Reed Smith Client Alerts

The Hong Kong Court of Final Appeal (the CFA) handed down an important decision on 9 October 2020, clarifying whether the court’s jurisdiction is limited to making an order which mirrors and does not go beyond the arbitral award in a common law action enforcing the award: Xiamen Xinjingdi Group Co Ltd v. Eton Properties Limited & Ors [2020] HKCFA 32. The CFA held that the implied promise to honour the award existed as a contractual obligation separate from the obligations created by the underlying contract and gave rise to a cause of action which fell within the jurisdiction of the court. In a common law action to enforce the award, the court was not restricted to a “mechanical” duplication of the award and instead had jurisdiction to fashion an appropriate remedy to give effect to the arbitral award, distinct from any remedy that might have been claimed in the arbitration.

Summary of facts giving rise to the dispute

The dispute arose out of an agreement between D1-D2 (as sellers) and P (as purchaser) in 2003 (the Agreement) for the sale and purchase of all issued shares (the D4 Shares) in D4, which indirectly owned the right to develop and use a piece of land in Xiamen (Lot 22) through a wholly-owned subsidiary, D5. Under the Agreement, Lot 22 was to be delivered to P within six months of the date of the Agreement.

Shortly after the Agreement was entered into, D1-D2 sought to repudiate the Agreement, alleging issues of illegality, and Lot 22 was not delivered to P. Later on, a corporate restructuring took place such that D1-D2 effectively divested themselves of ownership of the D4 Shares to D3 (the Restructuring), and D5 developed Lot 22 and sold most of the units developed on it. D1-D2 thus later argued that it would be impossible to perform the Agreement.

Arbitral awards and enforcement actions in Hong Kong

The Mainland arbitral awards

P commenced CIETAC arbitration in Beijing in 2005 against D1-D2 under the Agreement. In 2006, the tribunal awarded P damages for breach of contract (in respect of late delivery of Lot 22) and ordered that D1-D2 “shall continue to perform the Agreement” (the First Award). D1-D2 later sought a second ruling from the tribunal for a determination that the Agreement could no longer be performed and that the parties be discharged from the Agreement. This application was dismissed by the tribunal in 2009.