廈門新景地集團有限公司 v. Eton Properties Limited and others

At a glance

Parties

Xiamen Xinjingdi Group Co Ltd (廈門新景地集團有限公司, PRC) v. Eton Properties Limited, Eton Properties (Holdings) Limited and others

Case no.

FACV Nos. 3 and 5 of 2019, [2020] HKCFA 32 (on appeal from CACV No. 158 of 2012)

Court

Hong Kong Court of Final Appeal

Underlying award(s)

CIETAC (Beijing) First Award [2006] No 0389 of 27 October 2006; Second Award [2009] No 0144 of 22 April 2009

Tribunal

Ribeiro PJ, Fok PJ, Cheung PJ, Bokhary NPJ, Lord Sumption NPJ

Sector

Real estate development (Lot 22, Xiamen)

Outcome

Both appeals dismissed unanimously (9 October 2020). The Court of Appeal's judgment for damages, to be assessed, against D1-D2 for breach of the implied promise to honour the award stands. The claims against the other defendants in tort and constructive trust remain dismissed.

Amount

Transfer price under the Agreement: RMB 120,000,000. The First Award granted damages for late delivery of RMB 1,275,000 and ordered continued performance. Damages in the common law action are to be assessed at a later quantum stage. Costs were left to written submissions.

The dispute

On 4 July 2003 Eton Properties Limited (D1) and Eton Properties (Holdings) Limited (D2) agreed to sell to the Plaintiff, a PRC company, the right to develop Lot 22 in Xiamen. The deal was structured as an eventual transfer of all shares in D4, a Hong Kong company that owned D5, the PRC company holding the land rights. The price was RMB 120,000,000, and disputes were to go to CIETAC arbitration in Beijing. D1-D2 renounced the Agreement in November 2003, developed the site themselves, and in 2005–2006 restructured the group so that D3 came to hold D4. The restructuring was not disclosed until January 2008. The First Award of 27 October 2006 ordered D1-D2 to continue to perform the Agreement. After the restructuring came to light, the Plaintiff brought a common law action in Hong Kong. It sued D1-D2 on the award and sued D3, D4, D6 (Lucio C Tan) and others for inducing breach of contract, conspiracy and constructive trust over the D4 shares. D1-D2 argued that an enforcing court may only enforce an award "mechanistically", that the damages claim belonged to the arbitration, and that the award for continued performance still stood and barred damages.

Key holdings

1. A common law action on an award is not limited to a judgment 'in terms of the award'. That restriction applies to the summary procedure under section 2GG of the Arbitration Ordinance. Section 40B(1) provides the action as a separate route to enforcement. The 'mechanistic argument' was rejected. ¶¶ 88–97
2. Breach of the implied promise to honour an award is a fresh cause of action, separate from the underlying contract. It is not a 'dispute arising from the performance of the Agreement' under Article 13, so no stay to arbitration was called for. It has different elements, limitation period and governing law. ¶¶ 99–116
3. At the enforcement stage the court may choose a suitable remedy from the full range available in a common law action, including damages for failure to perform a non-monetary award. The likely overlap with damages for breach of the Agreement does not mean the court usurps the tribunal's role. The First Award went beyond the validity of the Agreement: it found D1-D2 in breach. On 27 July 2009 the tribunal also confirmed that it had fully decided the case. ¶¶ 122–143
4. The award for continued performance that remains in force does not stop the enforcing court from awarding damages. Johnson v Agnew concerns consistency between remedies claimed in the same action, not consistency between court relief and the award. The Plaintiff's informed election for damages matches that decision in any event. ¶¶ 148–150
5. Inducing breach of contract: the restructuring was itself a breach of contract. But the defendants did not intend the breach, because they believed the obligation to transfer the shares had already ended. Applying OBG v Allan, knowing of the result, or being pleased with it, is not the same as intending it. The claim failed. ¶¶ 169–173
6. Constructive trust: Hong Kong law, as the law where the shares are situated, decides whether an equitable interest in the shares can exist. PRC law, as the law of the Agreement, decides the contract's characteristics. The courts below were wrong to stop at the finding that PRC law does not recognise trusts. The claim still fails: the Agreement was subject to unsatisfied conditions precedent and would require supervision, so a Hong Kong court would not order specific performance. ¶¶ 175–180

Procedural history

1. 4 July 2003D1-D2 and the Plaintiff conclude the Agreement on Lot 22.
2. 14 November 2003D1-D2 give notice that they will stop performing. The Plaintiff refuses to accept the termination.
3. 8 August 2005The Plaintiff starts CIETAC arbitration in Beijing.
4. 16 November 2005 – 6 April 2006Restructuring: D3 becomes the beneficial holder of the D4 shares.
5. 27 October 2006First Award: the Agreement is valid; D1-D2 must continue to perform; RMB 1,275,000 damages for late delivery.
6. 31 October 2007The Hong Kong court grants leave to enforce the award under section 2GG and enters judgment. Reyes J refuses to set it aside on 24 June 2008, and the Court of Appeal upholds his decision.
7. 27 May 2008The Plaintiff starts the common law action (HCA 961/2008, later HCCL 13/2011).
8. 22 April 2009Second Award dismisses D1-D2's application to have the Agreement declared terminated.
9. 14 June 2012DHCJ Stone QC dismisses the Action in its entirety.
10. 15 April 2016The Court of Appeal allows the appeal on the action on the award. On 20 October 2017 it enters judgment for damages, to be assessed, against D1-D2.
11. 9 October 2020The Court of Final Appeal unanimously dismisses both appeals.

Tribunal, counsel and experts

Decided by

• R A V Ribeiro Judge, Hong Kong Court of Final Appeal
• Joseph Fok Judge, Hong Kong Court of Final Appeal
• Andrew Cheung Judge, Hong Kong Court of Final Appeal
• Kemal Bokhary Judge, Hong Kong Court of Final Appeal

For the claimant

Anthony Siu & Co.

For the respondent

Mayer Brown · Wilkinson & Grist · Baker & McKenzie

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Keywords

• enforcement
• common law action on award
• implied promise to honour award
• Mainland award
• CIETAC
• Arrangement on Mutual Enforcement
• section 2GG Arbitration Ordinance
• Johnson v Agnew
• continued performance
• inducing breach of contract
• OBG v Allan
• constructive trust
• specific performance
• lex situs
• double actionability
• Eton
• Xiamen Lot 22
• New York Convention

Summary generated with AI from the published documents — refer to the award for the authoritative text.