Hong Kong
Case updates
Xiamen Xinjingdi Group Co Ltd v Eton Properties Limited and Others [2020] HKCFA 32
The Court of Final Appeal confirmed that the Court may grant relief beyond the scope of an arbitral award in a common law action.
On 9 October 2020, the Court of Final Appeal handed down its judgment in the long running case of Xiamen Xinjingdi Group Co Ltd v Eton Properties Limited and Others.
The case concerns the Xiamen Xinjingdi Group’s CIETAC arbitration proceedings against Eton Properties for breach of a land development agreement, under which the purchaser was to purchase land in Xiamen by acquiring shares in two target companies which indirectly had the right to develop and use the piece of land (Agreement).
The Agreement contained clauses that required Eton Properties to transfer their shares in the target companies to Xiamen Xinjingdi Group’s nominee. The Agreement provided the governing law as PRC law but the procedure and validity related to the share transfer were to be governed by Hong Kong law.
The Agreement also provided that disputes arising from the performance of the agreement are to be submitted to CIETAC arbitration.
Eton Properties wished to terminate the Agreement. However, Xiamen Xinjingdi Group refused and commenced CIETAC arbitration. Soon after the commencement of the arbitration, Eton Properties transferred its entire beneficial ownership of the shares in the target companies to a third party through a restructure.
Eventually, the Xiamen Xinjingdi Group successfully obtained a CIETAC award for damages in the sum of RMB 1,275,000 for late delivery of the land and for the Agreement to be performed (CIETAC Award).
The Xiamen Xinjingdi Group then applied to enforce the CIETAC Award in the Xiamen courts but the application was dismissed because the Defendants were Hong Kong companies with assets outside of China. It then obtained an enforcement order from the Court of First Instance pursuant to section 2GG of the old Arbitration Ordinance (Cap. 609), but the order was again ineffective due to the restructuring. The Xiamen Xinjingdi Group eventually commenced common law action to enforce the award and claimed damages and equitable compensation in the event that specific performance should prove unachievable.
In its judgment, the Court of Final Appeal confirmed that it has power to grant relief beyond the terms of the award.
In coming to the conclusion, the Court distinguished the statutory procedure (under section 2GG of the old Arbitration Ordinance Cap. 609), and the common law action. The former was intended to be summary in nature to enable the court to enforce the award without scrutinising its merits. The common law action however requires the plaintiff to bring the action pursuant to the award and prove their case and, as such, it is unconstrained by the requirement that the judgment must be “in terms of the award”.
The Court also rejected the argument that awarding damages would be to outflank the arbitral regime agreed to by the parties. The Court held that the dispute in the present case stemmed from a breach of the implied promise to comply with an award which, as a matter of law, is a contractual obligation separate and distinct from the obligations created by the underlying contract.
Finally, the Court also rejected the argument that the Johnson v Agnew principle should apply. It was held to be a decision concerned with consistency of remedies claimed in the same action and when a party may be held to have irrevocably elected for a particular remedy. It does concern or create any requirement of consistency between relief granted in a common law enforcement action and the content of an arbitral award.
La Dolce Vita Fine Dining Co Ltd v Zhang Lan and Others [2020] HCKFI 622
On 23 April 2020, the Hong Kong Court of First Instance issued a rare Hadkinson Order against a Chinese Billionaire (Zhang) in the case of La Dolce Vita Fine Dining Co Ltd v Zhang Lan and Others [2020] HKCFI 622. The proceedings concerned a series of applications for interim relief and enforcement action in aid of CIETAC arbitrations.
On 26 February 2015, the applicant obtained an injunction and asset disclosure order against Zhang in aid of an arbitration between Zhang and the applicant. The asset disclosure order obliged Zhang to disclose all of her assets worldwide of an individual value of HKD500,000 or more. Zhang breached the order by only disclosing her personal assets in Hong Kong with no elaboration on the value or details of the location of her other assets in Hong Kong or any assets outside of Hong Kong. As a result, Zhang was committed to prison for 12 months for her contempt of court.
On 28 April 2019, CIETAC arbitral awards were made against Zhang and others for payment of close to USD150 million and interest. The Hong Kong Court granted leave to the applicant to enforce the awards in Hong Kong. Zhang and the other respondents applied to set aside the enforcement orders or alternatively to stay the enforcement orders pending determination by the Mainland court of their application to set aside the CIETAC awards.
The applicant applied to the Hong Kong Court for a Hadkinson order to prevent Zhang’s application to set aside or stay the enforcement order from being heard until she had purged her contempt of court by complying with the injunction and asset disclosure order.
The Court applied the principle set out in the Hong Kong Court of Appeal decision in CWG v MH [2014] 1 HKLRD 838 and considered that Zhang’s contempt was wilful and serious. Her refusal to comply with the disclosure order impeded the course of justice and a Hadkinson order was an appropriate and proportionate measure to secure compliance with the court’s order.
Notwithstanding the Hadkinson order, submissions by other respondents would still have to be heard but the Court considered that it should not be a reason for refusing the order and, citing CWG v MH, opined that ”a party cannot get away with non compliance with the court’s order simply by taking advantage of the fact that there is another party with allied interest.”
The Court also ordered the respondents to pay 40% of the award amount as security to stay the enforcement orders pending determination of the application to set aside the CIETAC awards in China.
Other key updates
Hong Kong Government launches scheme to facilitate entry for arbitration participants
On 29 June 2020, the Hong Kong government launched the Pilot Scheme on Facilitation for Persons Participating in Arbitral Proceedings in Hong Kong (the Scheme). The Scheme aims to facilitate non Hong Kong residents participating in arbitral proceedings in Hong Kong on a short term basis.
Under the Scheme, nationals of countries who can visit Hong Kong without a visa and are in possession of a letter of proof will be allowed to enter Hong Kong to participate in arbitral proceedings without having to obtain an employment visa.
The letters of proof will be issued by the arbitration institution administering the arbitrations. For ad hoc arbitrations, the letters of proof will be issued by the reputable venue providers with established and well equipped hearing facilities (namely, the Hong Kong International Arbitration Centre and the Department of Justice).
The Scheme will run on a trial basis for two years. However, due to the pandemic, all non Hong Kong residents coming from overseas countries and regions by plane are still denied entry to Hong Kong.
Hong Kong and Mainland China strengthen arrangement on enforcement of arbitral awards
The Hong Kong Government and the Supreme People’s Court of the PRC signed the “Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region ” on 27 November 2020. The Supplemental Arrangement introduces several amendments to enhance the old arrangement in 2020.
For more details, please refer to the China section in the Issue contents.
