廈門新景地集團有限公司 formerly known as 廈門市鑫新景地房地產有限公司 v. ETON PROPERTIES LTD AND OTHERS

HCCL 13/2011

[2018] HKCFI 910

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 13 OF 2011

(Transferred from HCA No. 961 of 2008)

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D E C I S I O N

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Background

1.  The litigation between the parties has a long history.  This will not be repeated here in full.  The background set out below only focuses on what is directly relevant to the present application for stay of further proceedings, pending the Defendants’ application for leave to appeal to the Court of Final Appeal.

2.  Pursuant to an arbitration clause (“Arbitration Agreement”) contained in an agreement made on 4 July 2003 (“Contract”) between the Plaintiff, the 1^st and 2^nd Defendants and others for the development of a piece of land in Xiamen on the Mainland, the Plaintiff commenced arbitration before CIETAC in Beijing in August 2005 (“Arbitration”). The claim made in the Arbitration was for damages of RMB 1,275,000 for late delivery of the land and for continued performance of the Contract. 

3.  On 27 October 2006, an award was issued in the Arbitration, ordering the 1^st and 2^nd Defendants to pay damages to the Plaintiff in respect of the late delivery of the land, and that the 1^st and 2^nd Defendants should “continue to perform” the Contract (“Award”).  The tribunal held, in the Award, that the nature of the Contract was “a share transfer agreement … for the contractual purpose of assigning and obtaining the right to develop and obtain earnings from the development of the No 22 Land”, and that the subject matter of the Contract was “the contractual right to buy and sell the shares in (the 4^th Defendant) that has an indirect effective control over the No 22 Land”: as summarized in paragraph 59 of the CA Judgment.  The tribunal rejected the Defendants’ argument that it was impossible to perform the Contract.

4.  On 31 October 2007, the Plaintiff obtained leave of the Hong Kong Court to enforce the Award under ss 2GG and 40B of the Arbitration Ordinance Cap 341 which applied to the Arbitration, and by HCCT 54 of 2007 obtained judgment in terms of the Award (“Statutory Judgment”).

5.  The Defendants applied in 2007 to set aside the Statutory Judgment, on the ground that performance of the Contract in accordance with the Award was impossible due to the restructure of the Eaton group of companies to which they belonged, as a result of which the 1^st and 2^nd Defendants no longer controlled the shares in the 4^th Defendant to be able to effect the transfer contemplated under the Contract and the Award.  This application was dismissed by Reyes J on 24 June 2008.  The Defendants’ appeal was dismissed by the Court of Appeal on 22 May 2009.

6.  In May 2008, the Plaintiff commenced these proceedings, namely HCA 961 of 2008 (“2008 Proceedings”) (which later became HCCL 13 of 2011).  This was described as the Plaintiff’s common law action on the Award, by way of enforcement.  In 2010, after further arbitration proceedings had been initiated on the Mainland, the Plaintiff sought leave to amend its statement of claim in the 2008 Proceedings, and the Defendants applied to stay the 2008 Proceedings to arbitration on the Mainland.  The amendments sought (inter alia) to include 6 additional defendants and to include causes of action in conspiracy to defraud and inducement of breach of contract.  On 16 March 2010, Fok J (as His Lordship then was) allowed the amendments and granted the stay.  His decision on the stay of the 2008 Proceedings was reversed by the Court of Appeal on 15 December 2010.  The Appeal Committee refused leave for the Defendants to appeal to the Court of Final Appeal.

7.  The trial of the 2008 Proceedings took place before Deputy High Court Judge William Stone QC (as Stone J then was) in March and April 2012.  By the time of trial, the Plaintiff’s claims, as amended and re-amended, included a claim for damages for loss of the benefit of the Contract and loss of bargain. The Defendants have highlighted that in the Plaintiff’s opening submissions for the trial, it had described its claim as one for specific performance of the Contract or compensatory remedies in lieu, both on the basis that the Contract was valid and subsisting, submitting that if liability could be established, the Plaintiff would elect to claim equitable compensation in lieu of specific performance against the 1^st and 2^nd Defendants.  By a judgment handed down on 14 June 2012, the trial judge dismissed all the Plaintiff’s claims (“Stone Judgment”).  He considered that the Hong Kong court of enforcement has no jurisdiction to substitute the “continuous performance” Award with a new claim for damages or equitable compensation which had not been contemplated by the tribunal.

8.  The Plaintiff appealed against the Stone Judgment, seeking damages for breach of the Award, on the basis that the Contract had been terminated, which the Defendants highlight is different to the Plaintiff’s claim advanced at trial, which was one for equitable compensation in lieu of specific performance.

9.  On 15 April 2016, the judgment of the Court of Appeal was handed down (“CA Judgment”).  The Court of Appeal held, inter alia, that:

(1) the Plaintiff was entitled to claim damages for loss of bargain, on the basis that the Contract had been terminated, by way of a common law action for breach of an implied promise to honour the Award.

(2) The arbitral tribunal was functus because the 1^st and 2^nd Defendants had already requested, and the tribunal had rejected the request, for a further ruling on the relief which the Plaintiff could have under the Award.

(3) The Plaintiff had not made an election for remedies and was still entitled to elect between (a) obtaining a transfer of the 4^th Defendant pursuant to the Contract or (b) obtaining damages under the Re-amended statement of claim in the 2008 Proceedings.

(4) No order could be made in respect of the Plaintiff’s appeal so far as it related to the claim for damages under the common law action on the Award before the Plaintiff made its election.

10.  The Court of Appeal, in the CA Judgment, directed the parties to consult and to agree directions on the procedure to be adopted, if the Plaintiff should elect for damages.  The Plaintiff did not make any election, until the Court of Appeal, on the Defendants’ application, ordered the Plaintiff on 3 October 2017 to make the election between maintaining the Statutory Judgment for continued performance of the Contract, and obtaining in its place a judgment for damages.  On 9 October 2017, the Plaintiff finally elected for damages.

11.  Accordingly, the Court of Appeal made an order on 20 October 2017, that the Statutory Judgment be set aside, and that judgment be entered for damages against the 1^st and 2^nd Defendants for breach of the implied promise to honour the Award (“2017 Order”).

12.  On 13 May 2016, both the Plaintiff and the 1^st and 2^nd Defendants had applied for leave to appeal to the Court of Final Appeal (“CFA”) on the CA Judgment.

13.  On 6 November 2017, the 1^st and 2^nd Defendants also applied to the Court of Appeal for leave to appeal to the CFA on the 2017 Order.  The Defendants seek to argue in their intended appeals that the Court of Appeal had no jurisdiction to grant to the Plaintiff damages for loss of bargain in a common law action to enforce the Award which only stipulated the continued performance of the Contract, and that it is not the function of an enforcing court to determine questions on a party’s entitlement to damages.  The Defendants argue (inter alia) that where there is a dispute between the parties over the Plaintiff’s entitlement to and the assessment of damages under the Contract, and under the Award for continued performance of the Contract, the court should have stayed the proceedings for arbitration in accordance with the Arbitration Agreement.  The Defendants claim that as the arbitral tribunal had never adjudicated the Plaintiff’s claim for damages for loss of bargain, the tribunal cannot be said to be functus and the Plaintiff’s claim is within the scope of the Arbitration Agreement for proper determination by the tribunal.  They further argue that the Plaintiff had in any event already elected to seek performance of the Contract, by the steps it took with full knowledge (acquired by the time of the commencement of the 2008 Proceedings at the latest) of the restructure of the Eaton group, as a result of which the 1^st and 2^nd Defendants had lost control of the shares in the 4^th Defendant.  The 1^st and 2^nd Defendants also seek to argue in the intended appeal that it was erroneous for the Court of Appeal to hold that Hong Kong law governs the enforcement of an award by a common law action, and that PRC law which is the lex causa should apply.

14.  The application for leave to appeal was heard by the Court of Appeal on 19 September 2017, and judgment is pending.

15.  Notwithstanding the Defendants’ intended appeal, on 30 November 2017, the Plaintiff applied for directions for the further conduct of these proceedings: for the action to proceed to trial for assessment of damages, and for a case management conference to be fixed.  On 18 December 2017, the Defendants applied for the proceedings to be stayed, until the final determination of their application for leave to appeal to the CFA from the CA Judgment and the 2017 Order, and if leave to appeal is granted, until after the determination of the intended appeal. 

16.  The Plaintiff’s application for directions and the Defendants’ application for stay were heard at the same time on 11 April 2018.

The Court’s power to stay proceedings

17.  The provisions of s 16 (3) of the High Court Ordinance (“Ordinance”) are:

“Nothing in this Ordinance shall affect the power of the Court of Appeal or the Court of First Instance to stay any proceedings before it, where it thinks fit to do so, either on its own motion or on the application of any person, whether or not a party to the proceedings.”

18.  Order 1B rule 1 (2) (e) RHC provides that:

“Except where these rules provide otherwise, the Court may by order - stay the whole or part of any proceedings or judgment either generally or until a specified date or event.”

19.  I do not agree with the Plaintiff, that it is inappropriate for this Court to stay these proceedings by invoking s 16 (3) of the Ordinance or Order 1B rule 1 (2) (e) RHC, and that the Defendants can only apply to the Court of Appeal or the CFA to stay execution of the CA Judgment and/or the 2017 Order.

20.  On behalf of the Plaintiff, Mr Chan SC relies on Secretary for Justice v To Kan Chi (2000) 3 HKCFAR 264 and Joint & Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 795, in which the CFA held that it has the implied power to grant an interim stay of execution pending determination of an application for leave to appeal to the CFA, and the inherent jurisdiction to grant a stay of execution pending appeal, in cases where the judgment does not require payment of money or performance of a duty to fall within s 26 of the Hong Kong Court of Final Appeal Ordinance (“CFA Ordinance”).  Mr Chan contends that these are authorities from our highest court, that it is for the Court of Appeal or the CFA to suspend execution of a judgment, when granting leave to appeal, or when application for leave to appeal is pending.  Mr Chan highlights that one of the matters to be considered, when the court determines an application for stay of execution, is the merits of the appeal and whether there exists an arguable appeal (Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84).  The merits of the appeal from a judgment of the Court of Appeal to the CFA should be considered by the Court of Appeal, or the CFA itself, and not by the Court of First Instance.

21.  According to Mr Chan, the application for stay of proceedings in this case is in fact an application for stay of execution, or is akin to an application for stay of execution, for the principles set out in Star Play Development Ltd to apply.  Mr Chan pointed out that these principles were in fact applied in the case of Tang Ying Loi v Tang Yip Ip HCA 2487/2009, unreported, 14 April 2015, when Chow J considered an application for stay of execution after he had directed an account to be taken, and in Zhang Hong Li v DBS Bank (Hong Kong) Ltd [2018] HK CFI 34, when Bharwaney J dealt with an application for stay of proceedings after judgment on liability, and directions had been given for expert evidence on quantum to be decided.

22.  In the present case, there is as yet no order for payment of any amount by the 1^st and 2^nd Defendants to the Plaintiff, only an order for damages to be assessed.  On behalf of the Defendants, Mr Yu SC emphasized that the case does not fall within s 26 of the CFA Ordinance at all. It was also highlighted that there is no “execution” of a judgment pending appeal which is sought to be stayed by the Defendants.

23.  It is indisputable that the CFA, and the Court of Appeal, have their own powers to stay execution of a judgment, pending appeal or determination of an application for leave to appeal.  However, neither of these Courts has sought to curtail the general and wide powers of the Court of First Instance to stay proceedings which take place before it, in the exercise of its case management and statutory powers, or its inherent jurisdiction to control and regulate the conduct of proceedings before the court.

24.  In Poon Ka Man Jason v Cheng Wai To and ors [2018] HKCFI 771, Au-Yeung J dealt with an application for stay of proceedings.  The stay was not sought pending appeal, but pending determination of a summons compelling the acceptance of a sanctioned payment.  At paragraphs 36 to 43 of her Decision, Au-Yeung J considered the legal principles relevant to the exercise of the Court’s discretion to grant a stay of proceedings:

“ 36. The court has discretion, as a matter of case management, to grant a stay of proceedings generally or until a specified date or event: High Court Ordinance, Section 16(3); Order 1B, rule 1(2)(e) of the Rules of the High Court (“RHC”).

37. Where, as here, the action was commended as of right, the court should only grant a stay when there are “very good reasons” and in “rare and compelling circumstances”.  The stay must not cause injustice to the Plaintiff, and the Defendants must show that continuing the proceedings would be unjust to them. See: Zhang Xiuhong v Liu Wenchen & ors (HCA 2118/2012, 20 July 2017), §34, per Au-Yeung J, citing Ng J’s judgment in AIG Europe Ltd & ors v Fast-Link Express Ltd & ors (HCAJ 114/2014, 10 January 2017), §§9-13.  The ultimate question is what would serve the ends of justice.

38. Exercise of discretion would involve balancing between (1) possible wastage of Court’s time and resources and also parties’ time and costs (if there is no stay) on the one hand and (2) possible delay of the proceedings for a short period of time (if there is a stay on the other hand: see The Al Dhabiyyah [1999] 4 HKC 414, at p 420 A-F.

39. The court must bear in mind that the underlying objectives of the court is to increase cost-effectiveness of court proceedings; ensure that a case is dealt with as expeditiously as is reasonably practicable; promote reasonable proportion and procedural economy in the conduct of proceedings; and to facilitate settlement of disputes; Order 1A, rule (a), (b), (c), and (e) of the RHC.

40. The Defendants submit that there is no real urgency in the accounting exercise having regard to the history of this case.  The Sanctioned Payment Summons and Discovery Summons are pending and the former may be dispositive of the whole action.  There are yet further steps to be taken in respect of the accounting exercise which are complex, involving voluminous documents, re-auditting, further work by the assessor and experts on both sides.

41. On the other hand, the Plaintiff submits that the Sanctioned Payment Summons is misconceived.  There is no good reason for the court to allow the Defendants to retract from the Assessment Order made with consent of all parties.  The stay will deprive the Plaintiff of crucial evidence relevant to the determination of the Sanctioned Payment Summons.  Further, the stay will cause further delay to the accounting exercise.  The Defendants’ assertion that a stay will save costs is overblown and disingenuous.

42. In my view, as a starting point, the Plaintiffs have won on liability since 2013.  The Assessment Order was made by consent after the Sanctioned Payment was made.  The parties are bound to proceed pursuant to the Assessment Order, unless there are very good reasons to justify a stay.

43. Having regard to the parties’ submission, the issues boil down to whether or not the stay will:

(1) Save costs;

(2) Cause delay to the accounting exercise;

(3) Cause prejudice to the Plaintiff; and

(4) As raised by this court on its own volition, justify the imposition of conditions for the stay.”

25.  In the case of The Al Dhabiyyah [1999] 4 HKC 414 (referred to by Au-Yeung J in Poon Ka Man Jason), the Court considered an application for stay of Hong Kong proceedings pending the determination by the Singapore court of a stay application made by the defendant.  In his judgment, Waung J also considered, in some detail, the jurisdiction and power of the court in granting stay of proceedings.  He referred to the decision of the English Court of Appeal in AG v Arthur Anderson Co, 30 March 1988, unreported, and the judgment of Mustill LJ where he stated:

“The question for the learned judge, and for us also when reviewing his decision, is to my mind no more than this, whether the good management of the concurrent sets of proceedings clearly requires the English court, in charge of one set of those proceedings, to decree that a temporary halt should be called - temporary, because we must wait to discover what the American court is going to do.”

Emphasis was placed on the fact that the English Court of Appeal had considered that it was “essentially the exercise of discretion by the learned judge of common sense management of a case”, and that the Court of Appeal saw no basis to interfere with such a decision.

26.  Waung J concluded, from his examination of Arthur Anderson and of the decision in Deaville v Aeroflot Russian International Airlines [1972] 2 Lloyd’s Rep 67, that orders granting stay of proceedings pending the result of foreign jurisdiction disputes are decisions made on the basis that it was the sensible, just and right thing to do, and that the English court had thought it “fit” to do so, pursuant to its inherent jurisdiction, and as confirmed by the English statutory equivalent of our s 16 (3).

27.  With respect, I agree with the analyses and observations made by both Au-Yeung J and Waung J, that this Court has the general and wide power under s16 (3) to stay the proceedings before it, “where it thinks it fit so to do”, and that this is essentially a matter of sensible case management, to be decided with the objectives in mind of what is fair and just, as well as the other matters set out in Order 1A RHC as being the underlying objectives of the RHC (including the powers of management under Order 1B). 

28.  In Eastman Chemical Ltd v Heyro Chemical Ltd [2012] 2 HKLRD 135, Deputy High Court Judge Lisa Wong SC (as Her Ladyship then was) also applied the underlying objectives in Order 1A when she dealt with an application to stay proceedings pending the hearing of a winding up petition, taking into account what would serve the ends of justice between the parties and the administration of justice generally, whether a stay will cause injustice to the plaintiff, whether continuing the proceedings would be unjust, and that a plaintiff commencing proceedings as of right should not be deprived of the right to continue those proceedings in the absence of very good reasons.  No doubt, these are the applicable principles in determining whether proceedings which take place before this Court should be stayed.

Whether a stay should be granted

29.  Having concluded that this Court does have power to grant a stay of the present proceedings, for the assessment of damages pursuant to the Plaintiff’s election and by virtue of the 2017 Order, the Court should consider whether there are very good reasons to justify the stay sought, bearing in mind questions of delay, costs, any prejudice or injustice to either the Plaintiff or the Defendants, and the fair use of the resources and time of the Court.

30.  On the question of delay, the Plaintiff has highlighted the fact that the Award was obtained in 2006, and there should be no further delay to enable the Plaintiff to recover its damages by proceeding with a trial on assessment. Delay to the trial on quantum would prejudice the Plaintiff in terms of the retention of evidence, and the impairment of witnesses’ recollection of events over time.  These are of course relevant and important considerations on the question of ensuring that justice is done for the Plaintiff.

31.  On the other hand, I bear in mind the Defendants’ submission, that the Plaintiff is in part to be blamed for any delay.  The Defendants emphasized that the CA Judgment was handed down on 15 April 2016, and despite the direction made by the Court of Appeal, the Plaintiff had failed or refused to make the election until the 1^st and 2^nd Defendants issued their summons, and the Court of Appeal ordered the Plaintiff to elect, on 9 October 2017, 6 months after the CA Judgment.  Had the Plaintiff complied with the directions in the CA Judgment, the 1^st and 2^nd Defendants pointed out that an order for damages could have been obtained by mid-2016, and the delay of which the Plaintiff complains is entirely self-inflicted.

32.  The 1^st and 2^nd Defendants further pointed out that at all material times, they had been prepared and had urged the Plaintiff to resolve the dispute on the Award by application to CIETAC, and it was the Plaintiff which had refused or failed to seek such resolution, in accordance with the Arbitration Agreement.  Of course, it is the Plaintiff’s case that the tribunal is, or was, functus.

33.  In any event, the CA Judgment was handed down in April 2016, and the 2017 Order was only made on 20 October 2017.  The application for leave to appeal has been heard by the Court of Appeal, and judgment should be handed down in the near future.  The 1^st and 2^nd Defendants pointed out that any further application to the CFA for leave to appeal, should leave be declined by the Court of Appeal, would not be unduly delayed.

34.  In the overall scheme and history of this litigation, I tend to agree that the delay occasioned by an interim stay pending determination of the application for leave to pursue the intended appeals, or the intended appeals themselves, would not be substantial to cause prejudice to the Plaintiff, which had only elected in October 2017 (more than 10 years after the Award) to forego the claim for transfer of the shares in the 4^th Defendant, and to pursue its claim for damages for loss of bargain.  As the Defendants highlighted, the Plaintiff had been aware by the time the 1^st and 2^nd Defendants applied to set aside the Statutory Judgment, in 2007, of the Eton restructure and the Defendants’ assertion that it was impossible to perform the Contract.   

35.  The further conduct of these proceedings involves the assessment of the Plaintiff’s claim for damages, and this is by no means straightforward.  From the history of the litigation between these parties, it is highly unlikely that they would be able to cooperate or to agree on a sensible timetable for the conduct of these proceedings, in a manner which can minimize the wasting of time and costs, even in the interim of the intended appeals.  The Defendants have already highlighted the fact that the Plaintiff’s claim for damages remains to be properly pleaded and further particularized, and that there will be substantial arguments on the applicable law, the basis of assessment, the losses caused by and properly attributable to the non-performance of the Award by the 1^st and 2^nd Defendant, and expert evidence on the valuation of the 4^th Defendant.  No doubt, there will be further interlocutory applications before the proper trial on assessment.  The Defendants pointed out that there might even be the possibility of the Plaintiff joining additional defendants, should the Plaintiff succeed in its appeal against the CA Judgment.  It can reasonably be envisaged that substantial legal costs will have to be incurred, and that the time and resources of the Court will have to be deployed.

36.  Since this case is on the Commercial List, it is the practice of the Commercial Court to use the 1^st Case Management Conference (“CMC”) to issue all necessary directions for discovery, witness statements, and expert evidence, including directions on all the specific questions to be dealt with by the expert, and the timetable for the filing of such expert evidence.  Directions will also be given at the CMC for the case to be set down for trial.  It is not the practice of the Commercial Judge to give directions in a piecemeal fashion. This means that the parties in this case must consider all the possible issues which may be contested and need to be determined, and frame these issues, and give a reliable estimate of the length of trial for dates to be fixed, before the CMC can take place.  If this cannot sensibly be done before the outcome of the application for leave to appeal and the intended appeal is known, there is no point in fixing a CMC immediately. 

37.  If leave is granted to the 1^st and 2^nd Defendants to pursue their intended appeals to the CFA, and if there is a judgment in their favor, that the Hong Kong court of enforcement has no jurisdiction to award damages for loss of bargain, in a common law action for breach of the Defendants’ implied promise to honour the Award for performance of the Contract, the substantial legal costs and the Court’s valuable time spent in these proceedings would all be wasted.

38.  To the extent that the merits of the application for leave to appeal have to be considered, the power and function of the enforcing court in enforcing an arbitral award requiring performance of the underlying contract, and whether it can award damages for non-performance of such an award do raise questions of great general or public importance for clarification by the CFA.

39.  On the question of prejudice or injustice, the Plaintiff accepts that the trial on assessment and quantum is without prejudice to the position of the 1^st and 2^nd Defendants in their intended appeals to the CFA.  The Plaintiff has confirmed that it will not contend before the CFA that any steps taken by the 1^st and 2^nd Defendants in the trial on quantum would amount to any further submission by them to the jurisdiction of the Hong Kong Court.

40.  The 1^st and 2^nd Defendants argued that the Plaintiff has no presence or assets in Hong Kong, and that they would have difficulty in enforcing any order of substantial costs against the Plaintiff, should the 1^st and 2^nd Defendants succeed before CFA.

41.  Bearing in mind the complexity of the further proceedings for assessment of damages, the substantial costs and time likely to be incurred before there can be a hearing for assessment, which is most unlikely to be heard within the next 10 or 12 months, and taking into account the underlying objectives of increasing cost effectiveness of proceedings, promoting procedural economy and ensuring that the resources of the court are fairly distributed, the stay of proceedings sought by the Defendants is in my view sensible and appropriate, in order to save costs, and to avoid unnecessary wastage of court time and resources.

Disposition

42.  I will accordingly grant an interim stay of these proceedings, for an initial period of 6 months, pending the determination of the application for leave to appeal to the CFA.  Thereafter, the parties can either agree to a further period of stay (subject to the Court’s approval), depending on the outcome of the application for leave to appeal, or they can come back for further directions.

43.  As the 1^st and 2^nd Defendants have been successful in their contested application, the order nisi for costs is that the Plaintiff is to pay their costs of and occasioned by the application for stay, with certificate for two counsel.  The Plaintiff’s application for directions is adjourned, with costs in the cause.