25 September, 2012


Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution – Hong Kong – Construction & Real Estate


廈門新景地集團有限公司 v Eton Properties Ltd & Ors, HCCL 13/2011, 14 June 2012


The Plaintiff had entered into an agreement (“the Agreement“) with the 1st and 2nd Defendants (Eton). The 4th Defendant (whose entire shareholding was held by the 1st and 2nd Defendants) owned the land which was the subject matter of the Agreement. The Agreement provided that the Plaintiff would pay RMB 120 million to the 1st and 2ndDefendants, who were to deliver the land to the Plaintiff. The Plaintiff was to develop the land, under the 1st and 2nd Defendant’s supervision. Upon sale of completed units on the land, the 1st and 2nd Defendants were to transfer their shares in the 4th Defendant to the Plaintiff. However, the 1st and 2nd Defendants reneged on the Agreement and instead entered into an agreement with the 5th Defendant, who built units on the land.
The Plaintiff commenced arbitration proceedings in Beijing against the 1st and 2nd Defendants pursuant to an arbitration clause in the Agreement and obtained an award for specific performance (“the First Award”). However, the Award was made in ignorance of the fact that by that time, the 1st and 2nd Defendants had undergone a restructuring, relinquishing their interest in the 4th Defendant to the 3rd Defendant. The restructuring was the subject matter of another CIETAC arbitration, commenced by the 1st and 2nd Defendants, in which they sought an order that the First Award be set aside, as the restructuring meant that sale of the land was no longer possible. Again, an award was made in the Plaintiff’s favour.
The Plaintiff then commenced proceedings in Hong Kong, seeking to enforce the First Award under the New York Convention, which order was granted against the 1st and 2nd Defendants, under sections 2GC and 40B of the old Arbitration Ordinance (Cap 341). The 1st and 2nd Defendants unsuccessfully applied to set aside that order and their subsequent appeal was also dismissed, because the impossibly (if any) had, the Court of Appeal said, been self-inflicted by the 1st and 2nd Defendants in that the Eton Group had gone ahead with restructuring, notwithstanding that arbitration had been commenced. It had, the Court said, taken a calculated risk and must bear the consequences. 
The Plaintiff then brought another set of proceedings in HongKong against not only the 1st and 2nd Defendants but also additional defendants (corporate entries and individuals related to the 1st and 2ndDefendants). These proceedings consisted of a derivative action, seeking to use the New York Convention enforcement proceedings to claim damages in lieu of specific performance.

The Court held that the enforcing court did not have jurisdiction to “re-characterize”, under Hong Kong law, the arbitration award. It emphasized that its role in enforcing a foreign arbitral award is purely mechanistic and the registering/enforcing court is not to examine the substantive merits of the dispute nor subvert or otherwise intrude upon the thought processes of the arbitrators who had handed down the arbitral award. At the time of the arbitration, the arbitral tribunal had not been aware of the Defendants’ restructuring and furthermore, the Plaintiff had not asked the tribunal to decide on the basis that the Agreement had ended. Therefore, the present court should not rule on an issue that was not ruled upon or contemplated by the arbitral tribunal. It was irrelevant whether the present case was considered an action on the Agreement, an enforcement of the Award, or an action on an implied promise to honour the Award. All of those approaches were bound by the same conceptual limitation that the enforcing court shall not question the substantive merits of the case. The present court had no jurisdictional basis to usurp the designated dispute resolution body, namely the arbitral tribunal of the Award.


For further information, please contact:
Cheung Kwok Kit, Partner, Deacons


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