厦門新景地集團有限公司 Formerly Known As 厦門市鑫新景地房地產有限公司 v. Eton Properties Ltd and Others

[2022] HKCFI 2650

HCCL 13/2011

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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Before:  Hon Cheng J in Chambers

Date of Hearing:  16 June 2022

Date of Decision:  16 September 2022

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D E C I S I O N

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1.By summons of 17^th August 2021 (“the Summons”) the Plaintiff seeks interim payment against the 1^st and 2^nd Defendants in the amount of RMB 122,400,000.[1]

A.  THE BACKGROUND

2.The lengthy history of the transactions and proceedings between the parties was set out in the judgment of Yuen JA in Xiamen Xinjingdi Group v Eton Properties Ltd [2016] 2 HKLRD 1106 (“the CA Judgment”) at [2] to [95] and Ribeiro PJ in Xiamen Xinjingdi Group Co Ltd (廈門新景地集團有限公司) v Eton Properties Ltd (裕景興業有限公司) (2020) 23 HKCFAR 348 (“the CFA Judgment”) at [6] to [79]. For present purposes, the following are the key events as taken from those judgments.

3.The 5^th Defendant, a foreign-owned enterprise established in the PRC, held the right to develop and use a piece of land in Xiamen (“the Land”). The 5^th Defendant was wholly owned by the 4^th Defendant, a company incorporated in Hong Kong. Before the events in this action, the 4^th Defendant had issued only two shares, one to the 1^st Defendant and the other to the 2^nd Defendant. The 1^st and 2^nd Defendants each executed a declaration of trust on 25^th June 1993 stating that it held its share on trust for a BVI company which was a wholly owned subsidiary of the 3^rd Defendant. The Defendants were part of a group of companies involved in real property (“the Eton Group”).

4.On 4^th July 2003, the Plaintiff and 1^st and 2^nd Defendants entered into an agreement (“the Agreement”). Under the Agreement, the 1^st and 2^nd Defendants warranted that they had “absolute control” over the 4^th and 5^th Defendants. The Plaintiff agreed to purchase the right to develop and use the Land by acquiring the shares in the 4^th Defendant, and thus the 5^th Defendant. It was agreed that after the Plaintiff paid the transfer price of RMB 120,000,000, the 1^st and 2^nd Defendants would transfer all the shares in the 4^th Defendant to an entity designated by the Plaintiff.

5.On 14^th November 2003, the 1^st and 2^nd Defendants wrote to the Plaintiff giving notice that performance of the Agreement would be discontinued. The Plaintiff refused to accept the termination or return of the deposit.

6.The Land should have been, but was not, delivered to the Plaintiff by 4^th January 2004. Instead, the Defendants took steps to develop the Land themselves.

7.On 8^th August 2005, the Plaintiff commenced a CIETAC arbitration against the 1^st and 2^nd Defendants in Beijing.

8.A week before the first hearing of the arbitration, and unbeknown to the Plaintiff, the Defendants carried out a restructuring of the Eton Group. On 16^th November 2005, 9,998 newly-issued shares in the 4^th Defendant were allotted to the 3^rd Defendant. On 6^th April 2006, the 1^st Defendant transferred its single share in the 4^th Defendant to the 3^rd Defendant, and the 2^nd Defendant declared itself trustee of its single share in favour of the 3^rd Defendant. Consequently, the 4^th Defendant’s 10,000 issued shares were held beneficially by the 3^rd Defendant (in place of the 1^st and 2^nd Defendants) so that the 3^rd Defendant, via the 4^th Defendant, held the 5^th Defendant which owned the rights to the Land. It followed that the promise contained in the Agreement that the 1^st and 2^nd Defendants would, on completion of the development, transfer their shares in the 4^th Defendant to the Plaintiff, could not be performed. The Plaintiff was unaware of the restructuring, which was not disclosed by the 1^st and 2^nd Defendants until 2^nd January 2008.

9.On 27^th October 2006, the CIETAC tribunal (“the Tribunal”) made an award (“the Award”). The Tribunal:

9.1  recorded that the 1^st and 2^nd Defendants had repudiated the Agreement and that the Plaintiff had refused to accept termination;

9.2  described the Agreement as “neither an agreement of share transfer nor an agreement of transfer of land-use right”, and held that the subject matter of the Agreement was the contractual right to buy and sell the shares in the 4^th Defendant that had an indirect effective control over the Land;

9.3  rejected the 1^st and 2^nd Defendants’ challenge to the legality and validity of the Agreement, and their argument that performance was impossible;

9.4  decided that the Plaintiff’s claim for continued performance of the Agreement should be supported, and ordered that the 1^st and 2^nd Defendants “shall continue to perform the Agreement”.

10.On 31^st October 2007, A Cheung J (as he then was) granted leave to enforce the Award pursuant to s.2GG of the Arbitration Ordinance (then Cap.341), and entered judgment in its terms, ordering that the 1^st and 2^nd Defendants “shall continue to perform the [Agreement]” (“the Statutory Judgment”).

11.On 2^nd January 2008, the 1^st and 2^nd Defendants applied to set aside the Statutory Judgment. It was said that performance of the Award was impossible because of the change of shareholding of the 4^th Defendant, and as more than 90% of the units in the development on the Land had been sold. Whilst the Plaintiff had been aware of the 5^th Defendant’s construction and sales activities, it had not hitherto been aware of the restructuring of the Eton Group.

12.With that realisation, on 27^th May 2008, the Plaintiff started the current proceedings (initially listed as HCA 961/2008 and re-listed as HCCL 13/2001), being a common law action to enforce the Award. The action was also brought against the 3^rd, 4^th and 5^th Defendants who were not parties to the Agreement or the arbitration. The Plaintiff sought declarations that the 2^nd and 3^rd Defendants each held their shares in the 4^th Defendant on constructive trust for the Plaintiff.

13.Meanwhile, the 1^st and 2^nd Defendants’ applications to set aside the Statutory Judgment were dismissed by Reyes J, who was not persuaded that the Agreement was substantially incapable of performance. The 1^st and 2^nd Defendants’ appeal to the Court of Appeal was dismissed.

14.The 1^st and 2^nd Defendants then returned to the Tribunal, applying for a determination that the Agreement could no longer be performed and seeking a ruling that the parties be discharged therefrom. The Tribunal rejected this in its second award (“the Second Award”) of 22^nd April 2009. It was not satisfied that the objectives of the Agreement were incapable of being met, and reiterated that it had made an order for continued performance.

15.The 1^st and 2^nd Defendants made one further approach to the Tribunal. Seizing on the Tribunal’s observation in the Award that the Agreement needed “close cooperation between the parties and reasonable efforts to seek alternative approaches to meet the purpose of the Agreement”, the 1^st and 2^nd Defendants wrote to the Tribunal seeking a ruling on those alternative approaches. The Tribunal rejected the application, stating that it had “adjudicated the case fully” and “did not leave out any matter which would need to be further determined according to the PRC Arbitration Law and the Arbitration Rules of the Arbitration Commission”.

16.There were then various interlocutory applications, including the Plaintiff’s application for leave to amend the Writ and Statement of Claim, thereby expanding the action to add claims in tort for inducing breach of contract and conspiracy against additional defendants. On 21^st December 2011, the Plaintiff obtained leave to re-amend its Statement of Claim to add an alternative claim in paragraph 35(5) for damages or equitable compensation in the event that the relief it had been pressing for, namely transfer of the shares in the 4^th Defendant, should prove unachievable. Reyes J also gave directions for expert evidence regarding the valuation of the 4^th Defendant to be adduced in connection with that plea.

17.On 3^rd February 2012, the Court of Appeal (in HCMP 13, 15, 18, 21/2012, unreported, 14^th February 2012) ordered a split trial, postponing the issues of quantum raised by paragraph 35(5) of the Re-Amended Statement of Claim (“the RASOC”) to be dealt with after the outcome of the trial was known.

18.The Plaintiff’s claims were tried before DHCJ Stone QC on 8^th March 2012, and dismissed.

The CA Judgment

19.Subsequently, the Court of Appeal allowed the Plaintiff’s appeal against the dismissal of the common law action on the Award. In the CA Judgment, Yuen JA explained that:

19.1  a party who successfully obtains an arbitral award can bring a common law action on the award, as an independent cause of action. Such a party has a cause of action separate and distinct from the breach of the underlying contract which led to the arbitration, even though the award arises from the substantive contract. This is because when the parties submit their dispute to arbitration, a mutual promise arises by implication of law that the award will be honoured; if the losing party does not honour the award, there is a breach of the implied promise, normally causing loss to the successful party; this creates a new cause of action. The new cause of action replaces the original cause of action, so that a claim for damages under the new cause of action is not a claim for damages under the original substantive agreement (at [104] to [114]);

19.2  a court enforcing an award by way of a common law action on the award is not hamstrung by the precise terms of the award in the same way that it would be if enforcing it under the statutory route. As with all breaches of promise, an innocent party is entitled to the full range of remedies, including damages (at [165] to [166], [177]);

19.3  the Plaintiff was entitled to make an informed choice between maintaining the Statutory Judgment for continued performance and obtaining instead a judgment for damages in the present action, with the Statutory Judgment being set aside (at [201] to [202]).

20.The Plaintiff subsequently elected a remedy in damages; the Court of Appeal ordered that the Statutory Judgment be set aside and that judgment be entered in HCCL 13/2011 in favour of the Plaintiff for damages against the 1^st and 2^nd Defendants for breach of the implied promise to honour the Award. The 1^st and 2^nd Defendants applied for leave to appeal to the Court of Final Appeal.

The CFA Judgment

21.The Court of Final Appeal dismissed the 1^st and 2^nd Defendants’ appeal against the CA Judgment.

22.The 1^st and 2^nd Defendants had argued that the action on the Award fell within the arbitration clause in the Agreement as (a) it was an action based on and arising out of the Agreement, and (b) the damages claimed should be viewed as damages for loss of the profits of the development flowing from breach of the Agreement, and were therefore caught by the arbitration clause. The argument was rejected by the CFA. Ribeiro PJ held that:

22.1  the implied promise to honour the Award existed as a contractual obligation separate and distinct from the obligations created by the underlying contract (at [102] to [107]); and

22.2  in an action on the implied promise, at the enforcement stage, the enforcing court could grant relief appropriate to the award. Such relief included damages for failure to perform the award. In the present case, the Tribunal made a non-monetary award requiring continued performance of the Agreement. When it was discovered that the possibility of compelling such performance by requiring transfer of the shares had been frustrated as a result of the restructuring, the enforcing court granted relief in the form of an award of damages (at [117] to [122], [126]).

Subsequent developments

23.The trial on quantum is fixed to be heard on 4^th September 2023.

24.Subsequent to the hearing before me, Mimmie Chan J in a decision of 18^th August 2022 ([2022] HKCFI 2566) gave leave to the 1^st and 2^nd Defendants to amend their pleadings to add a defence that the Plaintiff’s damages, if any, should be limited to the reasonably anticipated profits which the Plaintiff would have made if it had developed the Land according to its own design and schedule as contemplated under the Agreement.[2] The argument was raised at the hearing before me as well.

Amount of interim payment sought

25.There is no dispute that on the basis of the audited accounts of the 5^th Defendant, which holds the title to the Land, the net profits made by the 5^th Defendant from the development of the Land, after deducting the RMB 120,000,000 to be paid by the Plaintiff under the Agreement, were at least RMB 122,400,000. The Plaintiff seeks an interim payment of this sum, together with interest.

26.In its skeleton argument, the Plaintiff seeks, in the alternative, an interim payment of RMB 27,000,000, being the amount which the 1^st and 2^nd Defendants earlier considered to be the profits which the Plaintiff would have achieved on its design of the development for the Land.

B.  THE APPLICABLE PRINCIPLES

27.There is no dispute as to the applicable principles as summarised in Binchuang Resources Co Ltd v Lockwood Group Ltd [2022] HKLRD 221 at [10]:

27.1  The court must be satisfied that if the claim were to go to trial then, on the matter before the judge at the time of the application for interim payment, the plaintiff would succeed in his claim and would obtain a substantial amount of damages.

27.2  The court must be satisfied that the plaintiff will succeed in obtaining judgment on liability on the balance of probabilities. It is insufficient that the plaintiff is likely to succeed; the court must be satisfied that the defendant has no arguable defence or that there are sufficient doubts regarding the genuineness of the defence so that the court would not grant the defendant unconditional leave to defend in a summary judgment application.

27.3  In addition, the court should read RHC O.29 rr.11 and 12 together and ask the single question of whether the plaintiff fulfils the requirements of those rules as a whole, rather than consider separately and exclusively the plaintiff’s entitlement under each rule.

27.4  As to quantum, under r.11 (damages) the court can order an amount as it thinks just, not exceeding a reasonable proportion of damages which in the opinion of the court are likely to be recovered by the plaintiff after taking into account any relevant contributory negligence and any set-off, cross-claim or counterclaim on which the respondent may be entitled to rely, whereas under r.12 (sums other than damages) the amount is that which the court thinks just, after taking into account any set-off, cross-claim or counterclaim on which the respondent may be entitled to rely.

28.In the present case, of course, no issues as to liability arise.

29.The object of an application for an interim payment is to alleviate hardship or prejudice to the plaintiff during the period from the institution of proceedings up to the date of trial: Yeung Sek-sung v Cheung For-ming [1991] 1 HKLRD 1 at 5G.

30.Under O.29 r.11, the court may, if it thinks fit, order the respondent to make an interim payment of such amount as it thinks fit, not exceeding a reasonable proportion of the damages which in the opinion of the court are likely to be recovered by the plaintiff. The approach to this exercise was explained in Newport (Essex) Engineering v Press & Shear Machinery 24 BLR 71 at pp.76-77, cited with approval in Top One International (China) Property Group Company Limited and anor v Top One Property Group Limited and others, unreported, CACV 269/2011, 20^th July 2012) at [16]:

“The court has to make an estimate of the damages which are

‘likely to be recovered’;

that is, when the issue is finally determined. The ease or difficulty in making such an estimate will vary enormously from case to case. In some cases it is quite impossible to make a useful estimate without hearing the case out. Are plaintiffs in such cases to be excluded from obtaining an interim payment? I think not, for, on the material available to the court hearing the application, the court may be in a position to say

‘the plaintiff should recover at least £x and is likely to recover more or a great deal more’.

In such a case, I do not think it would be wrong to say that £x itself is a reasonable proportion. In contrast, if the court can say

‘the plaintiff should recover at least £x, but is unlikely to recover more’,

then £x itself becomes the likely award and a reasonable proportion should be something substantially less than £x.

I do not think it desirable that applications for interim payments should turn into long drawn out investigations into the very issues which are to form the subject matter of a future hearing. The wide discretion given to the court, coupled with the safety net for the defendants in rule 17, show that these applications should be decided on a fairly broad approach, with a minimum of expense to the parties.”

31.In estimating the damages which are likely to be recovered, the court must do so by judiciously weighing the evidence presented to it, giving it such weight that it deserves, and remembering that it is not to conduct an assessment of the damages to be awarded, which is the function of a future court: Top One at [17].

32.The court must adopt a fairly broad approach, with minimum expense to the parties, and make an estimate, on the evidence that has been adduced, of the likely award of damages, and award a reasonable proportion of that estimate (rather than by making findings on the evidence “on a balance of probabilities” as would be done in an assessment of damages). Of course, the court will decline to award any interim payment if it is not satisfied that the plaintiff is likely to obtain an award of substantial damages: Top One at [18].

33.Once the court has made that estimate, it must award a reasonable proportion of that estimate, taking into account the financial ability of the plaintiff to repay any overpayment should it transpire, after the assessment of damages has been concluded, that the estimate was wrong, and taking into account the hardship to the defendant from having to make an immediate payment and from being unable to recover any overpayment: Top One at [17].

34.A factor relevant to the court’s exercise of discretion is the length of time between the application and the trial. In Yeung Sek-sung at 5G, Jones J indicated that an interim award should normally be considered when the trial was unlikely to take place for a long period of time.

C.  ARGUMENTS ADVANCED IN OPPOSITION TO THE APPLICATION

C1.  Argument that Plaintiff is seeking disgorgement of profits

35.The 1^st and 2^nd Defendants’ opposition to the present application is primarily based on an argument that the Plaintiff is seeking a disgorgement of profits, rather than compensatory damages on the basis of Robinson v Harman (1849) 1 Exch 850 at 855:

“The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

36.As part of this complaint, it was said that the Plaintiff failed to plead and adduce evidence as to how the parties were to continue to perform the Agreement as contemplated in the Award. Mr Benjamin Yu SC, leading counsel for the 1^st and 2^nd Defendants cited One Step (Support) Ltd v Morris-Garner and another [2019] AC 649 at [36], where Lord Reed said that it is crucial to identify the loss, being the difference between the claimant’s actual situation and the situation in which he would have been had the primary contractual obligation been performed.

37.However, the Plaintiff in its Statement of Case in Respect of Loss pleaded that the 1^st and 2^nd Defendants failed to procure the transfer of the entire shareholding in the 4^th Defendant, which holds the entire interests in the Land and/or its sale proceeds held by the 5^th Defendant, in exchange for payment of the outstanding transfer price. The Plaintiff also pleads that had there not been such a breach, the Plaintiff would have reaped the benefits of the development of the Land, and/or improved the development and sold the remaining units at higher prices, so that the Plaintiff has suffered the loss of the value of the shareholding in the 4^th Defendant, including the interests in the Land and/or the sale proceeds received by the 5^th Defendant, and the loss of the opportunity to improve the development of the Land and maximise profits. The 5^th Affirmation of Siu Yat Fung Anthony in support of the Plaintiff’s application for expert directions said that such directions were needed to assess such losses, and as part of this assessment, it was necessary to assess the gross development value of the Land on the basis of the actual development built by the 5^th Defendant and the actual sales achieved.

38.It is the 1^st and 2^nd Defendants’ own evidence that by the end of 2006, over 95% of the units had been sold: Tenth Affirmation of Mok Pui Hong paragraph 37(1)(iv).

39.It is therefore tolerably clear that the Plaintiff’s case is that the situation in which it would have been, had the 1^st and 2^nd Defendants performed the Award after it was made in 2006, is that the Plaintiff would have paid the outstanding transfer price and taken transfer of the shares in the 4^th Defendant, which included the interests in the Land and the sale proceeds held by the 5^th Defendant, and reaped the benefits of the existing development, possibly making improvements so as to sell the remaining units at higher prices. The 1^st and 2^nd Defendants’ breach has meant that the Plaintiff has lost (inter alia) the value of the shares, which can be measured by the net profits made by the 5^th Defendant as regards that part of the Land which has already been sold.

40.I therefore do not agree that the Plaintiff has failed to properly plead a case of compensatory damages.

41.I further note the 1^st and 2^nd Defendants had previously argued that the Plaintiff had failed to properly plead its claim for damages under RASOC paragraph 35(5), and that this was rejected by the Court of Appeal. In the CA Judgment, Yuen JA said:

“161. Finally in this area, it was argued by [the 1^st and 2^nd Defendants] that the plaintiff did not plead specifically what it was that they were required to do.

162. As discussed above, the matters that need to be pleaded in a common law action on the award are: a valid submission to arbitration, an award in favour of the plaintiff and the defendant’s failure to honour the award. In my view, it was not necessary for the plaintiff to particularise what [the 1^st and 2^nd Defendants] had to do to honour the Award. It was common ground that they have throughout refused to transfer [the 4^th Defendant] to the plaintiff. It is not as if [the 1^st and 2^nd Defendants] had done an act in purported performance of the award, and a dispute has arisen as to whether that act was sufficient performance.”

C1.1  Alternative manner of assessing compensatory damages

42.However, this does not mean that it necessarily follows that the Plaintiff is likely to recover the damages claimed.

43.The 1^st and 2^nd Defendants say that the Award ordered the parties to continue to perform the Agreement, so that ultimately, failure to perform the Award is a failure to perform the Agreement. The Award did not rewrite the terms of the Agreement; and the Agreement did not confer any entitlement on the Plaintiff to reap the profits of a third party to the Agreement (the 5^th Defendant). Therefore, any damages to compensate for the profits which the Plaintiff would have made from the development on the Land should be confined to those which the Plaintiff’s design would have generated, and not extend to those which the 5^th Defendant’s design actually generated. It was said that the Plaintiff’s design, as approved by the authorities, was a very different one from that which the 5^th Defendant actually built on the Land, and that the 5^th Defendant’s design was a much improved one and hence led to higher selling prices.

44.At the time of the hearing before me, the 1^st and 2^nd Defendants had issued a summons to amend their Statement in Response[3], indicating that they would be seeking to argue at the trial on quantum that (inter alia):

44.1  the assumption on which damages should be assessed was that the 1^st and 2^nd Defendants were to honour the Award by delivering the Land to the Plaintiff for the Plaintiff itself (rather than the Defendants) to develop the Land (paragraph 25(6)); and

44.2  even if the Plaintiff could prove that it suffered loss, such loss should be limited to the reasonably anticipated profits the Plaintiff would have made if it had developed the Land according to its own design and schedule as contemplated under the Agreement (paragraph 32A(5)(a)).

45.This would constitute an alternative manner of assessing compensatory damages.

C1.2  What performance of the Award would have entailed

46.It seems to me that much will turn on what performance of the Award would have entailed, an issue that is disputed between the parties.

47.Mr Bernard Man SC, leading counsel for the Plaintiff, submitted that the Award showed that the Tribunal had held that the object of the Agreement was for the 1^st and 2^nd Defendants to assign, and the Plaintiff to obtain, the rights to develop and obtain benefits from the Land, and that this object was to be achieved by the transfer of shares in the 4^th Defendant.

48.Mr Man referred to the following translated parts of the Award (emphases added):

“…In this case, as stated by the [1^st and 2^nd Defendants], the Agreement is a framework agreement, whose performance may be difficult due to various uncertainties. This needs close cooperation between the parties and reasonable efforts to seek alternative approaches to meet the purpose of the Agreement…”

“…The Tribunal considers that the Agreement in this case is that the parties on both sides arrived at the share transfer arrangement in order to achieve the agreed objective of assigning and obtaining the rights to develop and to obtain benefits from No.22 Lot. To this end, the [Plaintiff] agrees to pay the [1^st and 2^nd Defendants] RMB 120 million by instalments and progressively obtain the right to develop and obtain benefits from [the Land]. After the amount is paid in full, the Applicant is further entitled and obliged…to purchase the rights and obligations in all the shares in [the 4^th Defendant] for HK$2…”

“…The Plaintiff does not deny that the object of entering into the Agreement was to obtain benefits from the development and operation of [the Land] and this object was to be achieved by the share acquisition…If the parties have agreed to carry out the transaction in the form of “positioning the share transfer procedures at the end” and the object of the Agreement is to ultimately obtain the benefits from developing and operating the Land, then it is perfectly normal and understandable that the Agreement in this case used many pages to set out detailed provisions in respect of the Land…”

49.The submission was that in ordering that the 1^st and 2^nd Defendants were to continue to perform the Agreement, the Tribunal envisaged that the 1^st and 2^nd Defendants would fulfil the purpose of the Agreement, assigning the rights to develop and obtain profits from development of the Land.

50.However, the reference to the object of the Agreement being to obtain benefits from the development and operation of the Land is also consistent with obtaining benefits from the Plaintiff’s development and operation of the Land.

51.Mr Man further pointed out that Ribeiro PJ had observed (at CFA Judgment [135]) that:

“135. It was evidently on the basis of a prospective transfer of all the shares in D4 in exchange for payment of RMB 120 million that the tribunal made the award requiring D1–D2 to continue to perform the Agreement.”

52.Mr Yu submitted that Ribeiro PJ’s observations at CFA Judgment [135] were taken out of context, as Sumption NPJ had said at CFA Judgment [179] that the critical feature of the Agreement was that the Land was to be delivered to the Plaintiff well before the shares in the 4^th Defendant were to be transferred. However, Sumption NPJ referred to this to explain why the trial judge and the Court of Appeal had been correct to dismiss the claim in constructive trust, as specific performance of the Agreement would not have been granted. This does not detract from what Ribeiro PJ had said at [135] as regards what the Tribunal envisaged in making the Award, requiring the 1^st and 2^nd Defendants to continue to perform the Agreement: namely, a transfer of the shares in the 4^th Defendant in exchange for a payment of RMB 120 million.

53.On the other hand, Ribeiro PJ was not in that paragraph making any observations as to how the quantum of damages for breach of the Award was to be assessed. Furthermore, earlier on at CFA Judgment [126], Ribeiro PJ had observed that there was “very likely to be a significant overlap” between damages for breach of the Plaintiff’s implied promise and whatever damages might have been awarded by the Tribunal for breach of the Agreement.

54.Returning to the Award, apart from the observations above, the Tribunal had also said that (emphases added):

“…The Tribunal notes that the [1^st and 2^nd Defendants] repeatedly emphasise … that it is impossible to perform the Agreement in this case. The Tribunal considers that an agreement shall be binding upon the parties thereto once it is executed. Even though any change in circumstances makes it difficult to perform the agreement during its performance, the parties shall exert reasonable efforts in good faith to perform the Agreement completely and fully other than purely emphasize external causes. In this case, as stated by the [1^st and 2^nd Defendants], the Agreement is a framework agreement, whose performance may be difficult due to various uncertainties. This needs close cooperation between the parties and reasonable efforts to seek alternative approaches to meet the purpose of the Agreement…”

55.Mr Yu submitted that in making these comments, the Tribunal could not have been thinking that what the 1^st and 2^nd Defendants were required to do was to cause the shares in the 4^th Defendant to be transferred to the Plaintiff, thereby also transferring the fruits of the 5^th Defendant’s development.

56.Mr Man submitted that it was important not to conflate the Plaintiff’s claim for breach of the 1^st and 2^nd Defendants’ implied promise with the Plaintiff’s original claim for breach of the Agreement. By the time of the Award, some of what was to be done under the Agreement was no longer possible, but the Tribunal ordered that the parties should nevertheless continue to perform the Agreement, using close cooperation and reasonable efforts to seek alternative approaches to meet the purpose of the Agreement. Since by the time of the Award, steps had already been taken to develop the Land, and pre-sale of units had already started, the Tribunal must have envisaged that the 1^st and 2^nd Defendants would transfer the shares of the 4^th Defendant to the Plaintiff, and therefore the profits made by the 5^th Defendant as well. The 1^st and 2^nd Defendants failed to do this, and the Plaintiff is simply seeking damages for such failure. The Plaintiff’s complaint is about the failure to perform the Award, not the failure to perform the original Agreement. Mr Man cited the judgment of Barma JA in [2018] HKCA 942, where he said (in rejecting the 1^st and 2^nd Defendants’ application to appeal against the CA Judgment to the Court of Final Appeal) at [10]:

“For the reasons given in our judgment (at [104] to [177]), we consider that it is clear that an action on the award is based not on a breach of the underlying contract, but of a different implied promise that arises when the parties’ dispute is submitted to arbitration. Any remedies granted are therefore not in respect of the original contract, but for the breach of that (later) implied promise. Damages are not, therefore, granted in respect of the loss of bargain under the original contract, but in order to compensate for the non-performance of the award. This is a different breach, and damages may well be different from the loss of bargain under the original agreement.”

57.However, I agree with Mr Yu that this is not a complete answer. Whilst the breach of the implied promise gives rise to a different cause of action than the breach of the original agreement, the question still remains: what position would the Plaintiff have been in had the Award been performed? Should the damages for this breach be any different from the damages for breach of the original agreement?

58.Allied to this point is the 1^st and 2^nd Defendants’ argument that just because it was impossible by the time of the Award for the Plaintiff to have carried out development on the Land by itself, does not mean that the court should assume that the Plaintiff would have obtained the shares in the 4^th Defendant, the interests in the Land, and/or the profits of the 5^th Defendant. Mr Yu submitted that under the Robinson v Harman[4]approach, issues of impossibility should be ignored, so that damages should be assessed as if the Land could be delivered to the Plaintiff for its development. I accept that it is arguable that on such an approach, damages should not be assessed by reference to the profits actually made by the 5^th Defendant. Again, one comes back to the question of what the intention of the Award was – when the Tribunal observed that performance of the Agreement might be difficult, requiring “close cooperation” between the parties and “reasonable efforts” to seek “alternative approaches” to meet the purpose of the Agreement, was it intended that the Plaintiff would acquire the profits earned by the 5^th Defendant or the profits as though the original Agreement had been performed?

59.If the Plaintiff’s view of the Award turns out to be correct, then I agree that the Plaintiff is not seeking a disgorgement of profits, but simply claiming damages so as to put it into the position as if the Award had been performed.

60.On the other hand, if the 1^st and 2^nd Defendants’ view of the Award turns out to be correct, then putting the Plaintiff into the position as if the Award had been performed would, at most, be to put the Plaintiff into the position as if the Agreement as originally executed had been performed.

61.This is an issue which cannot be resolved on the broad approach which governs an application for interim payment, and needs to await the trial on quantum. At this stage, adopting a broad approach, it seems to me that the Plaintiff is likely to recover at least the amount it would have made if it had developed the Land according to its own design and schedule as contemplated under the Agreement.

62.As to what that amount would be, Mr Man referred to the 1^st Supplemental Witness Statement of Mok Pui Hong which was filed on behalf of the Defendants for the purpose of the trial before DHCJ Stone QC back in 2012. There, it was said that the net profits from the development as designed by the Plaintiff would have been just over RMB 27,000,000, based on the Plaintiff’s projections as at April 2003. Mr Man relied on this figure as being the 1^st and 2^nd Defendants’ own estimate of the Plaintiff’s damages. Mr Yu submitted that this evidence was speculative and could not be relied upon to produce an estimate of damages, citing Lingrade Development Ltd v Secretary for the Environment, Transport & Works (2011) 14 HKCFAR 439 at [21], where in assessing the value of certain statutory compensation, the Court of Final Appeal considered that it was preferable for a valuation to proceed on the basis of actual facts rather than historic projections. However, it has not been suggested that the 1^st and 2^nd Defendants resile from this evidence, or that it is wrong in some regard. Nor have the 1^st and 2^nd Defendants at this stage put forward alternative evidence to quantify the profits which the Plaintiff might have made which could, following Lingrade, be said to constitute a more “solid basis”. In the circumstances, I agree that the current state of the evidence indicates that the Plaintiff would have earned just over RMB 27,000,000 had it developed the Land according to its design.

C2.  Other arguments raised by the Plaintiff

C2.1  Secondary performance

63.Mr Yu submitted that the Plaintiff’s argument ignored the express stipulation in the Agreement for secondary performance by way of a refund of the deposit and transfer price, and payment of compensation equal to 100% of the transfer price paid. However, it is not suggested that this was the performance envisaged in the Award.

C2.2  Circumventing constructive trust ruling

64.Mr Yu submitted that the Plaintiff’s claim for damages was premised on the Plaintiff being entitled to shares in the 4^th Defendant, which was in turn based on the Plaintiff’s claim of constructive trust, which was dismissed by the trial judge and the Court of Appeal, and abandoned (as against the 1^st and 2^nd Defendants) and dismissed (as against the 3^rd and 4^th Defendants) in the Court of Final Appeal, and was therefore an attempt to circumvent the ruling against the Plaintiff’s constructive trust claim. However, I agree with Mr Man’s submission that the claim in constructive trust is simply a separate claim to the common law action for breach of the implied promise. The constructive trust claim was predicated on the Plaintiff’s interest in the shares arising at the moment of the Agreement, whereas the claim for breach of the implied promise arose upon the 1^st and 2^nd Defendants’ failure to honour the Award.

C2.3  Failure to take expenses into account

65.Mr Yu submitted that the Plaintiff’s case ignored the expenses which had to be incurred by the Defendants in the development of the Land. He referred to the witness statement of Benito Choa, which stated that (1) prior to around March 2005, preliminary preparation work was carried out by employees of Eton Properties (Xiamen) Limited, which was a wholly owned subsidiary of the 1^st Defendant, at no cost to the 5^th Defendant, and (2) the 5^th Defendant obtained interest-free financial assistance from other members of the Eton Group, totaling over RMB 73 million as at the end of 2005. It appears that the 5^th Defendant was not charged as it was part of the Eton Group. It was said that had these items of assistance not been provided free of charge, the 5^th Defendant would have had to incur more expenses, which would have reduced the profits ultimately earned.

66.In the light of what I have said in section C1 above, I need not go into this issue. In case I am wrong about that, it seems to me that the answer is that the aforesaid items of expenses were incurred prior to the date of the Award. Had the Award been performed in the manner claimed by the Plaintiff, the Plaintiff would have acquired the 4^th Defendant, which owns the 5^th Defendant. The Plaintiff would thereby have acquired the benefit of the assistance of the group members. In other words, the breach by the 1^st and 2^nd Defendants in not performing the Award led to the Plaintiff not being able to enjoy the benefit of this assistance. It is not a benefit for which the Plaintiff needs to give credit.

C2.4  Argument that assessment complex by reason of expert evidence

67.It was also submitted that the assessment of damages will be a complex and heavily contested exercise, involving expert evidence. It was said that the expert evidence sought by the Plaintiff (the gross development value of the Land) was not consistent with the Plaintiff’s claim to the net profits earned by the 5^th Defendant. However, as explained in the Plaintiff’s evidence adduced in support of the expert directions sought by it, the Plaintiff is not seeking to claim the gross development value of the Land, but rather, to assess the total sale proceeds which would arise from the sale of the entirety of the completed development. The profits recorded in the 5^th Defendant’s audited accounts do not fully reflect such value as not all of the development has been sold.

68.As Mr Man submits, therefore, the Plaintiff’s proposed expert issues do not have a bearing on the quantum of the interim payment which it seeks.

C2.5  Discretionary considerations

69.The 1^st and 2^nd Defendants also submit that there would be no prejudice to the Plaintiff if no interim payment were to be ordered, as the trial is fixed for September 2023 and judgment will be handed down within six months thereafter. They also point out that the Plaintiff waited for over ten months after the CFA Judgment before applying for interim payment. Moreover, if, as it has indicated, the Plaintiff is content for payment to be made into court, it would not get its hands on the money before trial in any event.

70.However, this is a case where there is no dispute that the Award, made in 2006, has all along not been honoured, and the Plaintiff has already obtained judgment for the 1^st and 2^nd Defendants’ breach of their implied promise, with damages to be assessed. Even if it could be said that there no prejudice to the Plaintiff in requiring it to wait longer before seeing any payment being made by the 1^st and 2^nd Defendants, it seems that this factor carries little weight. Furthermore, Jones J’s observation in Yeung Sek-sung that an interim award should normally be considered when the trial was unlikely to take place for a long period of time was made in the context of a case where the trial would have taken place by the time of the hearing of the application for interim payment – circumstances very different to those in the present case.

C2.6  Difficulty in recovery of payment

71.Mr Yu submitted that in the event that the 1^st and 2^nd Defendants were ordered to make an interim payment, the payment should be made into court under O.29 r.13, given the likely difficulties of recovering any such payment from the Plaintiff.

72.In the 9^th Affirmation of Mok Pui Hung, it was pointed out that:

72.1  the Plaintiff is a company incorporated with limited liability under the laws of the mainland with its usual place of business in the mainland;

72.2  there is no evidence that the Plaintiff has any substantial assets in Hong Kong against which the 1^st and 2^nd Defendants could execute, should it become necessary to do so;

72.3  the Plaintiff has in the past delayed making payments for security for costs by reason of the foreign exchange control policies of the mainland, the most recent occasion being in 2019 when there was a nine-week delay in providing security for costs of the appeal to the Court of Final Appeal, in respect of a sum substantially less than that sought by way of interim payment.

73.Mr Man indicated that the Plaintiff would be content with payment being made into court. Accordingly, any difficulties in recovery of payment do not militate against an order being made for interim payment.

D.  ESTIMATION OF DAMAGES LIKELY TO BE RECOVERED

74.Given (1) my view that (a) the Plaintiff’s claim is not for disgorgement of profits, (b) it is not possible at this stage to take any firm view that that the Plaintiff’s method of quantification of damages would prevail at trial, (2) that on the 1^st and 2^nd Defendants’ own earlier evidence, the net profits which would have been yielded by developing the Land on the Plaintiff’s design would have been just over RMB 27,000,000, and (3) taking a broad approach, it seems to me that the likely award of compensatory damages will be at least RMB 27,000,000. Given that the RMB 27,000,000 was the 1^st and 2^nd Defendants’ own calculation (and therefore likely to be on the conservative side), I would accept that the figure is, for the purposes of ordering interim payment, a reasonable proportion of what is likely to be recovered by the Plaintiff.

E.  INTEREST

75.The Plaintiff has also asked for pre-judgment interest pursuant to s.48 of the High Court Ordinance, Cap.4, at a rate of 6% per annum (being HSBC prime rate plus 1%), from 27^th October 2006, the date of the Award.

76.The 1^st and 2^nd Defendants dispute the Plaintiff’s entitlement to pre-judgment interest on the ground that there is a dispute between the parties as to which of them is responsible for the delay in the resolution of the proceedings. They say, amongst other things, that the Plaintiff only applied to add paragraph 35(5) into the RASOC in December 2011, and delayed in electing to obtain a judgment for damages between the time of the CA Judgment in April 2016 and October 2017.

77.The court may exercise its discretion to disallow interest for a period or reduce the rate of interest on account of a claimant’s delay: Wan Chi Hing v Strong Master Corporation Limited, unreported, HCA 1554/2013, 8^th December 2015, at [28].

78.It is not appropriate on an application for interim payment to make detailed findings as to the procedural rights and wrongs of the parties, which are matters for the trial judge to consider.

79.In the circumstances, I decline to order interest at this stage of the proceedings.

F.  DISPOSITION

80.I order that the 1^st and 2^nd Defendants are to make an interim payment of RMB 27,000,000 into court within 21 days.

81.I further make an order nisi that the costs of and occasioned by the Summons should be paid by the 1^st and 2^nd Defendants to the Plaintiff, with certificate for two counsel, to be taxed if not agreed.

Mr Bernard Man SC leading Mr James Man and Mr Jonathan Ng, instructed by Anthony Siu & Co., for the Plaintiff

Mr Benjamin Yu SC and Mr Richard Khaw SC leading Ms Bonnie YK Cheng, instructed by Mayer Brown, for the 1^st and 2^nd Defendants