SMART EDGE LTD v. HG PROPERTY INVESTMENT HK LTD

HCMP 2146/2022

[2024] HKCFI 2879

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2146 OF 2022

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D E C I S I O N

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1.  On 4^th October 2023, I handed down a decision (“the Decision”), granting the application of the Plaintiff Smart Edge[1] to vary the Costs Order Nisi made in my judgment of 27^th April 2023 (“the Judgment”), so that the costs of and occasioned by the Originating Summons (and the Amended Originating Summons) were to be paid by HG to Smart Edge on an indemnity basis, to be taxed if not agreed (“the Costs Order”).

2.  By summons of 5^th July 2024 (“the Summons”), Smart Edge applied for an amendment of the Costs Order, to include a certificate for two counsel, under RHC O.20 r.11 and the court’s inherent jurisdiction.

3.  Smart Edge says that it accidentally omitted to ask for a certificate for two counsel at the time when it sought to vary the Costs Order Nisi. It says that it was implicit in the Costs Order, and the manifest intention of the court in varying the Costs Order Nisi to provide for indemnity costs, that Smart Edge would be entitled to the costs of its two counsel.

4.  HG says that the court is functus officio insofar as a grant of certificate for two counsel is concerned, and in any event, the slip rule cannot be relied on to insert a provision which is missing because it was not originally asked for.

5.  In an application brought under the slip rule, the sealing of an order is not a bar to the making of an amendment. The court is not functus officio in this regard. See Man Ping Nam v Man Fong Hang (No.2) (2007) 10 HKCFAR 140 at [20] (Bokhary PJ).

6.  The question to be considered, then, is whether the amendment sought can be said to reflect the manifest intention of the court.[2] See Man Ping Nam at [10]:

“Even if an Order as drawn up is ambiguous, it is well settled that the court (at all levels) has an inherent or implied discretionary power to clarify the original order if the court’s intention appearing from the body of the judgment is manifest. As Lord Penzance stated in Lawrie v Lees (1881) 7 App Cas 19 at 34-35:

“I cannot doubt that under the original powers of the Court, quite independent of any order that is made under the Judicature Act, every Court has the power to vary its own orders which are drawn up mechanically in the registry or in the office of the Court – to vary them in such a way as to carry out its own meaning, and where language has been used which is doubtful, to make it plain. I think that power is inherent in every Court.”

See also the cases cited in Hong Kong Civil Procedure 2007 at 20/11/1.”

7.  See also Wong Hung Kar Kee Mimi v Severn Villa Ltd [2014] 1 HKLRD 1088 at [19], [20] (Au-Yeung J):

“19. However, the error or omission must be an error in expressing the manifest intention of the court. In Li Tze Cho v Ching Hua Co (No 3) [1961] HKLR 201, 205, Reece J held:

But the error or omission must be an error in expressing the manifest intention of the Court; the Court cannot correct a mistake of its own in law or otherwise, even though apparent on the face of it. If the order or judgment of the Court correctly expresses the intention of the Court, it cannot be corrected under this rule or the inherent jurisdiction even if the decision of the Court is procured by fraud or misconception.

20. A party cannot use the slip rule to insert, into the original order, a provision which was not there, not because of any slip in expressing the court's intention but because it was not originally asked for: Bank of China v Xinyuan Trading Co (unrep., CACV 276/1998, [2000] HKLRD (Yrbk) 77) (21 June 2000), Godfrey V-P.”

8.  The slip rule cannot enable a court to have second or additional thoughts. Once the order has been drawn up, any mistakes must be corrected by an appellate court. See Bristol-Myers Squibb v Baker Norton (No.2) [2001] RPC 45 at [25] (Aldous LJ).

9.  Therefore, the court cannot at this stage exercise its discretion for the first time as to whether certificate for two counsel should be granted. Cf. Wong Hung Kar Kee Mimi at [32].

10.  HG was ordered to pay indemnity costs because its conduct in opposing the Amended Originating Summons, and refusing to withdraw the Instruments from registration, was an abuse of the land registration system and an attempt to obtain an injunction by the back door, so as to thwart Smart Edge in its dealings with the Property: see Decision at [12]. The grounds for ordering indemnity costs did not have any bearing on whether it was justified for Smart Edge to have instructed two counsel, so that it cannot be said that the manifest intention in ordering indemnity costs was that certificate for two counsel should be given.

11.  Smart Edge submits that consideration should be given to the complexity of the legal issues involved. HG says that this is not a matter that arises for consideration under the slip rule.

12.  As the authorities show, it is not for me to exercise my discretion for the first time now to decide whether, had the matter been raised by Smart Edge, I would have granted certificate for two counsel, whether on the ground that the matter was complex, or that HG was represented by two counsel, or other such grounds.

13.  It is true that in Wong Hung Kar Kee Mimi, Au-Yeung J reviewed the late DHCJ Carlson’s rulings to see whether the matters before DHCJ Carlson were complex in nature. However, the consideration was not whether the matters were complex per se, so as to enable Au-Yeung J to exercise a fresh discretion as to whether certificate for two counsel should be granted, but whether anything on the face of the rulings disclosed a manifest intention that DHCJ Carlson would have granted a certificate. It was on that basis that Au-Yeung J found that for a particular category of costs orders, DHCJ Carlson’s ruling reflected his view that it was fair for the parties to be represented by two counsel given the complexity of the matter.

14.  In the present case, it was Smart Edge’s position that the law was settled, and in fact at the hearing of the Amended Originating Summons, HG accepted this (and instead sought to advance a reformulated argument). See Decision at [4]; Judgment at [32], [35]. These parts of the Decision and Judgment do not suggest a manifest intention of the court that certificate for two counsel would have been granted on the grounds of complexity.

15.  I have reviewed the Decision and Judgment to see whether there is any other basis on which it could be said that they disclose that the manifest intention of the court was that certificate for two counsel was to be granted, but there is none (and indeed Smart Edge has not suggested any, other than the fact that costs against HG were ordered on an indemnity basis, which I have addressed above). In the circumstances, it is not possible to amend the Costs Order pursuant to the slip rule, no matter what might have otherwise been decided had the issue of counsel’s certificate been raised and argued earlier.

16.  It follows that the Summons must be dismissed. I make a costs order nisi that Smart Edge is to pay the costs and occasioned by the Summons to HG, to be summarily assessed on the papers. HG has already lodged and served its statement of costs. Smart Edge is to lodge and serve a list of objections, in bullet point form limited to two pages, within five days; HG has leave to lodge and serve a reply, in bullet point form limited to two pages, within three days thereafter.

Mr James Wood, instructed by Weil, Gotshal & Manges, for the Plaintiff

Mr Jeffrey Tam, instructed by Tung, Ng, Tse & Lam, for the Defendant

HCMP 2146/2022

[2023] HKCFI 2473

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2146 OF 2022

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DECISION ON COSTS

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A. INTRODUCTION

1.  On 27^th April 2023, I gave judgment (“the Judgment”) for the Plaintiff Smart Edge,[1] essentially granting declaratory relief that the Agreement, Writ and Amended Writ are not registrable on the Land Register of the Property under the Land Registration Ordinance, and related relief.

2.  In the Judgment, I made a costs order nisi that the costs of and occasioned by the Originating Summons (and the Amended Originating Summons) should be paid by HG to Smart Edge (“the Costs Order Nisi”). At the hearing, Smart Edge had indicated that it would seek to file evidence in support of an order for indemnity costs, and HG had indicated that it would seek to file evidence in response. The parties having filed their evidence, Smart Edge now applies to vary the Costs Order Nisi such that the costs be paid on an indemnity basis, on the grounds that HG and its solicitors have engaged in an abuse of the Hong Kong land registration system by attempting to register the Agreement, Writ and Amended Writ (“the Instruments”) against the Property.

3.  In particular, it is said that Smart Edge had repeatedly warned HG that the attempted registration had no basis in law, but HG nevertheless persisted in doing so.

4.  It has all along been Smart Edge’s position that it is settled law that proceedings relating to an agreement for the sale and purchase of shares in a company, even when that company owns an interest in land, do not constitute a lis pendens within the meaning of s.1A LRO, as such proceedings do not relate to land or an interest in land. This was not challenged by HG. See Judgment at [32.3], [35].

5.  The solicitors for Smart Edge had written to the solicitors for HG to point out the same. The relevant background, which HG did not seek to deny, is as follows.

5.1  By a letter of 17^th November 2022 to Messrs ONC Lawyers (“ONC”) who were then acting for HG, and shortly after HG had attempted to register the Writ on 3^rd November 2022, Messrs Weil, Gotshall & Manges (“WGM”) referred to the relevant authorities,[2] and pointed out that the Writ was not registrable as a lis pendens against the Property. WGM demanded that HG immediately write to the Land Registrar to withdraw the registration.

5.2  WGM’s letter also made reference to a previous attempt by HGIL to register its writ in HCA 576/2022 (relating to an agreement similar to the Agreement) against the Property; the withdrawal of the same by the solicitors initially acting for HGIL; the renewed attempt at registration by Messrs Khoo & Co (“K&C”); and K&C’s subsequent withdrawal of the same on 20^th September 2022 and acknowledgement on behalf of HGIL that its writ was not registrable against the Property. As is not in dispute, in HCA 832/2022, Smart Edge and HGIL (represented by ONC) entered into a consent summons on 20^th September 2022 to the effect that the writ in HCA 576/2022 was not a lis pendens affecting the Property and was not registrable against the Property, and that the registration should be removed forthwith; a consent order was accordingly made on 21^st September 2022.

5.3  On 24^th November 2022, ONC wrote to the Land Registrar to cancel the registration of the Writ.

5.4  Subsequently HG instructed K&C, who attempted to register the Writ and Agreement on 28^th November 2022.

5.5  By a letter of 8^th December 2022 to K&C, WGM again referred to the relevant authorities and pointed out that the Writ and Agreement were not registrable against the Property. WGM demanded that HG immediately write to the Land Registrar to withdraw the registration.

5.6  WGM’s letter further pointed out that K&C should have been aware of the authorities, and that the Writ and Agreement were not registrable, since they had been drawn to K&C’s attention in “near identical circumstances” in the context of K&C’s representation of HGIL. In particular, reference was made to K&C’s letter of 20^th September 2022 in which K&C stated that it acknowledged on behalf of HGIL that its writ in HCA 576/2022 was not registrable on the Land Register of the Property, and that it was writing to immediately cancel and withdraw the instrument and associated memorial from registration.

5.7  Nevertheless, on 27^th January 2023, K&C on behalf of HG, attempted to register the Amended Writ (which had added Smart Edge as a third defendant).

5.8  By a letter of 10^th February 2023, WGM again protested that the registration was improper as the Agreement did not create or purport to create any interest in the Property, and HG’s proceedings did not relate to the Property or an interest in the Property.

5.9  HG’s solicitors did not write back to deny the legal position as set out by WGM. HG simply persisted in refusing to withdraw the Instruments from registration.

6.  Pausing here, I should make it clear that I am not at this stage proceeding on any assumption that there is any link between HG and HGIL. The parties’ submissions in relation to this link is dealt with below.

7.  In opposition to Smart Edge’s current application to vary the Costs Order Nisi, HG says that (1) HG and HGIL are separate legal entities and HGIL’s conduct should not be attributed to HG, and (2) HG’s stance in opposing Smart Edge’s Amended Originating Summons (seeking to remove the Instruments from registration) was not unjustified.

8.  As regards (1), I deal with this below, as it does not arise for present purposes. The argument simply fails to meet Smart Edge’s primary argument that the legal position is clear and was all along known to HG, such that its steadfast refusal to withdraw the Instruments from registration, and opposition to the Amended Originating Summons was unreasonable and an abuse of process.

9.  As regards (2), HG says that it is a matter of fact in each case as to whether an action falls within the meaning of “lis pendens” and is therefore registrable against property. It says that none of the authorities relied on by Smart Edge concerned an agreement for the transfer of possession in land. It had “every right to register claims that it believes are related to land” and was entitled to be heard in opposition to the Amended Originating Summons.

10.  However, up until the filing of the supplemental skeleton submissions for HG the day before hearing on 12^th April 2023, it was not suggested that there was any basis for distinguishing the present case from previous authorities on the grounds that the Agreement was for the transfer of possession in land. Indeed, it was only in leading counsel’s oral submissions at the hearing that this argument was fully developed. Furthermore, as Smart Edge points out, the arguments which had been advanced in HG’s original skeleton argument of 31^st March 2023 were not pursued at the hearing.

11.  Nor was there any attempt to explain why, when K&C (on behalf of HGIL) had already agreed that HGIL’s writ in HCA 576/2022 was not registrable against the Property, when WGM had pointed this out to K&C in its capacity as solicitors for HG, and when the circumstances of the withdrawal were indisputably known to both K&C and HG,[3] it was nevertheless considered proper for HG to continue to press for registration of the Instruments.

12.  In the circumstances, it seems to me that HG’s conduct in opposing the Amended Originating Summons, and refusing to withdraw the Instruments from registration, was an abuse of the land registration system and an attempt to obtain an injunction by the back door, so as to thwart Smart Edge in its dealings with the Property. This justifies an award of costs on an indemnity basis.

HGIL’s conduct

13.  Smart Edge also says that there are strong reasons to believe that HG and HGIL had been acting together such that K&C’s actions in HCMP 823/2022 (on behalf of HGIL) can be attributed to HG. A number of matters were relied upon, including the joint representation by Mr Norman Zhang in their dealings with the Receivers, and the naming of HG as a committed transferee of HGIL in HGIL’s agreement for the sale and purchase of the Property dated 25^th February 2022.

14.  The allegation is denied by HG in the 3^rd Affirmation of Song Jian Bo. HG says that the two companies are separate legal entities, although it is notable that rather than disclosing the shareholding of the two entities to make good the point that there is no link between them, HG simply takes the stance that there is no evidence as to who the shareholders are.

15.  Be that as it may, it is not appropriate for me to make findings when the facts are contested and only affidavit evidence is before me. In any event, it is not necessary for me to make such findings. As referred to above, it is not disputed by HG that either it or its solicitors ONC and K&C were aware of HGIL’s attempts to register its writ in HCA 576/2022 and HGIL’s subsequent acceptance that the writ was in fact not registrable. Whether or not HG and HGIL were affiliated, HG was well aware of the similarities between HGIL’s attempts to register its writ and HG’s own attempt, and it never sought to explain how its attempt could be justified in the light of these facts.

Order against solicitor

16.  Finally, Smart Edge invites the court to order Mr William Khoo of K&C to show cause as to why he should not be personally liable to pay part of the costs in question.

17.  As Smart Edge has not issued any formal application, I do not propose to make any determination in this regard.

D.  DISPOSITION

18.  I vary the Costs Order Nisi so that the costs of and occasioned by the Originating Summons (and the Amended Originating Summons) are to be paid by HG to Smart Edge on an indemnity basis, to be taxed if not agreed.

19.  I further make a costs order nisi that HG should pay the costs of and occasioned by Smart Edge’s application to vary the Costs Order Nisi, to be summarily assessed on the papers. Smart Edge should lodge and serve its statement of costs within 7 days; HG should lodge and serve its list of objections within 7 days thereafter; Smart Edge should lodge and serve its reply, if any, within 3 days thereafter; all three documents should not exceed two pages each.

Mr Abraham Chan SC leading Mr James Wood, instructed by Weil, Gotshal & Manges, for the Plaintiff

Mr Edward Chan SC leading Mr Jeffrey Tam, instructed by Tung, Ng, Tse & Lam, for the Defendant

HCMP 2146/2022

[2023] HKCFI 1441

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2146 OF 2022

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D E C I S I O N

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A.  INTRODUCTION

1.  On 27^th April 2023, I gave judgment (“the Judgment”) for the Plaintiff Smart Edge,[1] essentially granting declaratory relief that the Agreement, Writ and Amended Writ are not registrable on the Land Register of the Property under the Land Registration Ordinance, and related relief. I will not repeat the matters set out in the Judgment.

2.  On 5^th May 2023, the Defendant HG filed a Notice of Appeal in CACV 138/2023 against the Judgment.

3.  On 9^th May 2023, HG issued a summons seeking a stay of execution of paragraphs 54 and 55 of the Judgment pending determination of its appeal (“the Summons”). I gave directions for the Summons to be dealt with on the papers.

B.  THE PRINCIPLES

4.  The principles governing an application for a stay of execution of a judgment pending appeal are settled and not in dispute.

5.  The starting point is RHC O.59 r.13(1). An appeal does not operate as a stay of execution or of proceedings under the decision of the court below. Thus unless the appellant can justify a stay of execution, one will not be ordered.

6.  In Astro Nusantara International BV v PT Ayunda Prima Mitra (No 2) [2016] 1 HKLRD 591, Chow J (as he then was) summarised the principles set out by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 as follows (at [15]):

(1) The applicant is required to demonstrate a “good reason” for a stay of execution.

(2) Generally speaking, the existence of merely an arguable appeal cannot by itself amount to a sufficient reason to justify a stay. It is the minimum requirement before a court would even begin to consider granting a stay.

(3) In other words, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted however exceptional the circumstances may otherwise be justifying a stay of execution.

(4) On the other hand, the existence of a strong appeal or a strong likelihood of success will usually by itself enable a stay to be granted because this would constitute a good reason for a stay.

(5) In most cases, where the court is faced with simply the existence of an arguable appeal, it becomes necessary for the applicant to provide additional reasons as to why a stay is justified.

(6) Commonly, this is done by demonstrating that without a stay the appeal would be rendered nugatory, for example, because of an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal against a money judgment, or because the failure to grant a stay would have a serious deleterious effect on the applicant.

(7) In considering an application for a stay pending appeal, it would be impractical and even undesirable for the court to go deeply into the merits or strengths of the appeal, although the court must still form a preliminary view of these aspects.

C.  THE GROUNDS OF APPEAL

7.  HG submits that there are strong, or at least arguable, grounds of appeal. Smart Edge submits that none of the grounds are reasonably arguable, so that the minimum requirement for even considering a stay has not been met.

8.  There are three grounds of appeal in the Notice of Appeal, as summarised in HG’s written submissions at paragraph 10.

8.1  Ground 1: on a proper construction of cl.11 of the Agreement, the clause imposed an obligation on the vendor under the Agreement, namely the Shareholders (of Smart Edge), to procure Smart Edge to deliver vacant possession of the Property to HG.

8.2  Ground 2: the Judgment did not consider all the circumstances of the case and the context in which the Agreement, the Writ and the Amended Writ arose in the consideration of whether the Agreement affected land.

8.3  Ground 3: the Judgment did not properly consider specific performance of the Agreement in the light of the obligation on the Shareholders to deliver vacant possession of the Property to HG in the Agreement.

Ground 1: the proper construction of cl.11 of the Agreement

9.  HG’s written submissions at paragraph 11 reads: “Ground 1 contends that the Agreement, in particular Clause 11, should be read in the context of the whole Agreement and its other clauses, ie. Clauses 6.1, 8.1, 8.11(b), 8.11(c) and 13.1.”

10.  HG’s arguments as to the construction of cl.11 of the Agreement were dealt with in paragraphs 36, 38 to 41 of the Judgment. (It should be noted that the clauses now relied upon are not exactly the same as those relied on in oral argument at the hearing: see Judgment paragraphs 39, 41.6 and footnote 4, although HG does not, in either the Notice of Appeal or its written submissions, advance any particular argument based on its current additional reliance on cll.6,1, 8.11(c) and 13.1.) I held (inter alia) that:

10.1  the subject matter of the sale and purchase is the Shares and the Loan, which is dealt with in cl.2 of the Agreement. Cl.2 provides that the Shareholders “shall sell as legal and beneficial owner” and that HG “shall purchase” the Shares and Loan;

10.2  cll.8 and 11 simply provided for the features of the Property as at the time of Completion, and which HG was to accept.

11.  HG has not identified arguable grounds of appeal against these conclusions.

11.1  HG argues that cl.11 expressly imposes an obligation on the Shareholders to procure Smart Edge to deliver possession of the Property to HG.[2] However, as a matter of language, cl.11 does not, in fact, “expressly” impose an obligation on the Shareholders to procure Smart Edge to deliver possession of the Property to HG. It refers, in the passive voice, to possession being delivered, on the basis that it would be subject to, and have the benefit of, certain rights and obligations.

11.2  HG then says that “the obligation to transfer the [Shares] and the obligation to procure the delivery of possession of the Property may be considered as two different obligations”.[3] This simply begs the question as to how the alleged obligation to procure delivery of possession of the Property is said to arise in the Agreement.

11.3  HG says that in addition, the point that the Shareholders were all the shareholders of Smart Edge and that the Shareholders’ decisions are binding on the latter was not fully considered, citing In re Duomatic [1969] 2 Ch 365 at 373C-D.[4] However, the point was considered in paragraph 42 of the Judgment. It is then said that the point was only considered in passing,[5] but it is not said what principles were overlooked.

11.4  Insofar as HG’s point in this regard is that an order for specific performance of the obligation to deliver possession of the Property could be ordered against the Shareholders, so that it does not matter whether the Shareholders had any interest in the Property in the first place,[6] this again presupposes that the Agreement imposes an obligation on the Shareholders to deliver possession of the Property.

11.5  As to the authority now cited, Coles and others (Trustees of the Ward Green Working Mens Club) v Samuel Smith Old Brewery (Tadcaster) (an unlimited company) and another [2007] EWCA Civ 1461, Rimer LJ held that Jones and Another v Lipman and Another [1962] 1 WLR 832 is authority for the proposition that specific performance is available against a contracting vendor who has it in his power to compel another person to convey the property in question: see [11], [12], [16], [20]. (Jones v Lipman was a case where the vendor agreed to sell land, not shares; Coles was effectively such a case also (see [4], [11].)) However, nothing in the Judgment suggests otherwise. But before specific performance of an obligation to convey property can be ordered, the question arises as to whether there is any obligation to convey the property (or procure another to convey the property) in the first place.

Ground 2: circumstances and context not considered

12.  The argument under Ground 2 is that as there would “effectively” be a change of possession of the Property from Smart Edge to HG upon performance of the Agreement, the Agreement must affect land; delivery of possession of the Property “evidently affects land, therefore, the Agreement should be registered on the Land Register of the Property”.[7]

13.  As Smart Edge points out, the legal and beneficial ownership of the Property is not altered by the Agreement. The Agreement only provides for the transfer of the Shares and the Loan.[8]

14.  Insofar as it is said that there would “effectively” be a change of possession of the Property, the same may be said of the vendor and purchaser to any agreement for the sale and purchase of shares in a company which owns land. However, the Court of Appeal has held that proceedings relating to an agreement for the sale and purchase of shares in a company, even when that company owns an interest in land, do not constitute a lis pendens within the meaning of s.1A LRO as such proceedings do not relate to land or an interest in land, citing Health First Technology Ltd and anor v Chan Chi Cheung and ors [1993] 2 HKLR 473 at 474. This is the case even where the proceedings relate to the sale of shares in a company that owns an interest in land, and the purchaser seeks to indirectly acquire the property through the share acquisition: Good Profit Development Ltd v Leung Hoi [1993] 2 HKLR 176 at 183. HG did not seek to dispute this line of authorities,[9] which are binding on me.

Ground 3: specific performance not properly considered

15.  The argument under Ground 3 is that it is wrong to decide the nature of the Agreement before deciding whether specific performance of the Agreement would be granted. The reasoning is that if specific performance would be granted, then the Property would be delivered to HG, which in turn means that the Agreement must affect land.[10]

16.  As Smart Edge submits, this is putting the cart before the horse. The point was dealt with in paragraph 53 of the Judgment: the claim to specific performance of the Agreement cannot be a claim to an interest in land if the Agreement does not create any legal or equitable interest in the Property on the part of HG.

D.  CONCLUSION; DISPOSITION

17.  In the light of my view that HG does not establish the minimum requirement of an arguable appeal, so that no stay of execution should be granted, I do not need to go on to consider whether I would have exercised my discretion in HG’s favour to order a stay of execution pending appeal. HG says that the absence of a stay of execution would render the appeal nugatory, as the Property is due to be sold to Goldstone Asset (HKSAR) Limited; Smart Edge says that there are other options open to HG, such as applying for injunctive relief.

18.  I dismiss the Summons and make a costs order nisi that HG should pay the costs of and occasioned by the Summons to Smart Edge, to be summarily assessed on the papers. Smart Edge should lodge and serve its statement of costs within 7 days; HG should lodge and serve its list of objections within 7 days thereafter; Smart Edge should lodge and serve its reply, if any, within 3 days thereafter; all three documents should not exceed two pages each.

Mr Charles Manzoni SC leading Mr Abraham Chan SC and Mr James Wood, instructed by Weil, Gotshal & Manges, for the Plaintiff

Mr Jeffrey Tam, instructed by Tung, Ng, Tse & Lam, for the Defendant

HCMP 2146/2022

[2023] HKCFI 1059

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2146 OF 2022

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  The Plaintiff (“Smart Edge”) is the sole legal and beneficial owner of the property known as all that piece or parcel of ground registered in the Land Registry as New Kowloon Inland Lot No.6314 together with the messuages, erections and building thereon known as Goldin Financial Global Centre, No.17 Kai Cheung Road, Kowloon, Hong Kong (“the Property”).

2.  By its Amended Originating Summons of 21st February 2023, Smart Edge seeks declarations that:

2.1 an agreement for sale and purchase dated 22nd September 2022 between the shareholders of Smart Edge (“the Shareholders”) and the Defendant (“HG”), and

2.2 the writ of summons and amended writ of summons filed by HG in HCA 1469/2022 (“the Writ” and “the Amended Writ” respectively),

are not instruments registrable on the Land Register of the Property under the Land Registration Ordinance (Cap.128), removal from the Land Register of the Property all references to the aforesaid instruments, and related relief.

B. THE BACKGROUND

3.  Save as otherwise indicated, the following is not in dispute.

4.  On 13th July 2020, Mr Cosimo Borrelli and Mr Ma Siu Ming Simon were appointed as the joint and several receivers and managers of the shares in and assets of Smart Edge (“the Receivers”).

5.  At all material times, the Shareholders (of Smart Edge) were Cheng Mei Holdings Limited (Receivers and Managers Appointed) and Goal Eagle Limited (Receivers and Managers Appointed). Between them, they owned the entirety of the issued shares of Smart Edge (“the Shares”). There were also loans and indebtedness due and owing by Smart Edge to the Shareholders (“the Loan”).

Earlier agreements and dealings with HGIL

6.  On 22nd December 2020, the Shareholders entered into an agreement with Hundred Gain International Holding Limited (“HGIL”) to sell the Shares and the Loan to HGIL. This agreement was terminated in February 2021 on the grounds that HGIL was unable to comply with certain conditions therein.

7.  On 12th May 2021, the Shareholders entered into another agreement to sell the Shares and the Loan to HGIL. This agreement was terminated in June 2021 on the grounds that HGIL was unable to comply with certain conditions therein.

8.  On 10th September 2021, the Shareholders entered into an amended version of the 12th May 2021 agreement to sell the Shares and the Loan to HGIL. On 29th October 2021, the parties executed a deed of amendment to extend the completion date on certain conditions. This agreement was terminated in November 2021 on the grounds that HGIL was unable to comply with those conditions.

9.  On 25th February 2022, the Shareholders entered into another agreement to sell the Shares and the Loan to HGIL. This agreement was terminated in April 2022 on the grounds that HGIL was unable to comply with certain conditions therein.

10.  On 16th May 2022, HGIL filed the writ of summons in HCA 576/2022 against the Shareholders, complaining of wrongful termination of the agreement of 25th February 2022. On behalf of HGIL, Messrs Winston & Strawn delivered a copy of the writ to the Land Registry for registration against the Property.

11.  On 30th June 2022, Smart Edge commenced proceedings in HCMP 823/2022 to remove the registration.

12.  On 4th July 2022, Messrs Weil, Gotshall & Mangers wrote to Messrs Winston & Strawn, warning them of the “potential serious repercussions” arising from the latter’s role in causing the writ in HCA 576/2022 to be registered on the Land Register for the Property.

13.  On 5th July 2022, Messrs Winston & Strawn wrote to the Land Registrar to withdraw the registration.

14.  On 15th July 2022, Messrs Khoo & Co, on behalf of HGIL, delivered another copy of the writ in HCA 576/2022 to the Land Registry for registration against the Property.

15.  On 20th September 2022, HCA 576/2022 and HCMP 823/2022 were settled. On the same day, Messrs Khoo & Co wrote to the Land Registry to acknowledge, on behalf of HGIL, that the writ in HCA 576/2022 was not an instrument registrable on the Land Register of the Property, and to withdraw the registration.

16.  On 21st September 2022, DHCJ Jonathan Chang SC made orders by consent in HCMP 823/2022 that the writ in HCA 576/2022 was not a lis pendens affecting the Property nor an instrument registrable on the Land Register of the Property, that the attempted registration be cancelled and forthwith removed from the Land Register of the Property, and that HGIL be retrained from registering any further instruments in respect of HCA 576/2022 on the Land Register of the Property.

Agreements and dealings with HG; the sale of the Property to Goldstone

17.  On 22nd September 2022, the Shareholders entered into an agreement to sell the Shares and Loan to HG (“the Agreement”). Under cl.4.1(d) of the Agreement, completion was conditional upon HG providing to the Shareholders, within 14 days, certain written confirmations from its financier.

18.  On 7th October 2022, the deadline for compliance with cl.4.1(d) of the Agreement, the Shareholders granted HG an extension of time of the deadline to 14th October 2022.

19.  On 1st November 2022, the Shareholders gave written notice to HG of termination of the Agreement on the grounds of HG’s failure to comply with cl.4.1(d).

20.  On 3rd November 2022, HG filed the Writ in HCA 1469/2022 (“the Action”). The defendants named at that stage were the Shareholders. On behalf of HG, Messrs ONC Lawyers delivered a copy of the Writ to the Land Registry for registration against the Property, which was allocated Memorial No.22110301180018.

21.  On 17th November 2022, Messrs Weil, Gotshall & Mangers wrote to Messrs ONC Lawyers, noting that the latter had acted for HGIL in HCMP 823/2022 and were therefore presumed to have knowledge that the Writ was not registrable.

22.  On 24th November 2022, Messrs ONC Lawyers wrote to the Land Registrar to cancel the registration of the Writ.

23.  On 25th November 2022, the Receivers entered into an agreement to sell the Property to Goldstone Asset (HKSAR) Limited.

24.  On 28th November 2022, Messrs Khoo & Co delivered to the Land Registry for registration against the Property:

24.1 a further copy of the Writ, which was allocated Memorial No.22112801030024; and

24.2 a copy of the Agreement, which was allocated Memorial No.22112801030019.

25.  On 16th December 2022, Smart Edge commenced the current proceedings against HG to remove the attempted registrations of the Writ and the Agreement from the Land Register of the Property.

26.  On 20th January 2023, HG filed the Amended Writ, adding Smart Edge as the 3rd Defendant in the Action.

27.  On 27th January 2023, Messrs Khoo & Co delivered a copy of the Amended Writ to the Land Registry for registration against the Property.

28.  The Writ, Amended Writ and the Agreement currently continue to appear in the “Deeds Pending Registration” section of the Land Register of the Property.

C. THE RELEVANT STATUTORY PROVISIONS

29.  Section 2(1) Land Registration Ordinance (Cap.128) (“LRO”) provides that:

“The Land Registry shall be a public office for the registration of deeds, conveyances, and other instruments in writing, and judgments; and all deeds, conveyances, and other instruments in writing, and all judgments, by which deeds, conveyances, and other instruments in writing, and judgments, any parcels of ground, tenements, or premises in Hong Kong may be affected, may be entered and registered in the said office in the prescribed manner.”

30.  Section 14 LRO provides that:

“The provisions of this Ordinance relating to judgments (subject to the provisions hereinafter contained) shall extend to lites pendentes.”

31.  Section 1A LRO defines a “lis pendens” as, inter alia:

“any action or proceeding pending in a court or tribunal that relates to land or any interest in or charge on land…”

D. THE PARTIES’ CASES

D1. Smart Edge’s case

32.  Mr Abraham Chan SC (appearing with Mr James Wood) for Smart Edge submitted that it is settled law that:

32.1 to be registrable under s.2(1) LRO, an agreement must create some legal or equitable interest in land, citing Anstalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR 76 at 81;

32.2 only proceedings in which a claim to land or some interest in land is asserted may be registered under the LRO as a lis pendens, citing Thian’s Plastic Industrial Co Ltd and ors v Tin’s Chemical Industrial Co Ltd and anor [1970] HKLR 498 at 526-527, which was affirmed by the Full Court in Thian’s Plastic Industrial Co Ltd and ors (No.2) v Tin’s Chemical Industrial Co Ltd and anor [1971] HKLR 249 at 252 to 253;

32.3 proceedings relating to an agreement for the sale and purchase of shares in a company, even when that company owns an interest in land, do not constitute a lis pendens within the meaning of s.1A LRO as such proceedings do not relate to land or an interest in land, citing Health First Technology Ltd and anor v Chan Chi Cheung and ors [1993] 2 HKLR 473 at 474. This is the case even where the proceedings relate to the sale of shares in a company that owns an interest in land, and the purchaser seeks to indirectly acquire the property through the share acquisition: Good Profit Development Ltd v Leung Hoi [1993] 2 HKLR 176 at 183.

33.  Smart Edge’s case is that:

33.1 the Agreement is for the sale and purchase of the Shares and the Loan, and does not affect or create a legal or equitable interest in the Property;

33.2 the Action asserts no claim to, or proprietary interest in, the Property;

33.3 accordingly, neither the Agreement nor the Writ/Amended Writ are registrable against the Property.

34.  Smart Edge also says that HG is affiliated to HGIL, that there has been a history of failed attempts to register the writ in HCA 576/2022 against the Property such that HG and its lawyers should be well aware that the Agreement and the Writ/Amended Writ are not registrable in the Land Registry, and that HG’s conduct should be censured by way of indemnity costs.

D2. HG’s case

35.  Mr Edward Chan SC (appearing with Mr Jeffrey Tam) for HG does not dispute that the authorities as relied on by Smart Edge hold that an agreement for the sale and purchase of shares in a company, which in turn holds property, is not registrable in the Land Registry, or that actions challenging the title to such shares are not registrable in the Land Registry.

36.  However, and as reformulated by Mr Chan in his supplemental skeleton and oral submissions, the case for HG is that the Agreement is not merely a simple agreement for the sale and purchase of shares in Smart Edge; it is an agreement pursuant to which HG was to acquire an interest in the Property, and is therefore registrable. Specifically, under cl.11 of the Agreement, interpreted in the light of certain other clauses which were only referred to in oral submissions, the Agreement bound the Shareholders to deliver possession of the Property to HG.

37.  Mr Chan disputes that HG is affiliated to HGIL, and submits that in any event, this issue can at most go to costs; either the Agreement and the Writ/Amended Writ are registrable, or they are not – what position HGIL and its solicitors may have taken in the past does not bear on this issue. I agree that for present purposes, it is not necessary to consider the positions taken by HGIL and its solicitors.

E. THE AGREEMENT

38.  Mr Edward Chan’s argument hinged on cl.11 of the Agreement, which provided that:

“11. MATTERS SUBJECT TO WHICH THE PROPERTY IS MADE

11.1 The Property will be delivered to the Purchaser on Completion subject to and with the benefit of all rights, rights of way, water, light, drainage and other easements and quasi-easements and rights of adjoining owners (if any) and/or the Government adversely or beneficially affecting the Property. Without prejudice to the generality of the foregoing, the Property will be delivered to the Purchaser on Completion subject to and (where applicable) with the benefit of the deeds and documents specified in Schedule 7, and any modifications or variations thereof.

11.2 The Property will be delivered to the Purchaser on Completion subject to the terms and conditions herein contained and subject to the terms and conditions set out, reserved by and contained in the Government Grant and subject to all rights and liabilities affecting the same and to the payment of all future Government rent, property tax and premium (if any) and together with all rights of way, easements, rights, privileges and appurtenances enjoyed therewith.”

39.  The submission was that read in conjunction with certain other clauses of the Agreement, the Shareholders were bound to deliver possession, which was “tantamount to an assignment” since no reservation was being made by the Shareholders. The other clauses relied on were:

“8. TENANCIES.

8.1 The Property shall be delivered to the Purchaser subject to the existing tenancies and any lettings, tenancies and licences granted or to be granted or modified by the Vendor in accordance with Clause 8.10 hereof…

…

8.3 Subject to Clause 8.10 hereof, if the Property or any part(s) thereof shall be surrendered by any of the Tenants before Completion or if any of the Tenancies terminates for any reason before Completion, the Property or such part(s) thereof (as the case may be) shall be delivered with vacant possession on Completion and the Purchaser shall not raise any requisition or objection in relation thereto. In such event, the Purchaser shall accept vacant possession of the Property or such part(s) thereof so surrendered by the Tenant(s) and shall also accept such state and condition of the Property or such part(s) thereof so surrendered by the Tenant on “as is” basis. The Vendor is not required to remove any fittings, fixtures, equipment, furniture, chattels, goods, garbage or rubbish, if any, in the Property or such part(s) thereof so surrendered by the Tenant(s) and the Purchaser shall at his own costs and expenses lawfully remove such items.

…

8.10 The Vendor hereby expressly reserves its right and it is hereby declared that the Vendor shall be entitled to cause the Company to exercise any of the following rights in respect of the Property or any part or parts thereof (the Rights)[1] and to take all actions to perform, enforce or perfect any of the Rights at any time on or before Completion:

(a) …to renew, vary, modify or terminate the existing lettings or tenancies;

(b) to accept surrender of any existing lettings or tenancies;

(c) to grant new lettings, tenancies or licences; and

(d) to make binding offer in relation to the above…

8.11 (a) Such part or portion of the Property which continues to be subject to the Tenancies on the Completion Date or of which the Tenants fail to deliver vacant possession to the Vendor notwithstanding the termination or expiration of the Tenancies prior to Completion are hereinafter referred to as the Leased Premises.[2]

(b) Vacant possession of such part or portion of the Property (other than the Leased Premises) shall be delivered to the Purchaser on Completion. For the avoidance of doubt, the Vendor shall be entitled to remove or leave behind such fixtures, fittings, furniture, electrical appliances and/or chattels on or in the Property (the Tenants’ Chattels) on Completion, and the Purchaser shall not make any objection or claim any compensation in relation thereto. Vacant possession of the Property (other than the Leased Premises) shall be deemed to have been given by the Vendor to the Purchaser notwithstanding the existence of the Tenants’ Chattels…”

40.  It was said that cl.11, when understood in the light of these other clauses, showed that the Shareholders had an obligation to deliver vacant possession of the Property to HG, in other words, some right or interest in the Property.

41.  I do not agree.

41.1 The subject matter of the sale and purchase is the Shares and the Loan, which is dealt with in cl.2 of the Agreement.

41.2 Sale of the Shares would of course mean that HG would become the owner of Smart Edge. Smart Edge owned various items of property, including the Property. Read in context, cll.8 and 11 of the Agreement simply provided for the features of the Property as at the time of Completion, and which HG was to accept.

41.2.1 Cl.8 (in particular the parts relied on by HG) dealt with the situation as to tenancies which might or might not be existing at the time of Completion, various aspects thereof, and the Shareholders’ rights in relation thereto, and provided that HG was not to make complaint about these matters.

41.2.2 Cl.11[3] provided that the Property would be subject to various rights and liabilities at the time of Completion. Again, this was the state of affairs which HG was to accept.

41.2.3 Indeed, the entirety of cll.8 to 11 (that is, including cll.9 and 10) generally identified various features of the Property and that HG was to accept the same.

41.3 In this regard, I note that cll.8 and 11 of the Agreement refer in the passive voice to vacant possession of the Property being delivered to HG (and without reference as to who was to carry out the delivery), rather than any positive obligation on the part of the Shareholders to deliver vacant possession. This may be contrasted with cl.2.1, which provided that the Shareholders “shall sell” the Shares and “shall assign” the Loan.

41.4 Furthermore, cl.6, which prescribed in detail the parties’ obligations to be performed on completion, and which in cl.6.1(b)(i) itemised the things to be delivered by the Shareholder to HG on completion, did not refer to any obligation on the part of the Shareholders to deliver vacant possession of the Property.

41.5 The owner of the Property, namely, Smart Edge, is not even party to the Agreement. On what basis could the Shareholders confer on HG an interest in the Property when they themselves had no such interest?

41.6 I therefore do not agree that cl.11 of the Agreement, when read in conjunction with the parts of cl.8 highlighted by Mr Edward Chan,[4] imposed an obligation on the Shareholders to deliver vacant possession of the Property such that an interest in land was conferred on HG.

42.  On the point that Smart Edge is not party to the Agreement, Mr Edward Chan argued that the Shareholders’ act of entering into the Agreement would bind Smart Edge (citing In re Duomatic [1969] 2 Ch 365 at 373C-D). However, this could not amount to Smart Edge conferring any interest in the Property on the Shareholders. As Woo J said in Good Profit Development Ltd, the mere fact that the shareholders in litigation have absolute control of the company which has no other business activity than dealing in and with the landed property being its sole asset does not ipso facto justify the court to depart from the general principles enunciated in Salomon v. Salomon [1897] AC 22.

43.  Mr Chan also relied on the Vendor’s Warranties in Schedule 3 to the Agreement, pursuant to which the Shareholders warranted that they had the right, power and authority to enter into and perform the Agreement, and that the execution, delivery and performance by the Shareholders of the Agreement would not require them to obtain any consent or approval. I note that under cl.4.2(a), breach of the warranties would have entitled HG to cancel the transaction. HG might also have had other remedies for breach of warranty. However, none of this means that the warranties confer any interest in land on HG.

44.  Mr Chan further argued that pending completion, if the Shareholders had said that they would not deliver the Property, would they not have been in breach of the Agreement? It seems to me that even if, for argument’s sake, it could be said that the Shareholders had an obligation to procure Smart Edge to deliver vacant possession of the Property, so that an indication that they would not do this might amount to a breach of the Agreement, such an obligation would not have conferred any interest in land on Smart Edge in the first place.

45.  I therefore do not agree that the Agreement creates any legal or equitable interest in the Property on the part of HG, or that it is registrable under s.2(1) LRO.

F. THE ACTION

46.  It follows that the Action does not properly assert any claim to, or proprietary interest in, the Property, so as to make it registrable as a lis pendens.

47.  In this regard, in answer to the court’s question as to how HG’s “equitable lien over the Property” (as claimed in the Amended Writ) arose, Mr Edward Chan argued that the lien arose because HG paid a deposit and the Shareholders wrongly terminated the Agreement; this therefore gave rise to an equitable interest in the land.

48.  I do not follow this argument. HG paid a deposit in respect of the subject matter of the Agreement, namely, the Shares and Loan. If it acquired any lien as a result of paying the deposit, this could at most have operated in respect of the Shares and Loan, but not the Property.

49.  Mr Chan also relied on Fung Kan Wai & anor v Leung Shui Fat & ors [1999] 4 HKC 70 for the argument that HG acquired an equitable lien over the Property. Reference was made to 76C, where Nazareth VP cited Calgary and Edmonton Land Co Ltd v Dobinson [1974] 1 Ch 102 which held at 107G that “What is registrable as a pending land action is an action or proceeding which claims some proprietary right in the land, and not an action merely claiming that the owners should be restrained from exercising his powers of disposition.” It was submitted that the only reason why a lien was not made out in that case was because the purchaser himself repudiated the contract.

50.  However, Fung Kan Wai was a case where the parties had entered into an agreement for the sale and purchase of part of a village-type house. The purchaser claimed a lien in respect of the deposits paid for the acquisition of the property. The case provides no authority for the proposition that a purchaser of shares of a company pursuant to an agreement with the shareholders (and to which the company is not party) can acquire a lien over the company’s land on payment of a deposit for the shares. The reason why the lien was not made out in Fung Kan Wai is irrelevant to the issues in the present case.

51.  A claim to a lien in respect of the shares of a company is not a claim to a proprietary interest in the company’s land: see LY Group Development Ltd v East Canton Ltd [2015] 4 HKLRD 84 at [49], [52], [61], [64] (To J). I do not agree with Mr Chan’s submission that To J wrongly applied Fung Kan Wai by failing to appreciate that the court in Fung Kan Wai held that there was no claim to a lien as the purchaser had repudiated the agreement. From the earlier part of the judgment (see [23] to [34]), To J considered the issue of whether the plaintiff could assert a purchaser’s lien when the contract was only for the purchaser of shares and not property. To J came to the view that the plaintiff could assert a purchaser’s lien in respect of the shares. Clearly, this was not a claim to a proprietary interest in the land, as he observed at [64].

52.  No submissions were made as to how the claim for an injunction to restrain Smart Edge (and the Shareholders) from disposing of the Property could constitute a lis pendens. As To J held in LY Group Development Ltd at [63], if a lien in respect of a deposit is not a proprietary interest in land, it simply defies logic to say that an injunction to enforce the lien turns it into a proprietary interest.

53.  As for the claim to specific performance of the Agreement, this cannot be a claim to an interest in land if the Agreement does not create any legal or equitable interest in the Property on the part of HG.

G. CONCLUSION; DISPOSITION

54.  I grant the relief sought at paragraphs 1 to 5 of the Amended Originating Summons, which essentially declare that the Agreement, Writ and Amended Writ are not registrable on the Land Register of the Property under the Land Registration Ordinance, require HG to procure the removal of references to the same from the Land Register of the Property, and restrain HG from delivering the Agreement, the Writ and the Amended Writ to the Land Registry for registration against the Land Register of the Property.

55.  I further make a costs order nisi that the costs of and occasioned by the Originating Summons (and Amended Originating Summons) herein should be paid by HG to Smart Edge, to be taxed if not agreed. At the hearing, Mr Abraham Chan indicated that he would seek costs on an indemnity basis against HG and that he would seek to file the 5th Affidavit of Cosimo Borrelli for this purpose; Mr Edward Chan indicated that he would wish to be heard on the matter and to file responsive evidence. I direct that the parties should take out any application for variation within 7 days and submit agreed proposed directions as to the disposal of such application(s) within 7 days thereafter. In the event of disagreement, the parties should endeavour to agree as much of the directions as possible, with their disagreements and the reasons therefor set out in a joint letter to the court within 7 days after the making of the application(s) for variation.

Mr Abraham Chan SC leading Mr James Wood, instructed by Weil, Gotshal & Manges, for the Plaintiff

Mr Edward Chan SC leading Mr Jeffrey Tam, instructed by Tung, Ng, Tse & Lam, for the Defendant