廈門新景地集團有限公司 v. Eton Properties Ltd and Others

CACV 158/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 158 of 2012

(ON APPEAL FROM HCCL 13 OF 2011)

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BETWEEN

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JUDGMENT
ON SUMMONS FOR ELECTION

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Hon Yuen JA:

1.As a result of the Judgment of this court handed down on 15 April 2016 (“the CA Judgment”)¹, the following three matters came before us on 19 September 2017.

(a)  The plaintiff’s Notice of Motion filed on 13 May 2016 for leave to appeal to the Court of Final Appeal against our order dismissing its appeal against the CFI Judgment in respect of its claims:

(1)  against the 1^st, 2^nd, 3^rd, 4^th and 6^th defendants² for inducement of breach of contract;

(2)  against the same defendants for unlawful means conspiracy; and

(3)  against the 1^st, 2^nd, 3^rd and 4^th defendants in constructive trust.

(b)  The 1^st and 2^nd defendants’ Notice of Motion filed on the same day for leave to appeal to the CFA against our order that:

“the plaintiff be at liberty to elect between (1) maintaining the Judgment in HCCT54/2007 dated 31 October 2007 (“the HCCT Judgment”) or (2) obtaining in its place a Judgment for damages in this action³”.

Pursuant to that order, we also gave directions that

“the plaintiff and the 1^st and 2^nd defendants do consult together and, if possible, to submit agreed directions for the Court’s consideration and approval on the procedure to be adopted for the making of the said election within 42 days of the Order herein, failing which the parties be at liberty to apply” (“the directions”).

(c)   The 1^st and 2^nd defendants’ summons filed on 27 October 2016 (“the summons for election”) for an order

“without prejudice to the 1^st and 2^nd defendants’ application ... for leave to appeal to the [CFA], and if leave is granted, the substantive appeal from [the CA Judgment], the plaintiff do make an election between (1) maintaining the judgment for “continued performance” in HCCT54/2007 and (2) obtaining in its place a judgment for damages, within 7 days from the date of the order to be made herein pursuant to this Summons”.

2.This is my judgment on the summons for election. 

Relevant background

3.The detailed background of the case can be seen in the CA Judgment but for present purposes, it suffices to set out the following.

4.1.On 4 July 2003, an agreement was signed between the 1^st and 2^nd defendants of the one part and the plaintiff of the other part (“the Agreement”).  The contents of the Agreement have been summarized in §14.1-19 of the CA Judgment.  The material parts of Article XIII of the Agreement provided that either party had the right to submit disputes to CIETAC for arbitration and that the Agreement was governed by the laws of the PRC⁴.  

4.2.On 14 November 2003, the 1^st and 2^nd defendants sent a “Notice to Discontinue Performance of the Agreement” to the plaintiff.

4.3.On 8 August 2005, the plaintiff lodged an application for arbitration. 

4.4.On 27 October 2006 the arbitral tribunal in the PRC issued an Award that (amongst other things) the 1^st and 2^nd defendants “shall continue to perform the Agreement” with the plaintiff. 

5.1.On 21 September 2007, the plaintiff made an ex parte application in HCCT54/2012 for leave to enforce the Award pursuant to s.2GG and s.40B of the Arbitration Ordinance Cap.341⁵.

5.2.On 31 October 2007, Andrew Cheung J (now CJHC) gave leave and entered judgment in terms of the Award (the HCCT Judgment).

6.At that point in time, the plaintiff was not aware that the shares of the 4^th defendant were, through a process of allotment, transfer and declaration of trust (“the restructure”) effected in November 2005 and March 2006, no longer controlled by the 1^st and 2^nd defendants but by the 3^rd defendant.  It would appear that the plaintiff only became aware of this state of affairs sometime in early 2008.

7.1.On 27 May 2008, the plaintiff commenced HCA961/2008 which was subsequently transferred to the Commercial List as HCCL13/2011 (“the Common Law action on the award”).  This action included claims in constructive trust against the 1^st, 2^nd, 3^rd and 4^th defendants⁶.

7.2.In this action, the plaintiff claimed the following relief:

(1)  A declaration that the 3^rd defendant holds the 9,999 shares registered in its name in the 4^th defendant on constructive trust for the plaintiff, or alternatively, a declaration that the transactions effecting the restructure are void, and an order that the 1^st and 2^nd defendants transfer their original 1 share each in the 4^th defendant upon payment by the plaintiff of the full consideration under the Agreement;

(2)  A declaration that the 2^nd defendant holds the 1 share registered in its name in the 4^th defendant on constructive trust for the plaintiff;

(3)  A declaration that, upon payment to the 1^st and 2^nd defendants of the balance of the consideration payable under the Agreement, viz RMB115 million and the further sum of HK$2,

(1)  the plaintiff is entitled to require the 3^rd defendant to transfer to it the 9,999 shares in the 4^th defendant registered in the name of the 3^rd defendant; and

(2)  the plaintiff is entitled to require the 2^nd defendant to transfer to it the 1 share in the 4^th defendant registered in the name of the 2^nd defendant;

(4)  An order that upon payment by the plaintiff of the full consideration under the Agreement, the 2^nd and 3^rd defendants do transfer to the plaintiff all 10,000 shares in the 4^th defendant;

(5)  An order that upon the transfer to the plaintiff by the 1^st, 2^nd and/or 3^rd defendants of such shares in the 4^th defendant, the 4^th defendant do forthwith register such transfer in its register of members in the name of the plaintiff or its nominee;

(6)  An injunction to restrain the 1^st, 2^nd, 3^rd, 4^th and 5^th defendants, pending the transfer of all 10,000 shares in the 4^th defendant to the plaintiff, from doing anything which might serve to defeat the plaintiff’s right to receive those shares, or which might otherwise detract from the rights and benefits conferred upon the plaintiff by the Agreement;

(6A)  Damages or equitable compensation plus interest;

(6B)   Costs;

(7)  Further or other relief.

8.The trial judge dismissed all of the above claims for reasons appearing in the CFI Judgment.

9.On the plaintiff’s appeal to this court, its leading counsel Mr David Joseph QC made it clear on the first day of the hearing⁷ that the plaintiff is not seeking the transfer of the shares in the 4^th defendant under the action on the Award.   Its claim was only for damages for the 1^st and 2^nd defendants’ failure to honour the Award (which cause of action is different from one based on a breach of the Agreement⁸).

The CA Judgment

10.For reasons set out in the CA Judgment, this court held that the plaintiff has a viable claim for damages for the 1^st and 2^nd defendants’ failure to honour the Award, but a judgment for such damages cannot co-exist with the HCCT Judgment which was for continued performance of the Agreement.  However since the HCCT Judgment had been entered when the plaintiff was not aware of the restructure, the plaintiff was entitled to elect on the basis of an informed choice⁹.

The directions

11.1.At §195, it was noted that not only had the 1^st and 2^nd defendants not disclosed the restructure to the plaintiff before the HCCT Judgment was entered, “(6) even now, nothing is known about [the 4^th defendant] since it came under the control of [the 3^rd defendant]”. 

11.2.Immediately following that passage¹⁰, the case of Island Records Ltd v Tring International PLC¹¹was cited.  In that case, summary judgment had been given when no discovery had taken place.  After considering the electing party’s right to information¹², Lightman J granted a declaration that the plaintiff was entitled at his election to judgment for either an assessment of damages or an account of profits.  I referred explicitly to the directions given in that case requiring the defendant to provide the plaintiff with a schedule with details of the respective figures. 

11.3.At §200, I also referred to Mr Joseph’s submission that “there may come a point in time when the plaintiff, in possession of the full material facts, may be required to elect ...” (Emphasis added).

11.4.In light of the above, I held the following:

“202. The plaintiff is entitled to make an informed choice between (1) maintaining the judgment for ‘continued performance’ in HCCT54/2007 and (2) obtaining in its place a judgment for damages in this action. Should it choose the second alternative, the judgment entered in HCCT54/2007 should be set aside and this appeal allowed in relation to its claim. Should however it choose the first alternative, it would then be necessary to consider how this appeal should be disposed of. I would direct the parties to consult together and if possible agree directions for the court’s consideration and approval on the procedure to be adopted for the making of this election. If no agreed directions are lodged with the court within 42 days, the parties are to be at liberty to apply”. (Emphasis added).

11.5.In my view, it should have been clear from the reference to Island Records and the passage above that the court envisaged that the plaintiff may require disclosure of relevant information eg the 4^th defendant’s financial statements, before making the election.  However it has transpired that the directions were not complied with, and the plaintiff has not sought any information at all¹³. Nor has it made an election.  It was in these circumstances that the summons for election was issued by the 1^st and 2^nd defendants.

11.6.As far as the rest of the plaintiff’s claims were concerned, they were all dismissed, including the plaintiff’s claim in constructive trust¹⁴. 

Plaintiff’s position on the summons for election

12.The plaintiff’s position on the summons for election was that it wishes to defer making the election.  Its position is encapsulated in §2 and §4 of its skeleton submission as follows:

“2. If P were compelled to elect at this stage, it would obviously opt for damages for breach of the implied promise to honour the Award. This is because ‘continued performance’ of the Agreement by [the 1^st/2^nd defendant] pursuant to the judgment obtained in HCCT54/2007 is no longer possible by reason of the ‘restructure’ within the EP Group in November 2005 to March 2006. Maintaining the judgment in HCCT54/2007 would therefore leave P with no remedy”.

[In footnote 2 at the end of the above statement that ‘continued performance’ was no longer possible, the plaintiff added “And the ‘method’ envisaged by Reyes J in his Judgment in HCCT54/2007 (see CA §73 ...) is not open to P because of the findings on constructive trust by this Court”]¹⁵.

“4. ... P’s position is that: (1) it is prepared to make an election in favour of damages for breach of the implied promise to honour the Award, provided that it is clearly understood that such election is without prejudice to its constructive trust and economic tort arguments which form a part of its proposed appeal to the CFA; (2) alternatively, the question of election should be deferred until the final determination of the parties’ respective leave applications by the CFA (and the substantive appeals, if leave is granted), at which time P will make its formal election”. (Emphasis added).

Discussion

13.I note first, that in §4 above Mr Joseph is not addressing an election between (A) the HCCT Judgment for continued performance of the Agreement and (B) a judgment for damages for failing to honour the Award.  Rather he is addressing the impact of (B) on (C) the plaintiff’s claim for constructive trust¹⁶, which the CFI and this court have dismissed and which his client wishes to appeal.  I therefore see no reason why an order on the summons for election, which is only between (A) and (B), should not be made. 

14.With regard to Mr Joseph’s concern as to the effect of (B) on (C), it was no part of the plaintiff’s claim in constructive trust that it was a “method” of enforcing (A).  Whatever reliance is now sought to be made on Reyes J’s remark, which had been made in a different context at an early stage of the HCCT process, it is clear from paras. 11-12 of the Re-Amended Statement of Claim that the claim in constructive trust arose “by reason of the contractual commitment by the 1^st and 2^nd defendants to transfer to the plaintiff the entire issued share capital of the 4^th defendant and/or as a matter of law”.  That was well before the Award and the HCCT Judgment.  

15.Accordingly whatever may be the plaintiff’s concern that (B) may have some effect on (C), in my view that does not detract from the fact that it must make an election between (A) and (B) which are inconsistent rights, derived from different causes of action¹⁷. At the moment, the plaintiff has in hand the HCCT Judgment for continued performance of the Agreement.  As a result of the CA Judgment, it is open to the plaintiff to enter judgment for damages for breach of the implied promise to honour the Award.  Incorporating our situation into the analysis of the learned editor of Estoppel by Conduct and Election at §14-002¹⁸:

“It will be seen that the so-called right of election is not a right in the strict sense with a corresponding duty in another, but a power. An elector has the power to change the legal rights and duties of another vis-s-vis himself ... with a corresponding liability of the [other party] to submit to the change. An election does not involve a choice between two sets of rights which presently co-exist but between an existing set of rights [under the HCCT Judgment for continued performance of the Agreement] and a new set which does not yet exist [a judgment for damages for breach of the implied promise to honour the Award]. The power is to terminate the one and create the other, and the default position is that the existing rights remain in force”. (Emphasis added).

Order

16.1.For the reasons set out above, I would order that the plaintiff do, within 7 days of the date of this Judgment, notify the court and the 1^st and 2^nd defendants by letter of its election between (1) maintaining the judgment in HCCT54/2007 or (2) entering judgment for damages for breach of the implied promise to honour the Award under HCCL13/2011.

16.2.In an abundance of caution, I would add the express order that if:

(a)  the plaintiff elects (2), the HCCT Judgment will be set aside without further order and judgment will be entered for damages for breach of the implied promise to honour the Award under HCCL13/2011;

(b) no notice is received from the plaintiff by the expiry of the period of 7 days, it will be taken that the HCCT Judgment remains in force, and the court will direct written submissions to be made on the disposal of the plaintiff’s appeal against the CFI’s order dismissing its Common Law action on the Award. 

16.3.I would also make an order nisi that the plaintiff is to pay to the 1^st and 2^nd defendants the costs of the summons for election with certificate for two counsel.  

Hon Barma JA:

17.I agree.

Hon Poon JA:

18.I also agree.

David Joseph QC, Edward Chan SC, Bernard Man SC, Lee Tung Ming, Keith Lam, Justin Ho and James Man, instructed by Anthony Siu & Co., for the Plaintiff

Steven Gee QC, Benjamin Yu SC, Richard Khaw SC and Bonnie Cheng, instructed by Mayer Brown JSM, for the 1^st & 2^nd Defendants

Paul Shieh SC and Elizabeth Cheung, instructed by Wilkinson & Grist, for the 3^rd & 4^th Defendants

Ronny Tong SC and Kate Poon, instructed by Baker & McKenzie, for the 6^th Defendant