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FACV 5 / 2019 IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL APPEAL NO. 5 OF 2019

(ON APPEAL FROM CACV NO. 158 OF 2012) __________________________

___________________________________________

CASE FOR THE PLAINTIFF (APPELLANT) ___________________________________________

References to Part A of the Record appear as:

[PtA/Tab/Page/§-Paragraph]

BETWEEN 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

Plaintiff (Appellant)

and ETON PROPERTIES LIMITED (裕景興業有限公司)

1st Defendant (1st Respondent)

ETON PROPERTIES (HOLDINGS) LIMITED (裕景興業(集團)有限公司)

2nd Defendant (2nd Respondent)

ETON PROPERTIES GROUP LIMITED formerly known as ETON PROPERTIES (INTERNATIONAL) LIMITED

3rd Defendant (3rd Respondent)

LEGEND PROPERTIES (XIAMEN) COMPANY LIMITED (利景興業(廈門)有限公司), a limited company incorporated in Hong Kong

4th Defendant (4th Respondent)

LEGEND PROPERTIES (XIAMEN) COMPANY LIMITED (利景興業(廈門)有限公司), a foreign-owned enterprise incorporated in the People’s Republic of China

5th Defendant

TAN LUCIO C (陳永栽) 6th Defendant (5th Respondent)

CHUA DOMINGO (蔡黎明) 7th Defendant

TAN ENG LIEN MARIANO (陳永年) 8th Defendant

KWAN KIE YIP (關基業) 9th Defendant

CHEUNG CHI MING (張志明) 10th Defendant

MOK PUI HONG (莫沛杭) 11th Defendant

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A. INTRODUCTION

1. The present appeal and FACV 3/2019, which will be

heard together, concern the long running story of

D1/D2’s failure and refusal to honour a CIETAC

arbitral award made on 27.10.2006 (“the 1st Award”)

with regard to an Agreement (“the Agreement”) dated

04.07.2003.

2. The Agreement was between, inter alios, P and D1/D2.

3. The protracted proceedings culminating in these

appeals are the result of the herculean efforts by,

amongst others, D1, D2, D3-D5 and D6 to deprive P of

the fruits of the 1st Award and to procure the breach of

the Agreement.

4. The Agreement contains promises as between P and

D1/D2 for the development of a substantial commercial

property site in PRC and for the transfer by D1/D2 of

the shares in a Hong Kong company, D4, to a nominee

of P’s choosing. In particular:

4.1 Articles 3 and 8, which provide that the shares in

D3 held by D1/D2 would be transferred to P after

P had made payment in full.

CA Judgment §§14.1,

18 [PtA/4/153, 154-

155]

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4.2 Article 2(3), whereby D1/D2 warranted that they

have absolute control over D4 and D5.

5. The value in D4, at the time of the Agreement, was in

its indirect interest, held through its subsidiary D5, in a

piece of land (“the Land”) in Xiamen, PRC. Under the

Agreement, D1/D2 warranted their absolute control

over D4 and D5.

CA Judgment §14.1

[PtA/4/153]

6. D1/D2 are two Hong Kong companies, carrying on

business at the Eton Tower in Hong Kong.

7. D6 is the founder and controller of the Eton Group, of

which D1-D5 form part.

8. D1/D2 communicated their intention to terminate the

Agreement to P on 14.11.2003 (“the Renunciation”).

The Renunciation was, however, never accepted and so

D1/D2 at all material times remained liable to perform

all their covenants with P.

CA Judgment §§21.1-

33 [PtA/4/155-158]

9. As required by the arbitration clause in the Agreement,

the legality of the Renunciation was argued before the

CIETAC Tribunal (“the Tribunal”). It found that the

Renunciation was unlawful. By the 1st Award, the

Tribunal ordered D1/D2 to continue to perform the

Agreement.

CA Judgment §§58-61

[PtA/4/168-170]

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10. D1/D2 abandoned their challenge to the 1st Award in the

court of the seat (i.e. the Beijing Courts). The 1st Award

therefore remains in force and unchallenged.

CA Judgment §63

[PtA/4/171]

11. On 31.10.2007, the 1st Award was entered as a judgment

in Hong Kong in terms of the award in HCCT 54/2007.

CA Judgment §§66-69

[PtA/4/172-173]

12. In the meantime, the Eton Group concluded and entered

into a series of arrangements by way of a shareholding

restructure of D4 in 2005 and 2006 (“the

Restructure”).

13. The result of the Restructure is that the ownership and

control of D4 was transferred from D1/D2 to D3:

13.1 D1/D2 as shareholders of D4 resolved to give

approval to the directors of D4 to allot new shares

in D4.

13.2 D3 then applied to D4 and was allotted new 9,998

shares in D4 (originally there were only 2 shares

in D4, one held by D1 and the other by D2).

13.3 D1 transferred its 1 share to D3.

13.4 D2 signed a declaration of trust of its 1 share in

favour of D3.

CA Judgment §§49-

50, 56 [PtA/4/164-

165, 167-168]

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14. The lower courts found that the primary purpose of the

Restructure was to prepare for the setting up of a real

estate holding company in the PRC, which was required

to hold a number of project companies in the PRC.

CA Judgment §§34-

40, 44-47 [PtA/4/159-

161, 162-164]

15. The Restructure also served a further purpose; namely

to cause D1/ D2 to be in further breach of the

Agreement and render further performance of the

Agreement factually impossible. The Agreement was

still on foot at the time because the Renunciation had

never been accepted by P. As will be developed in

further detail below, all the relevant parties to the

Restructure (i.e. D1-D4 and also D6) knew and

appreciated that the Restructure would have this effect.

16. D1/D2 made multiple attempts to set aside the Hong

Kong judgment in terms of the 1st Award on the ground

that as a result of the Restructure, they could not comply

with it.

17. It should however be noted that the first time D1/ D2

disclosed the Restructure was when, on 02.01.2008,

they applied to set aside the Hong Kong judgment in

terms of the 1st Award.

CA Judgment §§70-71

[PtA/4/173]

18. Notably, D1/D2 did not disclose or rely upon the

Restructure in front of the Tribunal before the 1st Award

was rendered on 27.10.2006 (by which time the

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Restructure had completed – the final step of the

Restructure was completed on 31.03.2006).

19. Rather, as noted in CA Judgment §56.4, in their

submissions on 17.05.2006, D1/D2 still stated that

“Even though [D1/D2] are the parent companies of [D4

and D5], they cannot force the directors (natural

persons) of [D4 and D5] to pass the resolution which

approves the Agreement at issue”. (CA’s emphasis)

[PtA/4/168]

20. All the attempts to set aside the Hong Kong judgment,

rightly, failed.

21. D1/D2, however, still refused to honour the 1st Award.

They went back to the Tribunal in an attempt to obtain

a different order. The Tribunal rejected this in a second

award made on 22.04.2009, again requiring D1/D2 to

perform the Agreement. On 27.07.2009, after a further

approach the Tribunal made it quite clear in its third

award that they considered themselves functus.

CA Judgment §§73-78

[PtA/4/173-177]

CA Judgment §§82-83

[PtA/4/178]

22. Nevertheless, D1/D2 still failed to honour the awards.

The present action was therefore commenced in 2008.

Relevantly, P claimed:

22.1 Against D1/D2 by way of action on the award;

22.2 Against inter alios D3-D4, D6 in tort for inducing

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the breach of the Agreement;

22.3 Against D1 to D3 in constructive trust and/or

knowing receipt with respect of the shares in D4.

23. Notwithstanding the fact that the Tribunal had made it

abundantly clear that it was functus, attempts had been

made by D1/D2 to stay this action in favour of

arbitration. This ended up in the Appeal Committee of

this Court, which dismissed D1/D2’s application for

leave to appeal.

24. The trial of the action came before Deputy High Court

Judge William Stone QC (“the Judge”). By Judgment

dated 14.06.2012, he dismissed all of P’s claims (“CFI

Judgment”).

CFI Judgement §393

[PtA/1/133]

25. By Judgment dated 15.04.2016 (“CA Judgment”), the

Court of Appeal (“the CA”) allowed P’s appeal in

respect of the arbitration claims, but upheld the

dismissal of the remaining claims. The net result of the

CA Judgment is that P is entitled to damages against

D1/D2 for breach of the implied promise to honour the

1st Award.

[PtA/4/146+]

26. As mentioned above, D1/D2 have obtained leave to

appeal to this Court in respect of the CA’s holdings on

the action on the award. D1/D2’s appeal is FACV

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3/2019.

B. THIS APPEAL

27. The present appeal by P concerns the tort of inducing

breach of contract which is asserted against D3, D4 and

D6 (Question 1) and constructive trust which is asserted

against D1 to D3 (Questions 2 to 4). Submissions on

the propriety of the action on the award will be made in

FACV 4/2019.

28. The Appeal Committee has certified 4 questions for

consideration by this Court in the present appeal:

28.1 Question 1: “Under the tort of inducing a breach

of contract, where the inducement takes the form

of the conclusion of a dealing inconsistent with

an existing contract, what is the requirement of

causation as regards the breach of contract? In

particular, where the contracting party is

determined to breach the contract with or without

the inducement of the defendant, what is the

requirement of causation?”

28.2 Question 2: “Where the obligation owed by a

defaulting vendor to a purchaser to continue to

perform an agreement for the sale and purchase

of shares in a private company is governed by a

[PtA/20/398-403]

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foreign law, is the Hong Kong court entitled to

grant the remedy of a constructive trust pursuant

to its equitable jurisdiction over such obligation

notwithstanding that the foreign law which

governs the agreement does not recognise the

concept of a constructive trust? If so, what is the

correct approach of the Hong Kong court in

granting such remedy?”

28.3 Question 3: “Where an agreement for the sale

and purchase of shares in a Hong Kong private

company is by agreement governed by a foreign

law, does that preclude the law of property and

the law of trust under Hong Kong law from

operating to transfer the equitable title or interest

in the shares to the purchaser upon the making of

the agreement or upon the agreement becoming

specifically enforceable?”

28.4 Question 4: “In circumstances where an

agreement for the sale and purchase of the entire

issued shares in a private company which

ultimately holds land or development rights in

land situated outside Hong Kong contains

provisions to the effect that:

(a) pending completion of the sale,

possession of the land be given to the

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purchaser, with liberty to, but no

obligation upon, the purchaser to develop

or sub-sell interests in the land in the

meantime; and

(b) in the event that prior to completion of

the sale, the purchaser does take

possession of the land and does carry out

development of the land, express powers

be reserved to the vendors to regulate the

development activities,

but the purchaser does not opt to carry out any

development or sub-sale activities prior to

completion, is the agreement one which is

amenable to specific performance?”

C. QUESTION 1: INDUCEMENT OF BREACH OF

CONTRACT

C1. How Question 1 Arises on the Facts of the Case

29. As noted above, as a result of the Restructure: (1) D1 no

longer held any shares in D4; (2) D2 had declared its

share on trust for D3; (3) D3 became the 99.99%

registered shareholder of D4. In other words, the

Restructure was itself a breach of the Agreement and

rendered it impossible for D1/D2 to continue to perform

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their obligations under it, in particular the obligation to

transfer the shares in D4 to P.

30. As further developed in Section C7 below, except for

the element of inducement (i.e. the subject matter of

Question 1), D3, D4 and D6 would clearly have been

held liable for the tort of inducement of breach of

contract.

31. The CA’s reasoning for rejecting P’s claim are that (CA

Judgment §§245-254):

31.1 The CA accepted that the entry into of an

inconsistent transaction may (but not invariably)

amount to inducement, if the person’s act

amounted to “intentional causative

participation”: §246.

31.2 It then held that on the facts, there was no

“intentional causative participation” on the part

of D3/D4, because the contracting parties (i.e.

D1/D2) had all along intended not to comply with

the Agreement. Instead of D3/D4 causing D1/D2

to breach the Agreement, they merely adopted

D1/D2’s positions and participated in the

Restructure: §§247-249.

31.3 The CA then addressed an argument that the

[PtA/4/236-239]

[PtA/4/236-237]

[PtA/4/237-238]

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Restructure prevented or made it more difficult

for P to pursue the shares of D4: §§250-251.

Insofar as this appears to have been analysed by

the CA as an allegation of causing loss by

independently illegal means this was not P’s case

in the Court of Appeal and it is not P’s case in the

CFA either.

31.4 As to D6, the CA rejected the claim against him

because: (1) based on D10’s evidence, D6 “was

not involved with the details of the restructure”;

and (2) the acts pleaded as D6’s acts of

procurement were done in his capacity as director

of D4 (passing resolutions in relation to the

Restructure): §252.

[PtA/4/238]

[PtA/4/238-239]

32. For the reasons explained below, it is respectfully

submitted that the CA erred in law in the above

holdings.

C2. The Governing Legal Principle and Answer to

Question 1

33. The answer to the first question framed by the Appellate

Committee is that the entry into an inconsistent dealing

with knowledge of the underlying bargain, will itself

constitute a sufficient act of causative participation or

inducement, irrespective of whether or not the

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counterparty to the original contract had already

determined to breach the contract with or without the

conclusion of the inconsistent dealing. This is

particularly so where the defendant tortfeasor’s

involvement or co-operation is necessary to the breach

in question of the contract breaker.

34. It is necessary to explain this by examination of the

relevant legal principles and governing authorities

applicable to the tort in question.

35. The tort of inducing breach of contract is committed by

knowingly inducing a third party to break his contract

to the damage of the other contracting party without

reasonable justification: Clerk & Lindsell on Torts (22nd

edn, 2018), §24-14.

36. As was made clear in the House of Lords in OBG Ltd v

Allan [2008] 1 AC 1 (at §§40-44) the tort requires

knowledge of the contract on the part of the tortfeasor

and is a tort of intent.

37. The elements of the tort have been correctly broken

down by the Court of Appeal into its five constituent

elements (at CA Judgment §204.3):

37.1 There is a contract between A and B;

[PtA/4/221-222]

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37.2 There is a third party C who has knowledge of

that contract;

37.3 C does an act which induces or persuades A to

breach the contract;

37.4 When C did that act, he did it with intent to cause

A to breach the contract, the breach of that

contract being an end in itself, or a means to an

end, and not merely the foreseeable

consequences of C’s act;

37.5 As a result, B suffered pecuniary loss.

38. The large proportion of the cases only examine three of

these elements; namely what amounts to (1) knowledge

of the underlying contract (element 2); (2) a sufficient

act of causative inducement (element 3); and (3)

sufficient intent (element 4).

39. Question 1 as framed concerns what amounts to a

sufficient act of causative inducement in a specific

context; namely where the act of inducement takes the

form of the conclusion of an inconsistent bargain or

dealing with the original contract party. This only

engages element 3.

40. The tort of inducing breach of contract is a tort of

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accessory liability: OBG v Allan, §8. This is an

important starting point.

40.1 Liability of the accessory is dependent on the

wrongful act of the contracting party and in the

present case there is no dispute that D1/D2 did

act in continual breach of the Agreement through

not only the Renunciation but also the

Restructuring: CA Judgment §§207, 211, 245,

249.

40.2 As explained by Lord Hoffmann in OBG (at §§8

& 36), accessory liability differs from causing

loss by unlawful means in terms of the degree of

act or participation that is required. The primary

liability of causing loss by unlawful means

requires the use of independently unlawful

means. The accessory liability of inducing breach

of contract only requires the degree of

participation which satisfies the lower threshold

for such liability as established in cases such as

CBS Songs Ltd v Amstrad Consumer Electronics

plc [1988] AC 1013 (see 1056E-F, 1057B,

1058E) and Unilever v Chefaro [1994] FSR. See

also Unilever plc v Gillette (UK) Ltd [1989] RPC

583, 608(35)-609(15) (Mustill LJ).

40.3 The UK Supreme Court has recently restated the

[PtA/4/223-224, 236-

238]

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law on accessory liability and makes clear that

the degree of participation requires only showing

a more than de minimis involvement on the part

of the accessory in the doing of the acts which in

the end prove to be unlawful, and that such acts

were done in combination with the primary

wrongdoer: see Fish & Fish v Sea Shepherd UK

[2015] AC 1229, §21 (Lord Toulson), §§37, 49-

50 (Lord Sumption), §§55, 57 (Lord Neuberger).

40.4 These principles have been followed in the Hong

Kong courts in Luen Hing Fat Coating &

Finishing Factory Ltd v Waan Chuen Ming

(2011) 14 HKCFAR 14, §11 and SNE

Engineering Co Ltd v Hsin Chong Construction

Co Ltd [2015] 4 HKLRD 517, §§166-173 (CA).

In particular, the Court of Appeal said at §167

that “in terms of principles in this area, one does

not need to go beyond the judgment of the

Supreme Court of the United Kingdom in [Fish v

Fish].”

41. Inducement (or direct inducement)1 might be found in

the form of active persuasion or enticement of the

1 In the old cases, the tort was described as including cases of both

“direct” and “indirect” interference. This distinction is now regarded as unhelpful and confusing as the “indirect” form includes cases which should be regarded as the separate tort of causing loss by unlawful means: OBG v Allan §§34-38 (Lord Hoffmann), §§181-190 (Lord Nicholls).

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contracting party himself: Clerk & Lindsell, §24-35;

Lumley v Gye (1853) 2 E & B 216.

42. Inconsistent dealings constitute a special form of

inducement sufficient to satisfy element 3 of the tort in

CA Judgment §204.3.

43. The governing principle is that, “if a third party, with

knowledge of a contract between the contract breaker

and another, has dealings with contract breaker which

the third party knows to be inconsistent with the

contract, he has committed an actionable interference”:

DC Thomson & Co Ltd v Deakin [1952] Ch 646, 694

(Jenkins LJ), citing in particular British Motor Trade

Association v Salvadori [1949] 1 Ch 556; Clerk &

Lindsell, §24-42 and cases at fn 240; Oliphant: The Law

of Tort (Common Law Series) (3rd edn, 2013), §29.18.

As was clearly stated in DC Thomson v Deakin it

matters not whether the original contracting party was

“a willing party to the breach, without any persuasion

by the third party” or not.

44. As will be developed in further detail below, this was

and remains an accurate statement of law. It is also

entirely consistent with principle, authority and policy

that this should be the law.

45. P will address this governing principle under the

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following heads:

45.1 Existing authority on inconsistent dealings and

inducement;

45.2 Policy underlying the cases; and

45.3 Whether this conclusion is altered by the decision

of OBG v Allan.

C3. Existing Authority

46. There is a long line of authorities deciding that the

conclusion of an inconsistent dealing would of itself

constitute a sufficient act of inducement or causative

participation.

47. The best starting point for exposition of the principle is

by Roxburgh J in British Motor Trade Association v

Salvadori [1949] 1 Ch 556. There, the plaintiff was a

trade association whose members had agreed only to

sell cars to buyers who would execute a covenant not to

resell the car within 12 months. The defendants bought

cars from association members who had executed such

covenants with the plaintiff, with knowledge of the

existence of the covenants and in breach thereof.

48. Seven of the defendants were found liable for

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procurement of breach of contract (page 566 2nd

paragraph). In particular, Roxburgh J rejected the

argument that there was no inducement where the seller

was a willing seller and needed no inducement, and held

that whether the tort was committed could not depend

on who speaks the first word: 564-565. Roxburgh J was

also clear that even a willing contract party (i.e. persons

in the position of D1/D2 in this appeal) is not a willing

participant to inconsistent dealings on any terms but

where the terms on the table are accepted this will itself

constitute a sufficient act of procurement (566).

49. As noted above, DC Thompson v Deakin came in 1952

and reaffirmed this principle and Jenkins LJ approved

Salvadori (supra) as an example sufficient to constitute

the Lumley v Gye tort (referred to as “the primary tort”).

50. The same analysis was adopted by Stamp J in Sefton v

Tophams Ltd (No 2) [1965] Ch 1140, 1160F-1162A

which was upheld in CA and reversed on other grounds

in the House of Lords at [1967] AC 50. In that case, the

entry into and conclusion of the inconsistent contract,

the promise of Capital & Counties to pay the sum of

£900,000 for the execution of the conveyance which

contemplated a redevelopment in breach of a covenant

by Tophams to Lord Sefton was a sufficient act of

inducement. The analogy given in the judgment of

Stamp J with master and servant cases is instructive to

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the present appeal. It is not necessary to show that the

original contract party was persuaded to break the prior

engagement: 1161C-D, F.

51. In Rickless v United Artists Corporation [1988] QB 40,

Bingham LJ stated at 58G-59C that the law on

inconsistent dealings as stated in Salvadori and DC

Thomson v Deakin was never doubted.

52. In Unique Pub Properties Ltd v Beer Barrels &

Minerals (Wales) Ltd [2005] 1 All ER (Comm) 181,

§§28-29, Chadwick LJ applied the relevant passage of

DC Thomson v Deakin and further explained that it is

the defendant’s knowledge that the new contract is

inconsistent with the plaintiff’s contract which supplies

the requisite mental element.

53. OBG v Allen was decided in 2007, but as will be further

explained below, it did not affect the position on

inconsistent dealings constituting sufficient

inducement. This is also demonstrated by the post-

OBG cases which took the same position.

54. In Lictor Anstalt v MIR Steel UK Ltd [2012] 1 All ER

(Comm) 592, Alphasteel was under contract not to sell

certain equipment which had been supplied by the

claimant (Lictor Anstalt) for steel production. When

Alphasteel went into administration, the administrators

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hived off its business and sold the equipment to a third

party, Libala. This was done through setting up a new

company called Mir Steel which would purchase the

equipment from Alphasteel and Mir Steel would then be

sold to Libala. Mir Steel was at the time of the sale of

the equipment also controlled by the administrators.

The restructuring element in Lictor Anstalt and the

common control of Alphasteel and Mir Steel are notably

similar features to the present appeal.

55. It was held that the sale of the equipment to Mir Steel

was an inconsistent dealing and Mir Steel was liable for

inducing breach of contract: [2012] 1 All ER (Comm)

592, §§47-53 (David Richards J in a judgment rejecting

Mir Steel’s attempt to strike out the claim); [2014]

EWHC 3316 (Ch), §§243-258 (Asplin J at trial). The

relevant reasoning is contained in counsel’s submission

for the claimant recorded at §48 (of the striking out

judgment) and accepted by David Richards J at §52:

“… there could be cases where the contract

breaker has independently of the defendant

decided to act in breach of the contract and is

able to do so without any necessary involvement

by the defendant. But in circumstances where the

defendant’s involvement or co-operation is

necessary to the breach intended by the contract

breaker, then the defendant who participates in

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this way with the relevant knowledge is liable.

He submitted that the necessary element of

causative participation was satisfied if the

defendant does an act which enables the contract

breaker to breach his contract and without

which no breach would occur. In such

circumstances the defendant is sufficiently

instrumental in causing the breach to be liable.

Active persuasion by the defendant is not

required.” (emphasis added)

56. At §§49-50, David Richards J also cited both Salvadori

and DC Thomson v Deakin with approval. See also the

judgment of Asplin J at trial at §246 which cited

Salvadori with approval.

57. In One Money Mail Ltd v RIA Financial Services [2015]

EWCA Civ 1084, Mr W had contracted to act as an

exclusive agent to OMM. Mr W decided not to perform

that agreement and contended that the agreement was

unenforceable as a restraint of trade. Ria, a larger

organisation, signed an inconsistent agreement with Mr

W with knowledge of the OMM agreement. Longmore

LJ held that the very act of the two sides making the

inconsistent contract was a sufficient causative

participation and constituted the requisite inducement:

§§27-28.

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58. Such reasoning in the above cases is obviously right:

58.1 In relation to a subsisting contract (even after an

unaccepted repudiation), the original contracting

party always has the option whether to continue

to perform the contract or to breach the same by

entering into the inconsistent transaction.

Regardless of whether there was any earlier

breach, there must be a breach when he enters

into the inconsistent transaction.

58.2 Thus, in a very direct sense, the offer (or

acceptance) of the inconsistent transaction

induced the contracting party to take the step

which amounts to a breach of the contract, i.e.

entering into the inconsistent transaction.

58.3 This is particularly so in a case involving

restructuring such as in Lictor Anstalt and the

present appeal, where the involvement or co-

operation of the tortfeasor is required and enables

the contract breaker to effect its non-

performance.

58.4 The key to this analysis is that in an inconsistent

dealing, which is a bilateral transaction, there is

always an element of mutual exchange of

promise or performance, and thus mutual

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inducement on both sides: see Salvadori, 566

(Roxburgh J).

58.5 The offering (or acceptance) by the defendant of

his side of the bargain has caused, induced or

procured, the contracting party’s side of the

bargain in the inconsistent transaction (i.e. the

breach). It is obvious that even for a contracting

party determined to ignore his contractual

obligations, he has to find the right inconsistent

deal. He would not just enter into any

inconsistent deal.

58.6 Thus, even though a contracting party needed no

persuasion to breach the contract, the particular

breach complained of (i.e. the inconsistent

transaction with its particular effect) was plainly

induced or caused by the other parties to the

inconsistent transaction. Without the third

party’s participation that inconsistent transaction

would not take place. The very offer or

acceptance to enter into the inconsistent

transaction is the inducement.

58.7 Inconsistent dealing cases are therefore different

from a case where the defendant merely tried to

persuade (in the colloquial sense) the contracting

party to breach the contract. But that does not

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affect the point that the inconsistent dealing

caused the particular breach complained of.

59. This analysis is firmly established, and followed both

before and after the decision of the House of Lords in

OBG v Allan. In addition to the cases cited above, also

see British Motor Trade Association v Gray 1951 SC

586, 600 (Lord Cooper), 603 (Lord Russell);

Transatlantic Records Ltd v Bulltown Ltd (unrep., Eng

CA, 28.2.1980), pp.5-6 (Templeman LJ), p.9 (Bridge

LJ); Global Resources Group v Mackay [2009] SLT

104 (OH), §13 (Lord Hodge); Trinity Logistics USA Inc

v Wolff [2019] 1 WLR 3997, §§40-45 (Longmore LJ)

and Aviva Insurance Ltd v David Oliver [2019] EWHC

2824 (Comm), §45 (HH Judge Eyre QC).

60. This is also the view of the editors / authors of Clerk &

Lindsell, §24-42; Oliphant: The Law of Tort (Common

Law Series) (3rd edn, 2013), §29.18; Halsbury’s Laws

of England (5th edn, 2015) Vol 97, §703 at fn 6.

C4. Underlying Policy

61. There are important policy reasons which serve to

underlie this aspect of the law on inducement:

61.1 This element of the tort concerns causation and

inducement. The law has taken the course that an

- 26 -

act which amounts to causative inducement

should be sufficient to attract liability if the other

elements (in particular the requisite intent) are

present. As explained above, an inconsistent

dealing is clearly causative inducement in a real

and direct sense. There is no reason in principle

why this type of causative inducement should be

excepted from liability.

61.2 As aptly observed in Salvadori at 564, it will not

be realistic to expect the claimant to prove

whether the original contracting party

approached the third-party tortfeasor or the other

way around. A fortiori, it will not be realistic to

require the claimant to prove whether the

claimant subjectively wanted to breach the

contract before or after he came to know of the

possibility of the particular inconsistent bargain.

61.3 The tort is one of accessory liability, dependent

on the primary liability of the contract breaker.

Lord Hoffmann in OBG (at §§8 & 36) has

expressly aligned the test for participation by

inducement with the test in joint or accessory

liability cases. In cases of accessory liability, the

threshold test for sufficient involvement on the

part of the accessory is more than de minimis

involvement, and that the acts were done as part

- 27 -

of a combination or common design with the

primary wrongdoer: see §40 above. This is

clearly satisfied by the conclusion of the

inconsistent bargain – as pointed out by

Longmore LJ in One Money Mail at §28, by

definition the inconsistent bargain is a

combination with the contract breaker.

61.4 The point here is that for accessory liability, the

requirement of involvement is not a high one at

all. Something more than de minimis

involvement suffices. An accessory would be

liable even if the other tortfeasors are determined

to commit a tort in any event. There is no reason

why the law on whether inconsistent dealings

would constitute sufficient inducement should be

so fundamentally out of line with the rest of the

law of accessory liability in tort.

61.5 Furthermore, just as the contract breaker is not

absolved of liability by protesting that it will not

perform under any circumstances, this should

likewise this be the position for the tortfeasor

who induced the breach. Otherwise this would

serve to encourage unlawful behaviour,

particularly where, as here, they are related

parties to manufacture a position where they

insist the original bargain is dead.

- 28 -

61.6 As is well established, an unaccepted repudiation

is a thing writ in water. Therefore, until such time

as the contract is brought to an end by acceptance

of the repudiation, the contract breaker and

indeed the innocent party are both obliged still to

perform all of its contractual obligations: see

§70.4 below. Yet further, the contract breaker

has the benefit of a “locus poenitentiae” in that

he can always change his mind and continue with

performance. Whilst the contract remains afoot

not only must the contract breaker still perform,

but third parties with knowledge of the contract

must not induce a breach by concluding

inconsistent terms. There is no separate category

of a contract which is only half alive and which a

contract breaker has steadfastly set its mind

against performing: see White & Carter

(Councils) Ltd v McGregor [1962] AC 413. A

contract is either on foot and alive or not.

61.7 Logically, the stance of a contract breaker is not

itself legally relevant in terms of analysis of the

causative effect of inducement. If inconsistent

dealing cases were restricted to those cases where

the contract breaker was inclined to honour its

bargain, then by definition there would either no

or very few such cases. That would, as explained

- 29 -

above, be wrong as a matter of principle given the

causative impact an inconsistent dealing has on

the breach of contract.

61.8 The contract breaker’s determination not to

perform is equally a misstatement of the true

position in such cases. The contract breaker may

be indicating that it will not perform the bargain

voluntarily. Nevertheless, the contract breaker

might be forced by court order to perform the

bargain whilst it remains possible to do so. The

conclusion of an inconsistent bargain might

therefore be designed to or have the effect of

altering the status quo such that it is no longer

possible to ensure performance through court or

arbitration. This consideration is particularly

germane in the present case where the Tribunal

indeed ordered continued performance.

61.9 Moreover, there are no policy reasons which

militate in favour of adopting a different

approach. It is not possible for D3/D4/D6 to

contend that this principle might or would lead to

unwitting liability on the part of a defendant. The

claimant would still have to prove knowledge of

the underlying contract and that the conduct was

“aimed at” the claimant in the sense explained by

Lord Hoffmann in OBG v Allan at §43.

- 30 -

C5. OBG v Allen did not Affect or Overrule the

Inconsistent Dealing Cases – To the Contrary it is

Consistent with the Existing Case Law on Sufficient

Inducement

62. It is clear that the House of Lords in OBG v Allen did

not overrule the inconsistent dealing cases. Insofar as

CA Judgment §205 suggests otherwise, it is, with

respect, wrong.

[PtA/4/223]

63. In OBG, the main judgments by Lord Hoffmann and

Lord Nicholls restated the law on the following aspects

(and these points should be borne in mind when reading

some of the older cases):

63.1 They rejected the “unified theory” and held that

the torts of inducing breach of contract and

causing loss by unlawful means should remain

separate: §§26-33, 172-173. This is mostly a

matter of nomenclature or taxonomy: §30.

63.2 The tort should not be called “interference with

contractual rights”, and the distinction between

direct interference and indirect inference is

unhelpful and liable to lead to confusion: §§34-

38, 181-190.

- 31 -

63.3 The “prevention cases” should not be regarded as

part of the tort of inducing breach of contract, but

part of causing loss by unlawful means: §§44,

174-180.

64. But these points do not affect the law on the inconsistent

dealing cases. In particular, when discussing the

elements of the tort, their judgments did not deal with

the meaning of “inducement” or “persuasion”: §§39-44,

168-173, 191-193.

65. It is however important to state that the Mainstream

Properties appeal in OBG was itself an inconsistent

dealing case. There, the plaintiff was a land

development company. One of its potential projects

was diverted by its employees, in breach of their

employment agreement, to a joint venture they formed

with the defendant, who also provided the finances.

The provision of financing (which was a part of the joint

venture arrangements) was the inducement. It was held

that there was causative participation but the claim

failed because the defendant honestly believed there

was no breach of contract and so there was no sufficient

intent: §§67-69, §§197-200. It is clear from the

argument of counsel for the defendant (Gordon Pollock

QC at p 17F-H) that the defence to liability is based not

on the absence of a sufficient act of inducement but

rather on the absence of a sufficient intent. This

- 32 -

analysis which is then accepted in their Lordships

judgments is unimpeachable.

66. In their judgments, both Lord Hoffmann (§67) and Lord

Nicholls (§191) used the phrases “causative

participation” and “intentional causative participation”.

The present appeal only concerns the first phrase

“causative participation” not the second; the requisite

mental element for inducement (i.e. per Lord Hoffmann

an end in itself or means to an end). See indeed CA

Judgment §§204.3 & 204.7. The use of the phrase

“intentional causative participation” to explain the

mental element of the tort, however, cannot possibly be

read as a disapproval of proposition that inconsistent

dealings would amount to sufficient “causative

participation” or inducement.

66.1 The phrase was used by Lord Nicholls at §191 to

emphasise the mental element:

“The mental ingredient is an intention by

the defendant to procure or persuade

(“induce”) the third party to break his

contract with the claimant. The defendant

is made responsible for the third party’s

breach because of his intentional

causative participation in that breach.

Causative participation is not enough. A

[PtA/4/221-223]

- 33 -

stranger to a contract may know nothing

of the contract. Quite unknowingly and

unintentionally he may procure a breach

of the contract by offering an inconsistent

deal to a contracting party which

persuades the latter to default on his

contractual obligations. The stranger is

not liable in such a case…” (emphasis

added)

66.2 The emphasised parts make clear that Lord

Nicholls regarded the offer of an inconsistent

deal as amounting to inducement or “causative

participation”. It is just that for liability to attach,

such inducement has to be accompanied by the

requisite mental element, i.e. “intentional”.

67. Further, given that the law on inconsistent dealing cases

was well-established prior to OBG (see the cases cited

at §59 above), it would be surprising if the House of

Lords intended to overrule them without any discussion.

68. Indeed, the cases subsequent to OBG up to today (those

at §59 above starting from Global Resources up to the

2019 decisions of Trinity Logistics and Aviva) continue

to treat inconsistent dealings as amounting to

inducement or sufficient causative participation.

- 34 -

69. Both Lictor Anstalt, §49 (David Richards J) and One

Money Mail, §§27-28 expressly decided that the

inconsistent dealing cases (i.e. the second reasoning in

Salvadori) survived OBG. CA Judgment §205

commented that David Richards J’s decision in Lictor

Anstalt was only an interlocutory judgment, but in

Asplin J’s judgment after trial (handed down after the

substantive CA hearing), he also took the same view:

§246.

[PtA/4/223]

C6. The Error in the CA’s Reasoning

70. It follows from the analysis at §§47-58 above that the

CA was in error in its reasoning in respect of the

Restructure:

70.1 The entering into of an inconsistent dealing with

the original contracting party would amount to an

act of inducement: cf CA Judgment §246.

70.2 It does not matter that D1/D2 (the original

contracting parties) had already made up their

minds that they would not perform the

Agreement: cf CA Judgment §249. The

Restructure was of itself inconsistent with the

Agreement, and but for the Restructure (and

D3/D4’s participation in the Restructure), D1/D2

would not have approved the allotment of new

[PtA/4/236-237]

[PtA/4/237-238]

- 35 -

shares in D4 and transferred their shares in D4

away to D3. No other intervening act is identified

by the CA or suggested by the defendants for this

act not to amount to “causative participation”.

70.3 There is no material distinction between the facts

of the present case and those in Salvadori. There,

the agents already decided that they would not

comply with the resale restriction (and were in

fact in a scheme together with the defendants):

see 559 (thus the submission that the seller was a

willing seller: see §48 above). It is

understandable that the agents would only agree

to resell the cars at the right price (they would

obviously not have sold the cars for an

undervalue), just as D1/D2 would not have

transferred the shares to D3 but for the

Restructure which involved, practically, a

transfer of their interests in D4 and D5 to other

members of the Eton Group, not any other

stranger, which D1/D2 found agreeable.

70.4 In this respect, the fact that D1/D2 had already

renounced the Agreement in November 2003

cannot mean that the Restructure in 2005/2006

was not a breach of the Agreement. 2 The

2 Cf CFI Judgment §114 [PtA/1/40]. CA Judgment §249

[PtA/4/237-238] is ambiguous and it is not clear whether the CA adopted this reasoning.

- 36 -

renunciation was never accepted by P, and the

Agreement remained undischarged and could be

further breached by D1/D2. It is well-established

that an unaccepted repudiation is a thing writ in

water and the parties are still obliged to perform

the contract: Chitty on Contracts Vol. 1 (33rd edn

2018), §§24-011 & 24-013; The Simona [1989] 1

AC 788, 799C-801B (Lord Ackner); Ji Shan

International Investment Ltd v Resources Main

Enterprises Ltd (1997-1998) 1 HKCFAR 377,

380J-381B (Lord Hoffmann NPJ); Charter View

Development Ltd v Golden Rich Enterprises Ltd

[2000] 2 HKC 77, 83C-F (Ribeiro JA, as he then

was); The New China Hong Kong Group Ltd (in

liq) v AIG Asian Infrastructure Fund LP CACV

24/2008 (unrep., 12.2.2009), §60 (Tang VP, as he

then was). Indeed, as noted above, the

Restructure also meant that compelled

performance (i.e. the awards of the Tribunal) was

rendered impossible.

70.5 The present case is clearly an “inducement” case

and not a mere “prevention” case: cf CA

Judgment §250. A prevention case is one where

the defendant “does not join with the contracting

party in a wrong (breach of contract) committed

by the latter”: OBG, §178. Here, obviously, the

Restructure is a consensual transaction and the

[PtA/4/238]

- 37 -

other parties thereto (D3/D4) joined into the same

with the contracting parties (D1/D2), by applying

for and approving the allotment and transfer of

shares.

C7. Liability of D3/D4/D6

71. Once the principles are correctly understood, each of

D3, D4 and D6 should be found liable for the tort of

inducing breach of contract with the matter to be

remitted for damages to be assessed.

72. As to the liability of D3/D4:

72.1 The Restructure, in which D1/D2 (the contracting

parties) and D3/D4 (non-parties) all participated

(see §12 above), clearly amounted to an

inconsistent transaction. This was accepted by

the Court of Appeal: CA Judgment §§207, 245,

249. Furthermore, participation of D3/D4 was

necessary if the desired end central to the

Restructure was to be achieved; namely the

moving of the shares in D4 away from D1/D2 and

into D3.

72.2 D3/D4, being parties to the Restructure (an

inconsistent transaction), would obviously have

committed acts of inducement (or “causative

[PtA/4/223, 236-238]

- 38 -

participation”).

72.3 For the mental element, the knowledge and intent

of D6, being the head and directing will of the

Eton Group companies, would be imputed to

D3/D4: see CA Judgment §208. D6’s intent is

discussed below.

72.4 In this respect, the fact that the contract breaker

and the inducer are under common control would

not absolve the inducer from liability. This

precise argument was rightly rejected in Lictor

Anstalt, where the administrators controlled both

the contracting party and Mir Steel, specifically

formed to hive off the business: see Lictor Anstalt

(David Richards J decision), §53 and §§54-55

above.

[PtA/4/224]

73. In relation to D6, there are clear findings in the CFI

Judgment that D6 was aware that the Restructure would

be inconsistent with D1/D2’s obligations under the

Agreement:

73.1 “Whilst it remains factually the case that the

restructuring had an incidental (and perhaps to

Mr Lucio Tan, who is likely to have been well

aware of it, a not unwelcome) effect of

impinging directly upon the provision of Article

- 39 -

8 of the Agreement between the plaintiff and the

1st and 2nd defendants… I decline to attribute to

this restructuring the wholly adverse

implication/inference the plaintiff now wishes

this court to draw at this trial”: §113.

73.2 “…I find as a fact that the restructuring of the

Eton Group, which was put in place before the

CIETAC arbitration even had commenced, was

not a direct consequence of the arbitration, nor

was stimulated by the 1st Arbitral Award,

although, as I have observed, the form of

restructuring as ultimately chosen may well

have been regarded (by Mr Lucio Tan at least)

as incidentally advantageous in light of the

prospect of arbitration consequent upon the

contractual breach…”: §122.

73.3 “Nor, as regards ‘conspiracy to injure’, do I

accept that in this case there was any

‘predominant purpose’ to injure the plaintiff via

the corporate restructuring; as I have said, this

may well have been regarded as beneficial by

Mr Lucio Tan, who is likely to have appreciated

an incidental ‘benefit’ given the way that

matters arose, but in this area mixed motives will

not suffice.”: §255.

[PtA/1/39-40]

[PtA/1/42-43]

[PtA/1/90]

- 40 -

73.4 “The contractual breach cannot suffice, and as I

have earlier made clear I do not consider the

Eton Group restructuring to satisfy this

benchmark: it may well have been viewed by Mr

Lucio Tan as convenient, and no doubt even

collaterally desirable in the form as chosen, but

it was not unlawful, it was not fraudulent…”:

§346.

73.5 “…the highest that it can be put is that the

manner of restructuring may have been

incidentally welcome by the 6th defendant, but it

cannot fairly be characterized as constituting a

‘predominant purpose’ to defeat the plaintiff’s

rights”: §348.

73.6 Further, the Judge also found that the Eton Group

was D6’s “personal fiefdom in corporate form”,

and that “nothing significant occurred in the

commercial activity of the Group without Mr Tan

knowing about it, in broad structure at least”:

CFI Judgment §308. D6 also accepted at trial that

he was to be regarded as “the head or brain or

‘directing will’ of the relevant companies, and

that he acted as such”, and that D6 was

responsible for “the directorial decisions”, while

leaving the execution of such decisions to his

subordinates: §§322-323.

[PtA/1/118-119]

[PtA/1/119]

[PtA/1/106]

[PtA/1/111]

- 41 -

74. It follows that D6 should also be liable for the tort:

74.1 The above findings establish that: (1) D6 was

clearly aware of the Restructure and approved of

the same; (2) D6 was aware that the Restructure

would be a breach of the Agreement.

74.2 There are thus sufficient acts of inducement by

D6, in that D6 procured and approved the

inconsistent transaction, i.e. the Restructure.

74.3 We are concerned with D6’s approval of the

Restructure as a whole, in his capacity of the

“head” or “directing will” of the Eton Group (see

§73.6 above), and not just his approval, as

director of D4, of the specific steps taken by D4

in the Restructure. Contrary to CA Judgment

§252, it was expressly pleaded that D6 as head of

the Eton Group procured the acts of the other

defendants which would include D3 (a party to

the Restructure): RASOC §§33(6)(i) & 34.

74.4 Thus, D6’s involvement as head of the Group

was not done solely in the capacity of a director

of D4, and the rule in Said v Butt does not apply:

See the principles explained at CA Judgment

§§238-243.

[PtA/4/234-236]

- 42 -

74.5 As to intent, there is no dispute that the purpose

of the Restructure was to prepare for the setting

up of an estate holding company in the PRC. The

Restructure, which of itself amounted to a breach

of contract, was thus a means to that end. This is

sufficient to establish the requisite intent: see

§37.4 above.3

74.6 The other elements of the tort in relation to the

Restructure are also satisfied – this is accepted by

the Court of Appeal at CA Judgment §§207-210.

See also §§29-31 above.

[PtA/4/223-224]

75. In this respect, given the specific findings regarding D6,

it is not to the point that D6 did not come up with the

idea of the Restructure or was not engaged in the details:

cf CA Judgment §252. It is also not to the point that the

Judge exonerated the other corporate officials and held

that there was no “common intent” between D6 and

those corporate officials.

[PtA/4/238-239]

76. It follows that P’s appeal in respect of the tort claims

against D3, D4 and D6 ought to be allowed.

3 The distinction between ends, means to an end and mere

foreseeable consequences is explained at OBG v Allen, §§42-43.

- 43 -

D. TRUST CLAIMS – GOVERNING LAW

77. Both the CA and the Judge below found that PRC law

governed the trust claims. In particular:

77.1 The trial Judge held inter alia that as long as there

was no equivalent concept of constructive trust in

PRC law, P’s trust claims were bound to fail.

77.2 The CA similarly held that as “the Agreement

was expressly to be governed by PRC law”, P’s

constructive trust claim must fail because (1)

“there was no concept of constructive trust in the

PRC”; and (2) according to PRC law, the order

for “continued performance” granted by the

tribunal “was not to be equated with an order for

specific performance”.

CFI Judgment §§192-

203 [PtA/1/68-72].

CFI Judgment §§192-

203 [PtA/1/68-72]

CA Judgment §§269-

271 [PtA/4/244].

78. The courts below were wrong to hold that PRC law

governed the trust claims for the reasons elaborated

hereinbelow.

D1. Question 2: Constructive Trust – Nature of

Obligation under Foreign Law

79. First and importantly, the CA and the Judge below both

simplistically and erroneously assumed that the fact that

PRC law did not “recognise” the concept of a

- 44 -

constructive trust meant that the Hong Kong court could

not grant P a constructive trust over the shares in D4.

80. The fact that under the foreign law (i.e. PRC law, being

the proper law of the Agreement) does not recognise

“the concept of constructive trust” is wholly irrelevant.

The Hong Kong court is entitled to give remedial effect

to a substantive right under the lex causae, by granting

the remedy of a constructive trust arising from a

specifically enforceable contract for sale of property,

even where there is no equivalent concept of

constructive trust under the foreign law. As the Court of

Final Appeal has pointed out, it “does not mean that if

that law [i.e. the foreign law] does not recognise the

concept of constructive trusteeship, the plaintiff has no

remedy in a court applying the common law / equity

system”: First Laser Ltd v Fujian Enterprises

(Holdings) Co Ltd (2012) 15 HKCFAR 569, §66 (Lord

Collins NPJ).

81. The correct approach is as follows:

81.1 Where a claim asserting an obligation under

foreign law is brought in the Hong Kong court

and the plaintiff is seeking to invoke the Hong

Kong court’s equitable jurisdiction, the proper

approach is for the Hong Kong court to “look at

the nature of the obligation” imposed on the

- 45 -

obligor (i.e. D1/D2) under the foreign law (i.e.

PRC law), and then consider whether the nature

of the obligation under the foreign law (i.e. the

lex causae) is capable of supporting the equitable

remedies in personam which would be available

to a plaintiff in a Hong Kong action: First Laser

(CFA), §§66-67; Kuwait Oil Tanker Co SAK v Al

Bader [2000] 2 All ER (Comm) 271, §190-193

(Nourse LJ); Grupo Torras SA v Al-Sabah [2001]

CLC 221, §125 (English CA).

81.2 Where the Hong Kong court decides the answer

in the affirmative, i.e. D1/D2’s obligation under

PRC law is capable of supporting such equitable

remedies, the Hong Kong court may give

remedial effect to the substantive right under the

lex causae, including holding that a constructive

trust has arisen, even where such trust is

unknown to PRC law (being the law governing

the underlying cause of action): Kuwait Oil

Tanker, §191.

82. Such approach involves a two-stage consideration:

82.1 In the first stage, the question is “what is the

nature of the obligation” under the foreign law.

This is a question of PRC law.

- 46 -

82.2 In the second stage, the question is “whether the

nature of the duty imposed under PRC law would

be characterised by Hong Kong law as being

capable of supporting the equitable remedies

sought in the Hong Kong court”. This is a

question of Hong Kong law.

See First Laser, §§68-70.

83. As to the first stage, the question on the nature of the

duty imposed under PRC law is a question of PRC law,

in respect of which the Court should resort to the

relevant evidence on such foreign law.

84. As is demonstrably clear from Ds’ expert evidence, the

obligation imposed on D1/D2 under PRC law was in

essence that they ought to perform their obligations

under the Agreement, including the transfer of shares in

D4 to P.4 This is fortified by the terms of the 1st Award

(ordering that D1/D2 “shall continue to perform the

Agreement”).

Ds’ Expert Report

§§7.1-7.5

CA Judgment §61

[PtA/4/170/§61]

85. In holding that “there is nothing in the materials which

shows that under PRC law, [D1/D2] were under some

obligation which a Hong Kong court would regard as

CA Judgment §270

[PtA/4/244]

4 See also the references to Article 111 of the General Principles

of Civil Law (right to “demand performance” by the defaulting party); Articles 107 (“to continue to perform”) and 110 (“request [the defaulting party] to perform”) of the Contract Law.

- 47 -

being of a fiduciary nature”, the CA completely

overlooked the aforementioned relevant evidence on

PRC law.

86. Instead, the CA wrongly relied on other irrelevant

evidence on PRC law. This included:

86.1 Evidence about the difference in jurisprudential

basis between the obligation imposed on D1/D2

under PRC law and the equitable remedy of

specific performance. Such evidence is

irrelevant, as it does not relate to the “nature of

the obligation” imposed under PRC law.

86.2 Evidence on whether an order for “continual

performance” under PRC law is premised on

damages being an inadequate remedy. This again

does not relate to the “nature of the obligation”

imposed on D1/D2. Further, it is now recognised

that on the grant of specific performance, the

question of adequacy of damages has paled into

relative insignificance: Spry: Principles of

Equitable Remedies (9th edn, 2013), pp.62-63.

CA Judgment §271

[PtA/4/244]

CA Leave Judgment

§28 [PtA/12/322]

87. As to the second stage, this involves the

characterisation by Hong Kong law of the obligation

imposed under PRC law. It is for the Hong Kong court

- 48 -

to conduct such exercise from the perspective of Hong

Kong law: First Laser, §69.

88. The CA erred in its approach by failing to consider the

characterisation question from the perspective of

Hong Kong law, and instead regarded evidence of

PRC law to the effect that the obligation imposed under

PRC law “was not to be equated with an order for

specific performance” as determinative of the issue: cf

CA Judgment §§270-271.

[PtA/4/244]

89. Properly analysed, given the nature of the obligation

imposed under PRC law, such obligation when

characterised under Hong Kong law is equivalent (if not

entirely identical) to an obligation to specifically

perform the Agreement. And it is the availability of

specific performance which gives rise to the existence

of a vendor-purchaser constructive trust (as to which,

see further at Section E2 below).

90. It follows that the obligation under PRC law for D1/D2

to transfer the shares in D4 to P is “capable of

supporting the equitable remedies in personam” (i.e. a

constructive trust) which are now being claimed by P in

the present action.

- 49 -

D2. Question 3: Application of Lex Situs in Presence of

Foreign Choice of Law Clause

91. Further or alternatively, in dismissing P’s trust claims,

the CFI and CA erroneously found or assumed that the

“proper law of the agreement” (i.e. the lex contractus)

as opposed to the lex situs of the alleged trust property

governed the question whether any constructive trust

(against D1/D2) arose in respect of the shares in D4.

CFI Judgment §§183,

184-192 [PtA/1/66-

69]

CA Judgment §§269,

272 [PtA/4/244]

92. The correct approach in a case involving a foreign

element is to apply the “3-stage approach” to

characterisation. This requires looking at substance of

the issue, not form: Macmillan Inc v Bishopsgate

Investment Trust plc (No 3) [1996] 1 WLR 387, 391H-

392B (Staughton LJ); Wight v Eckhardt Marine GmbH

[2004] 1 AC 147, §§11-15 (Lord Hoffmann); First

Laser Ltd v Fujian Enterprises (Holdings) Co Ltd

[2011] 2 HKLRD 4 (CA), §49 (Cheung JA). Applying

that approach, the proper governing law to the trust

claims is Hong Kong law, being the lex situs. While it

is convenient to identify the 3-stage process, there is an

element of interplay in the 3 stages of characterisation,

and the 3 stages are not to be pursued in isolation – the

ultimate aim of the whole process being to identify the

most appropriate law to govern the particular “issue” :

Raiffeisen Zentralbank Osterreich AG v Five Star

Trading LLC [2001] QB 825, §§27-29 (Mance LJ).

- 50 -

93. Properly applying the 3-stage approach, the proper

governing law to the trust claims is Hong Kong law (i.e.

the lex situs).

94. Stage 1 involves characterising, according to the lex

fori, the “issue” between the parties, having regard to

(1) the substance, rather than form, of the issue; and (2)

the overall aim of the exercise, namely to identify the

most appropriate law to govern the issue: Wight v

Eckhardt at §§12; Raiffeisen Zentralbank at §§27-29.

94.1 So characterised, the “issue” is whether P

acquired a beneficial interest in the shares of

D4 at the time of the Agreement. The “issue” is

therefore one of ownership or proprietary rights:

Macmillan Inc at 398D-399E, 405F-H, 417H-

418A.

94.2 At this stage, the focus is on the issue of law in

dispute, rather than on the cause of action upon

which P relies: Macmillan Inc at 399C. It should

not be constrained by particular notions of the

domestic law of the lex fori, or that of the

competing system of law: Macmillan Inc at

407C.

- 51 -

95. Stage 2 involves selecting the proper choice of law rule

which lays down a “connecting factor” to the issue

characterised in Stage 1. Given the aforementioned

“issue” as characterised (i.e. ownership or proprietary

rights), the relevant choice of law rule falls to be

determined in the law of property: First Laser Ltd (CA)

at §58(1) & 58(25); Glencore International AG v Metro

Trading Inc [2001] 1 All ER (Comm) 103, §§14-16, 28-

32 (Moore-Bick J); Hardwick Game Farm v Suffolk

Agricultural Poultry Producers Association [1966] 1

WLR 287, 330F-G (Diplock LJ).

95.1 Crucially, the choice of law clause in the

Agreement is irrelevant for this purpose since

there is a plain distinction between the

contractual and proprietary effects of a transfer :

Macmillan Inc at 402F-404G; Glencore

International at §§23-24; The Colonial Bank v

John Cady (1890) 15 App Cas 267, 276-277, 281

& 283 (Lord Watson).

95.2 The present case concerns the latter, i.e. whether

beneficial title has passed from the vendor to the

purchaser. That is a matter solely for the lex

situs: Macmillan Inc at 399F, 404E&G, 405B,

411E, 412B, 419H, 422H, 423 & 424F-H; Yeo:

Choice of Law for Equitable Doctrines (2004),

§§5.22, 5.29; Briggs: Agreements on Jurisdiction

- 52 -

and Choice of Law (2008), §10.75; Dicey, Morris

& Collins: The Conflict of Laws (15th edn, 2012),

§24-006.

95.3 Even if the choice of law clause has any

relevance, it is relevant only if the lex situs takes

it into account in determining the proprietary

effects of the transfer: Glencore International at

§§23-24; Chong: The Common Law Choice of

Law Rules for Resulting and Constructive Trusts

ICLQ 54 (2005) 855, 878. In the present case,

the ultimate question to ask is which system of

law is applicable to determining the beneficial

interest in the shares. Even assuming that the

availability of specific performance is a condition

for property rights to arise and is therefore a

matter to be taken into account in answering that

question, this can plainly only be answered by

reference to Hong Kong law.

(a) First, given that the availability of specific

performance under a particular contract is

the condition upon which the proprietary

rights in a vendor purchaser constructive

trust would arise, this preliminary question

ought to be referred to the choice of law

rules of the law governing the property

- 53 -

issue (i.e. Hong Kong law): Yeo: Choice of

Law for Equitable Doctrines at §7.113.

(b) Second, the availability of “specific

performance”, being a remedy for breach of

contract, is to be determined under the lex

fori. This again points to Hong Kong law:

Johnston: The Conflicts of Laws in Hong

Kong (3rd edn, 2017) §2.024; Dicey, Morris

& Collins (15th edn) at §7-011; Chinn (S.C.)

v Hochstrasser (Inspector of Taxes) [1979]

Ch 447, 460H-461D (Buckley LJ).

95.4 In any event, as submitted above, the obligation

imposed by the 1st Award is equivalent (even if

not entirely identical) to an obligation to

specifically perform the Agreement.

Accordingly, this is no reason why Hong Kong

law (as the lex situs) does not govern the

proprietary effects of the Agreement in respect of

the shares in question.

96. Stage 3 involves identifying the system of law which is

tied by the connecting factor in Stage 2 to the issue

characterised in Stage 1. This points to the lex situs,

namely Hong Kong law, being the place of

incorporation of D4 and/or the place where its share

register is kept: Tripole Trading Ltd v Prosperfield

- 54 -

Ventures Ltd (2006) 9 HKCFAR 1 §86 (Lord

Hoffmann); First Laser Ltd (CA) at §58(25);

Macmillan Inc at 405C-E; Companies Ordinance (Cap.

622) s.628.

97. The courts below fell in error, in that in “selecting the

proper choice of law rule”, they failed to properly

“characterise the issue” and further wrongly ignored the

principled distinction between the contractual and

proprietary effects of the underlying transfer. It is

impossible to see why the lex situs (i.e. Hong Kong law)

should not be applied to determine the proprietary

effect of the Agreement since the objective of the

Agreement was to enable P to own the entire

shareholding of a Hong Kong company, D4.

E. TRUST CLAIMS – MERITS

98. The CA and Judge below erroneously held that, even if

Hong Kong law applied to the trust claims, no

constructive trust arose as at the inception of the

Agreement as the Agreement was in any event not

amenable to specific performance, and that accordingly

P’s trust claims against D1/D2, as well as its knowing

receipt claim against D3, all failed.

CFI Judgment §§207-

219, 268-273

[PtA/1/73-77, 93-96]

CA Judgment §§273-

277 [PtA/4/245-246].

- 55 -

E1. Question 4: Construction of Agreement Does not

Require Constant Supervision/Cooperation

99. The CA and Judge below, having correctly recognised

that a constructive trust arises in law when a contract is

specifically enforceable, 5 were wrong to find the

Agreement not specifically enforceable.

CFI Judgment §§208,

216 [PtA/1/73, 76]

CA Judgment §273

[PtA/4/245]

100. First, the Agreement concerned the sale of the entire

shareholding in a private company (D4). The sole

purpose of D4 was to hold the land or real estate

development project in question through D5, another

private company. Plainly, the Agreement was not just

for the sale of private company shares but also for the

sale of land and/or its development right 6 – It is

accordingly susceptible to specific performance:

Duncuft v Albrecht (1841) 12 Sim 189, 199 (Sir L

Shadwell VC); Snell’s Equity (33rd edn, 2014) §§17-

007—17-010; Spry: Equitable Remedies at pp.66-67.

101. Second, the CA wrongly held that the Agreement was

not amenable to specific performance under Hong Kong

law because under the Agreement the development of

the No. 22 Land and/or sub-sale of interests therein as

developed would be subject to “constant supervision”

and/or require “co-operation” of D1/D2.

CA Judgment §§273-

277 [PtA/4/245-246]

5 See further Section E2 below. 6 See, e.g., Recital of Agreement, Clauses 1.3, 2.1, 2.2, 2.4, 3, 4,

5, 6, 11.2, 11.3, 11.5, Annex 2, Annex 3 (Recital V).

- 56 -

102. The Agreement, essentially an agreement for the sale of

land (albeit through the transfer of shares), did not

require any “constant supervision” (in the proper sense)

as to constitute a bar to specific performance: Co-

operative Insurance Society Ltd v Argyll Stores

(Holdings) Ltd [1998] AC 1, 12D-H, 13D-E, 16C (Lord

Hoffmann); Spry: Equitable Remedies at p.694.

103. When properly considered against the context, the

provisions in the Agreement do not call for any such

constant supervision or co-operation.

103.1 Under the Agreement, P was not bound to carry

out any development of the Land before

completion of the sale and purchase thereunder.

103.2 Art.6 only confers on P the “right” (not

obligation) to develop the Land. It follows that

the rights of D1/D2 to have or to call for

“constant supervision” and/or “co-operation”

(whether in relation to matters on design, project

finance index and change in land use area, or

otherwise (cf CA Judgment §§274-275)) would

only arise if and only if P opted to carry out

development of the Land before completion: see

also Agreement Arts.7, 9(2), 11(5), 12(6).

[PtA/4/245]

- 57 -

103.3 It cannot be said that the nature of the Agreement

as a matter of construction (which is to be

determined as at the time of the making of the

Agreement) was such that it could not be

amenable to specific performance.

103.4 Further, as a matter of fact, P never took

possession or carried out any development of the

Land.

104. Third, although the CA did not deal with these further

points (notwithstanding that they were argued before

the court), it is submitted that the Judge below was also

wrong to hold that the Agreement was not amenable to

specific performance under Hong Kong law because it

was “conditional” in nature or because of

“impossibility” of performance.

104.1 The Agreement was not “conditional” in the

relevant sense as to deny the availability of

specific performance: cf CFI Judgment §210.

The provisions of the Agreement were “mutual”

promissory conditions, not “conditions

precedent” to the existence of the Agreement:

Eastham v Leigh London and Provincial

Properties Ltd [1971] Ch 871, 890H-891E

(Buckley LJ); Michaels v Harley House

(Marylebone) Ltd [2000] Ch 104, 116B-E

CFI Judgment §§210-

211

[PtA/1/74]

[PtA/1/74]

- 58 -

(Robert Walker LJ); First Laser Ltd (CA) at

§76(6)-76(8); Lewin on Trusts (19th edn), §10-

05.

104.2 Impossibility of performance occurring after a

contract is entered into is completely irrelevant to

whether a constructive trust arises from that

specifically enforceable contract: cf CFI

Judgment §211. The relevant time for the latter

purpose is the date at which the contract was

entered into: Lysaght v Edwards (1876) 2 Ch D

499, 506 (Jessel MR). Otherwise, the wrongful

act of a party causing the contract no longer to be

specifically enforceable (as in the present case)

would preclude the existence of a constructive

trust; which plainly cannot be right in law: Lake

v Bayliss [1974] 1 WLR 1073, 1075F-1076E

(Walton J); Luxe Holdings Ltd v Midland

Resources Holding Ltd [2010] EWHC 1908 (Ch),

§§32-34 (Roth J).

E2. The Agreement Gave Rise to a Constructive Trust

105. By reason of the above, the CA ought to have found

that: (1) Hong Kong law governed the trust claims; and

(2) under Hong Kong law, the Agreement was

amenable to specific performance.

- 59 -

106. Had the CA so found, it would have further held that the

Agreement gave rise to a valid and enforceable

constructive trust, and that P was entitled to assert such

a proprietary equitable right against D3. For the sake of

completeness, P makes the following submissions

(which were also made before the CA).

107. First, the CFI Judge erred in holding that even if the

Agreement was specifically enforceable, P only had an

“equitable lien” over the shares to the extent of the

amount paid, rather than a constructive trust over the

shares.

107.1 The moment a vendor enters into a specifically

enforceable contract for sale of property, he

immediately becomes constructive trustee

thereof for the purchaser until the contract is

completed by transfer of the property; and the

equitable interest in the property is not

“suspended somewhere between vendor and

purchaser” in the meantime: Lewin on Trusts at

§10-03; Lysaght v Edwards at 506; J Sainsbury

plc v O’Connor (Inspector of Taxes) [1991] 1

WLR 963, 978D-979A (Nourse LJ). This is

based on the well-known principle that “equity

looks on that as done which ought to be done”:

Walsh v Lonsdale (1882) 21 Ch D 9, 14-15

(Jessel MR); Jones & Goodhart: Specific

CFI Judgment §§216-

217[PtA/1/76-77]

- 60 -

Performance (2nd edn, 1996), p.17. The position

is the same in the case of a contract for sale of

shares: Oughtred v IRC [1960] AC 206, 227

(Lord Radcliffe), 229-230 (Lord Cohen); Neville

v Wilson [1997] Ch 144, 157G-158B (Nourse

LJ); J Sainsbury plc v O’Connor at 978D-979A.

107.2 D1/D2s’ breaches of the Agreement by

transferring the shares to D3 and by exercising

their voting rights contrary to P’s beneficial

entitlement constitute breaches of D1/D2s’

trusteeship duties: Michaels v Harley House

Limited at 120D-E; Lewin on Trusts at §10-10.

108. Second, D3, having received the 2 transferred shares, is

bound by P’s equitable interest therein as D3 was never

a bona fide purchaser for value without notice:

Underhill & Hayton: Law of Trusts and Trustees (19th

edn, 2016) §28.1.7 For P’s claim to succeed against D3,

there is no need for the law to impose a new trust on

D3 in favour of P, and P’s claim of subsisting

proprietary rights does not depend on the knowledge of

D3 as the recipient: Westdeutsche Landesbank

Girozentrale v Islington LBC [1996] AC 669, 705F,

707C-D (Lord Browne-Wilkinson); Independent

Trustee Services Ltd v GP Noble Trustees Ltd [2013]

Ch 91, §§75-77 (Lloyd LJ). P is entitled to “follow”

7 RASOC §§16-21; D3-D5’s RRA Defence §§19-23.

- 61 -

those shares into the possession of D3: Foskett v

McKeown [2001] 1 AC 102, 127B-C, 127F-H (Lord

Millett); Underhill & Hayton: Law of Trusts and

Trustees at §99.1, 99.2.

109. Such equitable proprietary claim of P includes not only

the original 2 shares transferred from D1/D2 to D3, but

also the additional 9,998 shares allotted to D3 by way

of shareholders’ resolutions by D1/D2 and/or board

resolutions by directors of D4.

109.1 Properly construed, the Agreement was for the

sale of the entire share capital in D4 and it was

contemplated that by the time of completion the

original 2 shares would remain as the only 2

issued shares of D4.8

109.2 The allotment of 9,998 shares occurred only by

the wrongful breach of trusteeship duties by

D1/D2 in voting for shareholders’ resolutions

(and procuring directors of D4 to vote for board

resolution) for such, in a manner wholly

inconsistent with P’s rights as beneficiary of the

original 2 shares. As the constructive trustee of

the shares, D1/D2 was under a duty to preserve

and to refrain from damaging or otherwise

adversely affecting the value of the original 2

8 Recital & Clauses 1.1, 2.3, 3 & 8.1-8.2 of Agreement; Recital (1)

& Clauses 2 & 3 of Draft Share Transfer Agreement.

- 62 -

shares: Lewin on Trusts at §§10-04; 10-10;

Lysaght v Edwards at 507; J Sainsbury plc v

O’Connor at 978D-E. As the 9,998 shares were

allotted at par value of HK$1/share, the value of

the original 2 shares was substantially diluted

(causing damage to P if one were to contend that

D1/D2 would be obliged to transfer only the

original 2 shares to P under the Agreement). The

allotment was therefore made in breach of trust.

D3 was not a bona fide purchaser for value

without notice. Further, D3 had knowledge of

the breach of trust (see further below).

109.3 Further, the newly allotted shares formed part of

the trust property under the constructive trust

arising from the Agreement. They were the “fruit

of trust property or of the trusteeship, [which] is

itself trust property”: Swain v Law Society [1982]

1 WLR 17, 36E-F (Oliver LJ); North Holdings

Ltd v Southern Tropics Ltd [1999] BCC 746,

767H-768C (Aldous LJ). Alternatively, with the

allotment of shares, the original 2 shares together

with the 9,998 newly allotted shares became the

“new asset[s] as the substitute for the old” (viz.

the original 2 shares), and P is entitled to trace

into the new assets: Foskett v McKeown at 127B-

130E; Underhill & Hayton: Law of Trusts and

Trustees (19th edn) at §99.1, 99.2.

- 63 -

109.4 In Tradepower (Holdings) Ltd v Tradepower

(HK) Ltd (2009) 12 HKCFAR 417, Ribeiro PJ

took the view (at §19) that the allotment of new

shares in a company by its sole shareholder to a

third party constituted a disposition of the

property of such sole shareholder for the

purposes of section 60 of the Conveyancing and

Property Ordinance (Cap. 219). By analogy, the

allotment of the 9,998 shares by D1/D2 should

also be regarded as the transfer or disposal of

their property for the purposes of equity. See also

the judgment of the lower courts in Tradepower:

[2008] 3 HKC 261 (CFI) at §§84-95; CACV

101/2008 (unrep., 05.11.2008) (CA) at §§28, 32.

110. As D3 now undoubtedly has knowledge of the breach

of constructive trust by D1and D2, it is fixed with the

duty to return the property, and, if it is not practical to

do so in view of subsequent developments,9 the Court

may alternatively grant other remedies such as damages

for knowing receipt or liability to account as

constructive trustee in knowing receipt: Re Montagu’s

Settlement [1987] Ch 264, 272-273 (Megarry VC); Agip

(Africa) Ltd v Jackson [1990] Ch 265, 290 (Millett J);

9 Namely, D5’s development of the Land and subsequent sale of

virtually all of the completed units built on it: CFI Judgment §18 [PtA/1/6].

- 64 -

Underhill & Hayton: Law of Trusts and Trustees (19th

edn) at §§28.7-28.8, 98.33.

111. The shares subject to the trust were “received” by D3 in

consequence of a breach of trust; and D3 had the

requisite knowledge of such breach, either at the time of

receipt or some later time prior to its dealing with the

property for its own benefit: Snell’s Equity at §§30-

071—30-074; El Ajou v Dollar Land Holdings plc

[1994] 2 All ER 685, 700g (Hoffmann LJ). D3’s state

of knowledge makes it “unconscionable” for it to retain

the benefit: Bank of Credit and Commerce International

(Overseas) v Akindele [2001] Ch 437, 455E-F (Nourse

LJ); Thanakharn Kasikorn Thai Chamkat v Akai

Holdings Ltd (No 2) (2010) 13 HKCFAR 479, §§124-

128 (Lord Neuberger). For these purposes, blind-eye

knowledge, or “deliberate shutting of eyes to what

would otherwise be obvious”, will suffice: Baden v

Société Générale SA [1993] 1 WLR 509, §250 (Peter

Gibson J); Manifest Shipping Co Ltd v Uni-Polaris

Insurance Co Ltd [2003] 1 AC 469, §112-113 (Lord

Scott); Snell’s Equity at §30-072.

112. As the ultimate holding company of Eton Group, D3

had actual knowledge of factual circumstances making

the transfer of the shares a breach of trust.

- 65 -

112.1 The knowledge of D6 should clearly be imputed

to D3: Lewin on Trusts at §42-066; El Ajou v

Dollar Land Holdings plc at 695g-696c, 699c-h,

705b-707b. In particular:

(a) The role of D6, who was a founder,

beneficial owner, controller and leader of

the entire Eton group of companies,

comprising inter alia D1-D5, lay at the

very centre of the so-called Restructuring.

(b) D6’s case, as accepted by the Judge, was

that (1) he had made the decision to

terminate the Agreement, or to influence

the other directors of D1 and D2 to do so;

(2) he was to be regarded as the “head or

brain or ‘directing will’” of the relevant

companies, and that he had acted as such;

and (3) he was responsible for “directional

decisions”.

(c) D6 made the decision to renounce the

Agreement, prompted by “old-fashioned

greed pure and simple”.

(d) D6 was aware of the Restructuring and

welcomed its impact on the provisions of

Article 8 of the Agreement.

CFI Judgment §308

[PtA/1/106]

CFI Judgment §§322-

323 [PtA/1/111]

CFI Judgment §§99,

113 [PtA/1/32-33, 38-

39]

CFI Judgment §§113,

122, 255, 346, 348

[PtA/1/39-40, 42-43,

90, 118-119]

- 66 -

112.2 D3 took an active part in, and acted in concert

with D1/D2 in, the Restructuring.

(a) With the Restructuring devised by staff of

D1, and the shareholders’ resolution dated

15.11.2005 by D1/D2 authorising D4 to

allot new shares, D3 applied for allotment

of the 9,998 shares on 16 November 2005.

(b) D3’s application was approved by the

Board resolution of D4, and the allotment

was made, immediately on 16 November

2005.

(c) On 6 April 2006, (1) D1 transferred its one

share to D3 and (2) D2 declared to hold its

one share on trust for D3.

112.3 D1/D2 purported to terminate the Agreement on

14.11.2003.

112.4 The Restructuring was only completed by

06.04.2006.

112.5 In August 2005, i.e. before D3 received the

shares, P had commenced arbitration proceedings

which eventually led to the 1st Award. The 1st

Daisy Wong WS §§5-

15

D11 WS §§34-42

CFI Judgment §17

[PtA/1/6]

CA Judgment §25

[PtA/4/157]

CFI Judgment §19

[PtA/1/6-7]

- 67 -

Award was published on 27.10.2006. The 1st

Award contained detailed discussion of D1/D2s’

obligation to transfer the shares P.

112.6 Accordingly, by the publication of the 1st Award

at the latest (i.e. 27.10.2006), D3, as the ultimate

holding company, had acquired actual

knowledge of the breach of trust by its

subsidiaries, viz D1/D2.

113. In any event, D1/D2s’ obvious breach of the Agreement

must have given rise to an “amalgam of suspicion” and

any decision by D3 to refrain from confirming the

breaches is accordingly to be treated as blind-eye

knowledge of such breach: Manifest Shipping Co Ltd at

§112.

E3. Liability of D1/D2/D3

114. By reason of the matters set out in Sections E1 and E2

above:

114.1 The Agreement over the shares in D4 gave rise to

a constructive trust against D1/D2 in favour of P,

and D1/D2 are liable to P for equitable

compensation / damages for breach of trust.

- 68 -

114.2 D3 holds the original 2 shares in D4 transferred

from D1/D2 to it, as well as the additional 9,998

shares in D4 allotted to it, on constructive trust

for P.

114.3 Further or alternatively, D3 is personally liable to

account to P for the shares in D4 and all proceeds

and benefits derived therefrom, including the

proceeds of the sale of units on the Land, on the

ground of knowing receipt.

F. CONCLUSION

115. For all the foregoing reasons, P’s appeal should be

allowed with costs.

Dated 19th December 2019.

- 69 -

David Joseph QC

Counsel for the Plaintiff (Appellant)

Edward Chan SC

Counsel for the Plaintiff (Appellant)

Bernard Man SC

Counsel for the Plaintiff (Appellant)

- 70 -

Lee Tung Ming

Counsel for the Plaintiff (Appellant)

Keith Lam

Counsel for the Plaintiff (Appellant)

Justin Ho

Counsel for the Plaintiff (Appellant)

James Man

Counsel for the Plaintiff (Appellant)