Eternity Sky Investments v Zhang: would-be consumer’s appeal on public policy matter backfires

Author(s): Alexander Lyall

In a previous article, we covered Eternity Sky Investments Ltd v Zhang [2023] EWHC 1964 (Comm) Ms Zhang applied to the English High Court to set aside a Hong Kong arbitral award on the basis that she was protected by the Consumer Rights Act 2015 (the Act).

Central to Ms Zhang’s argument was that the relevant contract was signed by her as a consumer and that it had a close connection to the United Kingdom. This being the case, the rights accrued under the Act meant that enforcing the award would run against public policy by way of section 103(3) of the Arbitration Act 1996.

The High Court agreed that Ms Zhang was a consumer but held that the contract did not have a close connection to the United Kingdom, despite Ms Zhang’s citizenship. Ms Zhang appealed the judgment.

In Eternity Sky Investments Ltd v Zhang [2024] EWCA Civ 630, Ms Zhang argued again that as a citizen and resident of the United Kingdom, the contract in which she had given a personal guarantee for the bond of her deceased husband’s business had a close connection to the United Kingdom.

The Court of Appeal (the Court) agreed with the High Court. Each aspect of the contract concerned a matter closely related to Hong Kong. Two factors also stuck out for the Court:

  1. It was Ms Zhang herself who commenced arbitration in Hong Kong.
  2. The contract had not even been signed in the United Kingdom.

These two points further underscored that Ms Zhang’s association with the United Kingdom was limited.

Ms Zhang loses consumer status

Unfortunately for Ms Zhang, in addition to losing the appeal the Court also disagreed with the High Court that she was a consumer.

Ms Zhang had entered into a commercial transaction and had done so to support the business. While Ms Zhang’s personal motivation may have stemmed from the marriage, this was not the function of the transaction.

The Court reiterated at [74] that motivation is to be determined objectively by the sphere of activity of the transaction. Whether Ms Zhang was a consumer should have been determined in relation to the particular transaction, and not other aspects of her personal life.

Otherwise, a clearly unworkable situation would arise. Separate duties attach to contracts when one party is a consumer. The adoption of Ms Zhang’s argument would see parties needing to constantly second-guess the motivation of their counterparties to avoid falling afoul of protections afforded to consumers.

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