m/ms.) is not based on the contract at all, but upon an entirely independent cause of action, on the I.O.U. But they have not done so. Instead they chose to invoke the arbitration clause and avoid its effects through giving the words a meaning, which they can in no way sustain.

This application is therefore allowed with costs and the decision of the Honourable Judge of the High Court confirming that of the learned District Judge is hereby reversed.

M. A. Abu Rannat C.J. November 12, 1962 :—l concur.

* Court: M. Abu Rannat C.J. and B. Awadalla J.