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

At a glance

Parties

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

Case no.

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

Court

Court of Final Appeal of the Hong Kong Special Administrative Region

Underlying award(s)

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

Treaty

Arrangement concerning Mutual Enforcement of Arbitral Awards between the Mainland and the HKSAR; Arbitration Ordinance (Cap 341), ss 2GG and 40B

Court

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

Sector

Real estate development (Lot 22, Xiamen)

Outcome

Both appeals dismissed unanimously. The Court of Appeal's judgment for damages against D1-D2, in a common law action on the CIETAC award, stands. The plaintiff's claims for inducing breach of contract and for a constructive trust remain dismissed.

Amount

Transfer price under the Agreement: RMB 120,000,000. First Award: RMB 1,275,000 in damages for delay plus an order for continued performance. Damages against D1-D2 remain to be assessed at the quantum stage. Costs were left to written submissions.

The dispute

By an Agreement of 4 July 2003, Eton Properties Limited and Eton Properties (Holdings) Limited (D1-D2) agreed to sell to the plaintiff, a PRC company, all the shares in Legend Properties (Xiamen) Company Limited (D4). D4 owned, through a PRC subsidiary (D5), the development rights to Lot 22 in Xiamen. The price was RMB 120,000,000. D1-D2 renounced the Agreement in November 2003 and developed the site themselves. In 2005–2006 they restructured the group so that D3 (Eton Properties Group Limited) held D4, which made the share transfer impossible. A CIETAC tribunal ordered D1-D2 to continue to perform the Agreement. When the award was not honoured, the plaintiff sued in Hong Kong in a common law action on the award, and also sued D3-D11 for inducing breach of contract, conspiracy and constructive trust. D1-D2 argued that an enforcing court may only enforce an award "mechanistically", that the claim belonged in arbitration, and that damages were inconsistent with the extant award for continued performance.

Key holdings

1. In a common law action on an award, the court is not limited to entering judgment "in terms of the award". That limit applies only to the summary procedure under section 2GG. Section 40B(1) provides the action as a separate mode of enforcement, and the court may grant damages even though the tribunal ordered only continued performance. ¶¶ 88–97
2. The action on the implied promise to honour the award is a fresh cause of action. It is not a "dispute arising from the performance of the Agreement" under the arbitration clause (Article 13). It is therefore not to be stayed to arbitration. Damages ordered at the enforcement phase do not usurp the tribunal's function, even if they overlap with damages for breach of the Agreement. ¶¶ 99–126
3. The First Award was not limited to the validity of the Agreement. It found D1-D2 in breach and ordered relief, and the tribunal's letter of 27 July 2009 confirmed that the arbitration was final. The plaintiff therefore did not have to return to the tribunal for damages. ¶¶ 128–143
4. Johnson v Agnew does not bar the damages. The extant award for continued performance is no obstacle to the enforcing court awarding damages for breach of the implied promise to honour the award. D1-D2's appeal (FACV 3/2019) was dismissed. ¶¶ 148–151
5. Inducing breach of contract (Lord Sumption NPJ). The 2005 restructuring was itself a breach of the Agreement. But the tort requires that the inducer know of, and intend, the breach as an end or a means to an end. The group's management believed the contractual obligations were already at an end, so the required intent was not shown. ¶¶ 162–173
6. Constructive trust. Hong Kong law, as the law of the place where the shares are situated (lex situs), decides whether an equitable interest in shares of a Hong Kong company can exist. 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 required ongoing cooperation and supervision, so a Hong Kong court would not order specific performance. The plaintiff's cross-appeal (FACV 5/2019) was dismissed. ¶¶ 174–181
7. The Court dismissed both appeals unanimously. The parties could file written submissions on costs within 21 days. ¶ 182

Procedural history

1. 4 July 2003D1-D2 and the plaintiff sign the Agreement, which provides for CIETAC arbitration in Beijing and PRC governing law.
2. 8 August 2005The plaintiff starts the CIETAC arbitration against D1-D2.
3. 27 October 2006First Award: the Agreement is valid; D1-D2 must continue to perform it and pay RMB 1,275,000 in damages for delay.
4. 31 October 2007A Cheung J grants leave to enforce the award in Hong Kong under section 2GG (HCCT 54/2007). Reyes J later refuses to set aside the order (24 June 2008).
5. 27 May 2008The plaintiff starts the common law action (HCA 961/2008, later HCCL 13/2011).
6. 22 April 2009Second Award: CIETAC rejects D1-D2's application to terminate the Agreement and holds that the restructuring was a breach.
7. 14 June 2012DHCJ Stone QC dismisses the action in its entirety.
8. 15 April 2016The Court of Appeal allows the appeal on the action on the award against D1-D2 and dismisses the other claims.
9. 20 October 2017After the plaintiff elects damages, the Court of Appeal sets aside the statutory judgment and enters judgment for damages to be assessed.
10. 9 October 2020The Court of Final Appeal dismisses both appeals.

Tribunal, counsel and experts

Decided by

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

For the claimant

Anthony Siu & Co.

For the respondent

Mayer Brown · Wilkinson & Grist · Baker & McKenzie

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Keywords

• enforcement
• Mainland award
• CIETAC
• common law action on the award
• implied promise to honour award
• section 2GG Arbitration Ordinance
• mechanistic enforcement
• Mainland–Hong Kong Arrangement
• Johnson v Agnew
• inducing breach of contract
• OBG v Allan
• constructive trust
• specific performance
• lex situs
• double actionability
• Eton Properties
• Xiamen real estate
• New York Convention

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