Compelling the performance of construction works | White & Case LLP

Courts and arbitral tribunals in many jurisdictions have the power to order contractors to perform building works – to order “specific performance” of a construction contract.  But these powers are rarely exercised.  A recent case from Hong Kong’s highest court considered the approach to be taken when applications for specific performance are made.

A construction contract is one under which a contractor undertakes to perform works for an employer. The contractor’s undertaking to the employer is legally binding, in the sense that if the contractor fails to do what it promised, the employer may claim money from the contractor as compensation for the contractor’s breach of contract. Ordering that compensation be paid is usually regarded as an adequate remedy, especially where (as is commonly the case) the employer may always arrange for another contractor to perform the outstanding work.

Specific Performance

However, in some circumstances, an order that compensation be paid will not provide an adequate remedy for the employer. In such cases, the court or an arbitral tribunal may order specific performance of a construction contract (or certain obligations under it), but only where additionally:

• The work or obligations that the contractor will be required to perform are sufficiently defined. A failure to comply with an order for specific performance may constitute a contempt of court, and it is therefore vital that any order for specific performance be capable of clear definition, given the potential consequences of non-compliance. A further problem is that even if the court’s order is tightly framed, there may be disputable issues between the parties as to whether the order has been complied with. For example, if a court orders a contractor to bring the works to practical completion, there may be a real issue as to whether practical completion has been achieved. This may, in turn, lead to numerous applications to the court to decide whether its order for specific performance has been implemented. This type of “supervision” by the court is seen as undesirable, and a reason for not ordering specific performance.
• The contractor is in a position to perform its obligations. If a contractor has been evicted from site, or is otherwise disabled from performing its obligations, it will be futile for the court to order specific performance, and therefore it will not be ordered.

On top of these factors, ordering specific performance is a discretionary matter for the court, and there are various matters that will militate in favour of or against the court making such an order.

Xiamen Xinjingdi Group Co Ltd v Eton Properties Limited [2020] HKCFA 32

Background

• Eton Properties Limited and Eton Properties (Holdings) Limited (the “Defendants“) held shares in a company, and a corresponding right to develop and use a plot of land in Xiamen, mainland China. They entered into an agreement (the “Agreement“) with Xiamen Xinjingdi Group Co Ltd (the “Plaintiff“), under which the Plaintiff agreed to purchase the development and use rights by acquiring the shares in the company.
• Delivery of the land was to take place within six months of the date of the Agreement, after residents on the land had moved out and structures had been demolished by the Defendants. However, the Defendants failed to deliver the land to the Plaintiff and terminated the Agreement, asserting that it had become impossible to perform.
• The Plaintiff commenced arbitration proceedings, and the tribunal ordered the Defendants to continue to perform the Agreement. At the enforcement stage, the Hong Kong Court of Appeal granted an award of damages, which the Plaintiff appealed against – seeking specific performance of the Agreement.  The Plaintiff was therefore requesting the court, among other things, to order the Defendants to carry out the demolition and other works on the land in question.

Decision

The Hong Kong Court of Final Appeal dismissed the…