Cyprus: Enforcing Specific Performance Orders Made By Arbitral Tribunals

Generally, in international commercial arbitrations the remedy which is most commonly sought and which is usually granted, is that of damages, with only a relatively small percentage of the entirety of those awards providing for a remedy of specific performance. This is mainly due to the fact that 'specific performance' may be understood and dealt differently in common law and civil law jurisdictions, and which can give rise to difficulties in enforcement. In the context of English and Cyprus law, the term 'specific performance' is understood as a 'remedy available in equity to compel a person actually to perform a contractual obligation'. Whether an arbitration tribunal has jurisdiction to grant an order for specific performance normally depends on the terms of the parties' arbitration agreement. Nevertheless, as long as the remedy of specific performance is not excluded by agreement, it is generally accepted that an Arbitration Tribunal has the power to grant it.

Difficulties however may arise when a party seeks to enforce such an award of specific performance because even where a defendant does not proceed to challenge the validity of such an award, he can still attempt to circumvent it by failing to comply with it.

A good example illustrating the difficulties and uncertainties that may arise when attempting to enforce an award for specific performance, is the case of Xiamen Xinjingdi Group Ltd v Eton Properties Ltd.

The factual background of the entirety of the dispute is the following:

Xiamen Group entered into an agreement with Eton in 2003 for the development of a piece of land in Xiamen, China. The land was owned by Xiamen Legend, which was held by Hong Kong Legend, whose shares were held by Eton. According to the agreement Xiamen Group would pay Eton RMB 120 million for possession of the land, to build apartments, and then Eton would transfer the shares in Hong Kong Legend to Xiamen Group pursuant to the former's contractual right. In case of dispute, the agreement provided for CIETAC arbitration. A few months later, Eton refused to proceed with the agreement on the basis that it would be contrary to PRC law, and this led Xiamen Group to file for arbitration in August of 2005. The tribunal awarded Xiamen with damages for late delivery of the land and for an order of specific performance requiring Eton to transfer the shares of Hong Kong Legend to Xiamen Group. In an attempt to enforce the award Xiamen Group initiated enforcement proceedings in Hong Kong but it could not effectively do so. Even though enforcement was granted, as a matter of fact it was impossible to enforce it because while the arbitration proceedings were pending, Eton restructured its assets to circumvent the award.

In a further attempt, Xiamen Group initiated new enforcement proceedings in Hong Kong under the common law enforcement method, seeking a substituted remedy of damages or equitable compensation in lieu of specific performance. The First Instance court however held that it had no discretion to amend the arbitral award.

Recently, on Appeal to the decision of the Hong Kong First Instance Court, the Court of Appeal in Xiamen Xinjingdi Group Co Ltd v Eton Properties [2018] HKCFI 910, held that when parties to an arbitration agreement have made an implied promise to honour the terms of any subsequent arbitral award, failure to do so may give rise to a separate common law action that gives the court discretion to grant any remedy including damages in substitution.

Even though this decision constitutes support that a beneficiary of an arbitral award ordering specific performance may be able to successfully enforce it or substitute it, it also shows that if the defendant refuses to comply with such an order, final resolution of the dispute can take many years and thus causing a claimant to incur considerable litigation costs while being unsure that he will receive anything close to what he was awarded by the arbitration tribunal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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