厦門新景地集團有限公司 v. ETON PROPERTIES LTD AND OTHERS

FAMV Nos 4 and 5 of 2011

FAMV No.4 of 2011

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 4 OF 2011 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM CACV NO. 89 OF 2010)

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D E T E R M I N A T I O N

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Chief Justice Ma:

1.  The plaintiff obtained a CIETAC arbitral award in respect of a contract with the 1^st and 2^nd defendants, requiring those defendants to perform the contract.  The plaintiff seeks to enforce that award in Hong Kong.  However, difficulties were placed in the way of its enforcement by the 1^st to 5^th defendants executing share transfers and property sales which, they say, makes performance of that agreement impossible.  As CIETAC pointed out, such a self-induced impossibility of performance itself constitutes a breach of the agreement.

2.  With a view to overcoming the difficulties created by the 1^st and 2^nd defendants, the plaintiff began a High Court Action (HCA 961/2008) asserting various causes of action and claiming equitable relief against the Eton Group defendants.  The plaintiff alleges (among other things) that the reorganization of the shareholdings was a breach of fiduciary duty and that the five defendants made themselves constructive trustees of the 4^th defendant’s shares.  The 1^st and 2^nd defendants’ response was to apply for the High Court action to be stayed to arbitration under the arbitration agreement that had led to the award.  Mr Justice Fok was persuaded that the claims fell within the arbitration clause.  However, the Court of Appeal held that the claims were aimed at undoing the dispositions made in the impugned transactions or at assigning liability for such dispositions, forming part of proceedings to enforce the award, instead of claims arising out of the agreement which have to be referred to arbitration.

3.  The grounds for leave to appeal advanced by the 1^st and 2^nd defendants seek to attack the Court of Appeal’s conclusion that the High Court action concerns enforcement of the award.  They argue that the High Court action goes well beyond anything decided by CIETAC and therefore is not merely concerned with enforcement of the award.  It is plainly true that the pleaded claims go beyond what CIETAC decided, but it is a non sequitur to say that they are therefore not concerned with enforcement.

4.  As the learned authors of Mustill and Boyd on Commercial Arbitration,[1] point out:

“Parties to an arbitration agreement impliedly promise to perform a valid award. If the award is not performed the successful claimant can proceed by action in the ordinary courts for breach of this implied promise and obtain a judgment giving effect to the award. The court may give judgment for the amount of the award, or damages for failure to perform the award. It may also, in appropriate cases, decree specific performance of the award, grant an injunction preventing the losing party from disobeying the award, or make a declaration that the award is valid, or as to its construction and effect.”

The steps taken by the plaintiff clearly represent such steps taken by way of enforcement.  Quite simply, the plaintiff is seeking in the present action to obtain the fruits of the award in their favour.

5.  Additionally, in the present case, CIETAC has already rejected an attempt by the 1^st and 2^nd defendants to reopen the arbitration on the basis that the agreement can no longer be performed and asking the tribunal to consider “what relief including damages or other appropriate reliefs” the plaintiff should have for the purposes of the agreement.  CIETAC stated that it had fully adjudicated the arbitration and that there was nothing left for the tribunal to do.  The arbitrators have therefore treated the arbitration agreement as spent and incapable of further performance, removing any effective basis for a stay to arbitration.

6.  We accordingly do not consider the 1^st and 2^nd defendants’ application reasonably arguable and refuse them leave to appeal.

7.  The application by the other defendants is also refused.  They are not parties to any arbitration agreement and so were obviously not able to seek a stay in favour of arbitration.   They seek a stay under the court’s inherent jurisdiction in this action pending the outcome of any arbitral proceedings between the plaintiff and the 1^st and 2^nd defendants. Where, as we have held, there is no stay of the present action as far as the 1^st and 2^nd defendants are concerned, no stay based on the inherent jurisdiction can therefore be granted.

8.  We therefore dismiss both applications for leave to appeal.