HG PROPERTY INVESTMENT HK LTD v. CHENG MEI HOLDINGS LTD (RECEIVERS AND MANAGERS APPOINTED) AND OTHERS

HCA 1469/2022

[2023] HKCFI 2496

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1469 OF 2022

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HCA 502/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 502 OF 2023

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REASONS FOR DECISION

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INTRODUCTION

1.  This is Smart Edge Limited (the 3^rd defendant in both actions)’s applications made by summonses filed on 24 April 2023 in both actions (“the Summonses”) for an order that HCA 502/2023 (“the Hundred Gain Action”) and HCA 1469/2022 (“the HG Property Action”) be tried together.

2.  For the sake of convenience, in this Decision, I will refer to HG Property Investment HK Limited (the plaintiff in the HG Property Action) as “HG Property Limited”, and Hundred Gain International Holdings Limited (the plaintiff in the Hundred Gain Action) as “Hundred Gain Limited”.  As the three defendants in both actions are the same, I will simply refer them as “the 1^st defendant”, “the 2^nd defendant” and “the 3^rd defendant” respectively (and collectively, “the defendants”) herein.

BACKGROUND

3.  At all material times, the 3^rd defendant was the legal owner of a property known as “Goldin Financial Global Centre” (“the Property”).

4.  The 1^st and 2^nd defendants are the registered shareholders of the 3^rd defendant, holding 60% and 40% of the shareholding in the 3^rd defendant respectively.

5.  On 13 July 2020, Mr Cosimo Borrelli (“Mr Borrelli”) and Mr Ma Siu Ming Simon (collectively, “the Receivers”) were appointed as the receivers and managers of (i) all the shares in, and certain intercompany loans owned by, the 3^rd defendant; and (ii) all assets and undertaking of the 3^rd defendant, including the Property.

6.  In the period between December 2020 and September 2022, a number of agreements have been entered into between the 1^st and 2^nd defendants as vendors and either HG Property Limited or Hundred Gain Limited as purchaser.  The HG Property Action and the Hundred Gain Action arise from two of those agreements.

THE RESPECTIVE PLAINTIFF’S CASE

The Hundred Gain Action

7.  For the purposes of these applications, according to the Statement of Claim filed in the Hundred Gain Action, Hundred Gain Limited’s case may be summarised as follows.

8.  By an Agreement for Sale and Purchase dated 25 February 2022 (“the February 2022 SPA”), the 1^st and 2^nd defendants agreed to sell, and Hundred Gain Limited agreed to purchase, the entire issued shares in the 3^rd defendant and the related loans owed by the 3^rd defendant to the 1^st and 2^nd defendants.

9.  The aggregate consideration for the transaction was $14,300,000,000.

10.  Pursuant to clause 4.1 of the February 2022 SPA, Hundred Gain Limited had paid a total of $2,030,000,000 (“the Payment”) to the 3^rd defendant and/or the Receivers, as deposit and part payment for the acquisition of the Property.

11.  Wrongfully and in breach of the February 2022 SPA, the 1^st and 2^nd defendants purported to give notice to terminate the February 2022 SPA on 16 April 2022 without any valid basis.

12.  Since the 1^st and 2^nd defendants’ purported termination was wrongful and invalid, they were and are not entitled to “forfeit” or otherwise retain the Payment (or any part thereof).  Further or alternatively, the said sum well exceeded the conventional amount for deposit in Hong Kong, and there was/is no basis for such purported forfeiture.

13.  Moreover, the defendants had been in breach of the February 2022 SPA in putting up the Property in the market for sale through open bidding.

14.  In view of the defendants’ above wrongful conduct, Hundred Gain Limited commenced another High Court Action (HCA 576/2022) against the 1^st and 2^nd defendants.  The 3^rd defendant had also commenced another set of proceedings in HCMP 823/2022 against Hundred Gain Limited (“collectively, “the Subsequent Proceedings”).

15.  In order to induce Hundred Gain Limited to enter into settlement agreement in the Subsequent Proceedings, the defendants represented that if Hundred Gain Limited agreed to settle the Subsequent Proceedings, the defendants would (i) enter into a new sale and purchase agreement in respect of the Property with Hundred Gain Limited (or an entity agreeable to it), and (ii) be fully committed to proceed to completion with Hundred Gain Limited (or its agreed entity), and would not take any steps towards the sale or disposal of the Property to any third party (“the Representations”).

16.  Pursuant to and induced by the Representations, Hundred Gain Limited agreed that HG Property Limited, as purchaser, may enter into a new sale and purchase agreement with the defendants. 

17.  As a result, HG Property Limited entered into a new sale and purchase agreement with the defendants on around 24 September 2022 (“the September 2022 SPA”).

18.  It turned out that the Representations were at all material times false, and in particular, the defendants were never committed (nor did they intend to commit) to proceed to completion with the sale of the Property to Hundred Gain Limited or HG Property Limited.

19.  In early November 2022, the defendants wrongfully purported to terminate the February 2022 SPA with HG Property Limited.

20.  Unbeknown to Hundred Gain Limited, the 3^rd defendant subsequently purported to enter into a sale and purchase agreement dated 25 November 2022 (“the Goldstone SPA”) with Goldstone Asset (HKSAR) Limited (“Goldstone Limited”) at a grossly undervalued consideration of $5.6 billion, which was in breach of the February 2022 SPA.

21.  The Goldstone SPA constituted a disposition of property with intent to defraud creditors, which was voidable at the instance of Hundred Gain Limited pursuant to section 60(1) of the Conveyancing and Property Ordinance (Cap.219, Laws of Hong Kong).

The HG Property Action

22.  While the circumstances under which the September 2022 SPA was entered into were pleaded in the Statement of Claim filed in the Hundred Gain Action, such circumstances were not pleaded in the Statement of Claim filed in the HG Property Action, which, having referred to the background of the parties, the entering into of the September 2022 SPA and certain clauses thereof, pleaded (inter alia) that:

(1)  On 6 October 2022, parties mutually agreed to extend the deadline for HG Property Limited’s financier to provide written confirmation pursuant to Clause 4.1(d) of the September 2022 SPA up to 14 October 2022;

(2)  By an email dated 14 October 2022, HG Property Limited’s financier informed Mr Borrelli that “they were unable to obtain their internal approval due to commercial/market driven reason and was not due to any failure on the part of [HG Property Limited]”;

(3)  On 1 November 2022, the 1^st and 2^nd defendants wrongfully terminated the September 2022 SPA before the completion date (7 November 2022) by alleging that HG Property Limited failed to comply with Clause 4.1(d) of the September 2022 SPA;

(4)  Despite knowing that it was not the fault of HG Property Limited, the 1^st and 2^nd defendants wrongfully forfeited the deposit paid under the September 2022 SPA;

(5)  The 1^st and 2^nd defendants had failed to deliver the Property and the title deeds and documents in relation to the Property upon completion, which amounted to repudiatory breach of the September 2022 SPA;

(6)  Furthermore, Clause 3.5(c) of September 2022 SPA, which stipulated that the deposit payable under the said agreement was non-refundable and liable to be immediately forfeited under certain conditions, is an unenforceable penal clause.

23.  Apart from the above, the Statement of Claim filed in the HG Property Action also pleaded on the Goldstone SPA.  It was pleaded, among other matters, that:

(1)  The Goldstone SPA was entered into on 25 November 2023 without the consent of HG Property Limited;

(2)  On 28 December 2022, the 3^rd defendant entered into a Supplemental Agreement to the Goldstone SPA (“the Supplemental Goldstone SPA”);

(3)  Completion date of the Goldstone SPA was 2 June 2023;

(4)  As the termination of the September 2022 SPA was wrongful, Clause 5.1(a)(i) thereof (which stipulated that the 1^st and 2^nd defendants shall procure that the 3^rd defendant and the directors (i.e. the Receivers) of the 3^rd defendant shall not and shall not offer and agree to, inter alia, sell any part of its assets) is still binding on the 1^st and 2^nd defendants;

(5)  However, the 1^st and 2^nd defendants have failed to procure the 3^rd defendant not to offer or agree to sell the Property, but rather caused/permitted/allowed the 3^rd defendant to enter into the Goldstone SPA and the Supplemental Goldstone SPA;

(6)  As a result, the 1^st and 2^nd defendants have breached the September 2022 SPA;

(7)  At all material times, the 3^rd defendant knows the contractual obligations of the 1^st and 2^nd defendants under the September 2022 SPA;

(8)  In the circumstances, the defendants have wrongfully entered into the Goldstone SPA and the Supplemental Goldstone SPA with Goldstone Limited.

PROGRESS OF THE ACTIONS

The Hundred Gain Action

24.  The Hundred Gain Action was commenced on 3 April 2023.

25.  The Statement of Claim therein was filed on 10 July 2023.

26.  The Defence of the 1^st to 3^rd defendants was only filed recently on 7 September 2023. 

27.  Pursuant to Order 18 rule 3(4) of the Rules of the High Court (Cap.4A, Laws of Hong Kong) (“RHC”), Hundred Gain Limited should file and serve its Reply (if any) on or before 5 October 2023.

The HG Property Action

28.  The HG Property Action was commenced on 3 November 2022, and the Statement of Claim was filed by HG Property Limited on 6 March 2023.

29.  On 13 July 2023, HG Property Limited took out a summons and sought to join Goldstone Limited as the 4^th defendant in the HG Property Action.  The application has since then been fixed to be heard before Wilson Chan J on 13 December 2023.

30.  Pursuant to a Consent Summons filed on 28 April 2023, a Master ordered on 2 May 2023 that the time for the 3^rd defendant to file and serve its Defence be extended to 28 days after the date on which the Summonses are finally determined.

31.  A similar order has been made by another Master on 31 July 2023 upon the consent of the parties in relation to the time for the 1^st and 2^nd defendants to file and serve their respective Defences.

THE LEGAL PRINCIPLES

32.  Order 4 rule 9(1) of the RHC provides that:

“Where two or more causes or matters are pending, then, if it appears to the Court—

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this rule,

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them.”

33.  In Convoy Collateral Limited v Cho Kwai Chee (also known as Cho Kwai Chee Roy) [2022] HKCFI 3406, Coleman J summarised the well-established principles as follows:

“12. As already stated, the principles applicable under this rule are well-settled, and probably need no reference to authority. The key principles are that:

(1)  The Court has an unfettered discretion in deciding whether to make a consolidation order, and the power is to be exercised in a flexible way with regard to the particular circumstances of the situation.

(2)  The Court must nevertheless be satisfied that it would be proper and expedient to make the order, having regard in particular that:

(a)  one primary objective of such an order is to save time and costs;

(b)  where there is a substantial overlapping of issues in parties, it is desirable to resolve the disputes in the different actions on one occasion by the same judge;

(c)  the Court is seeking the avoidance of unnecessary delay, undue complexity and overloading of issues; and

(d)  the Court is seeking the avoidance of creating a risk of irreconcilable decisions which would arise from trying actions separately.

(3)  There is no hard and fast rule that, just because the parties are identical and some common question of fact or law is involved in both actions, it would be expedient and proper to order consolidation.

(4)  The Court should take a practical and common sense approach to meet the justice of the particular situation, in light of the underlying objectives in Order 1A of the RHC.

(5)  The emphasis is on ensuring the efficient and just resolution of disputes before the Courts.”

34.  If the Court considers that an order should be made under Order 4 rule 9(1) of the RHC, it has a number of different options, namely:

(1)  Order that the actions are to be consolidated;

(2)  Order that the actions are to be tried at the same time;

(3)  Order that the actions are to be tried one immediately after another; or

(4)  Order that any of the actions is/are to be stayed until after the determination of any other of them.

35.  For the purpose of the present applications, I would focus on options 1, 2 and 3 only in this Decision.

36.  If the Court makes an order for two actions to be consolidated, then those actions would be ordered to carry on as one action.   The court order would specify which party would be the plaintiff and which party would be the defendant, etc.  The Court would also order the parties to file and serve consolidated pleadings, unless the existing pleadings filed in one of the actions are adequate to serve the purpose (though I think this would be rare). 

37.  However, the position would be different if the Court only orders the actions to be tried together or one immediately after another.  In such a case, the actions remain separate and distinct.  While in appropriate cases the Court may order that the evidence filed in one of those actions may be treated as evidence admissible in the other action(s) as well, separate sets of pleadings have to be filed in each of the actions. 

38.  Mr Abraham Chan SC (leading Mr James Wood) had referred this Court to the case of Wong Luen Hang & Another v Chan Yuk Lung & Others (HCA 1382/2011, unreported, 25 November 2016) in which Registrar Lung had the following to say:

“On the question of late application, there is no statutory provision in respect of the time for such application to be made. D7, D8 and D9 in the 2015 action rely upon Re Shui On Construction Co. Ltd. and Schindler Lifts (H.K.) Ltd. [1986] HKLR 1177 (HC). This case held: ‘normal practice is to apply for consolidation of actions at a stage well before the close of pleadings. Such an application should ideally be made at the earliest convenient moment’. However, these two actions are not normal actions, particularly the 2015 action was instituted at the discovery stage of the 2011 action.”

39.  Relying on Wong Luen Hang(supra) and K & L Gates v Navin Kumar Aggarwal & Others (HCA 1061/2011, unreported, 15 July 2013), it was submitted on behalf of the 3^rd defendant that:

“[…] Far from being premature, the Court has held that the normal practice is for an application under RHC O.4, r.9(1) to be made at a stage well before the close of pleadings and ideally at the earliest convenient moment.”[1] (emphasis is mine)

40.  With respect, I do not agree that there is any normal practice as such applicable generally to all applications under Order 4 rule 9(1) of the RHC, because, as explained above, one has to distinguish between applications for consolidation and applications for two or more actions to be heard together/one immediately after another. 

41.  In Wong Luen Hang(supra), the learned Registrar referred to Re Shui On Construction Co. Ltd. and Schindler Lifts (H.K.) Ltd. [1986] HKLR 1177 which in turn was cited by the 7^th to 9^th defendants therein.  That case involved two arbitrations.  The main contractor therein made an application pursuant to section 6B of the then Arbitration Ordinance which was nearly identical to Order 4 rule 9(1) of the current RHC[2], and sought primarily for an order that the arbitrations be consolidated, or that they be heard at the same time or one immediately after another.

42.  In his decision, Rhind J took the view that:

“That the pleadings have not been closed in the two arbitrations is by no means a fatal objection to an order under S. 6B. In the same way that, in litigation, the pleadings do not need to be closed in the two actions for an order under 0.4, r.10, they need not be closed in the two arbitrations for an order under S. 6B of the Arbitration Ordinance, so long as the Court is sufficiently apprised of the issues which are likely to arise. Pleadings are not the only way of identifying issues: they can also be sufficiently identified by affidavit or by oral explanation to the Court. Under O.4, r. 10, the normal practice is to apply for consolidation of actions at a stage well before the close of pleadings. Such an application should ideally be made at the earliest convenient moment: in that way, unnecessary expense and effort can be saved from the outset, even on pleadings. Sometimes, depending on the nature of the actions and the vagaries of litigation, the application is not made till after the close of pleadings. Daws v. The Daily Sketch and Daily Graphic Ltd ⁽²⁾ was such a case. That case is not, however, any authority for the proposition that applications for consolidation should not be made till after the close of pleadings.”[3] (emphasis added)

43.  It can be seen that the learned Judge was focusing on an application for consolidation of actions, rather than for two actions to be tried together/one immediately after another.  In such circumstances, costs could of course be saved if an order for consolidation was made before pleadings were prepared in the individual arbitration/action, because such pleadings would have to be replaced by consolidated pleadings in due course after the consolidation order is made.  That was the reason why Rhind J was discussing the benefit of saving costs and effort “even on pleadings”.   

44.  Having said that, in my view, whether an application for consolidation should be made before close of pleadings should still depend on the circumstances.  Case management directions, like any other court orders, have to be tailor-made to suit the need of the particular case before the Court.  Thus it may not be appropriate to give too much weight on the “normal practice” without paying regard to the particular circumstances of the case in question.  The main question which the Court has to consider is what order should be made to ensure the efficient and just resolution of disputes before the Court.

45.  If the effect of the court order is only that the actions are to be tried together/one immediately after another rather than having them consolidated, then no savings of costs on pleadings can be achieved no matter when the Order 4 rule 9(1) order is made, because pleadings have to be filed in the respective actions anyway.  In such circumstances, I cannot see why it can be said that costs can be saved if the order is made before the close of pleadings, as opposed to, for example, immediately after the close of pleadings.

46.  Pausing here, it is noted that the time for the defendants to file and serve their respective Defence in the HG Property Action has been extended by Masters until after the determination of the Summonses, upon the consent of the parties therein.  On my part, I cannot understand why the filing of the Defence should wait until the disposal of the Summonses, because, as aforesaid, such Defence has to be filed anyway no matter whether the order sought is granted, and it goes without saying that the outcome of these Order 4 rule 9(1) applications would not affect the matters to be pleaded therein.  Indeed, if the extensions sought had not been granted, this Court might well be in a much better position to decide at this hearing whether the present applications should be granted.

47.  The second authority relied on by the 3^rd defendant in support of its submission that the normal practice is for the application to be made at a stage well before the close of pleadings was K & L Gates (supra).  However, this was also a case concerning consolidation of actions.  Hence, it would not assist the 3^rd defendant.

48.  According to my experience of sitting as a Master, applications for actions to be heard together/one immediately after another (but not consolidation of actions) are usually if not invariably made after the close of pleadings.  This is because by then the Court would have the benefit of the pleadings filed in the actions concerned, so that consideration can be given, for example, to the issues which are to be tried.  In other words, if “normal practice” is a relevant consideration, it seems to me that the “normal practice” as far as the present applications are concerned is actually against the 3^rd defendant’s stance.

DISCUSSION

49.  It has been submitted on behalf of the 3^rd defendant in its skeleton argument that:

“4. […] An order at this junction is proper and necessary so that the Court can effectively manage the timetables for both Proceedings and ensure that they are ready for trial at the same time […]

5. The common issues of fact and law in [the HG Property Action] and [the Hundred Gain Action] can be readily seen by comparing the Statement of Claim in [the HG Property Action] and the Statement of Claim in [the Hundred Gain Action]. The Defence in [the Hundred Gain Action] was filed on time, and without any delay whatsoever. The Defendants have not filed their Defence in [the HG Property Action] (as was agreed with [HG Property Limited]), but this is irrelevant to the issues before the Court.

6.  In view of the common parties, overlapping facts, common issues, near identical documentation, similar procedural stages, common questions of law, common witnesses, and similar relief sought, taking a practical and common sense approach, the [3^rd defendant]’s case for an order that the Proceedings be tried together is compelling.”

50.  I do not think it can be disputed seriously that the two actions share the same factual background, have the same defendants (at least up to this stage), concern the same subject matter and that some of the reliefs claimed are in common.

51.  However, I do not think there is any basis for the Court to conclude at this stage that the two actions share the same issues of fact, same issues of law, and have common witnesses.  The reason is simple: the defendants in the HG Property Action have not even filed their Defence therein.  Before pleadings are closed, this Court is simply unable to tell what the issues (both on law and on facts) are, and what witnesses should be called by the parties.  Without such information, this Court cannot assess whether it would be proper and expedient to make the order as requested, because, for example, the Court cannot compare the issues arising in the two respective actions.  

52.  One must of course also bear in mind that there is really no urgency in making the order.  No costs and time will be wasted even if this Court defers the decision to, say, at the Case Management Summons hearing of the actions.  By then, the issues will be crystalized, and all the parties (including Goldstone Limited if it is added) will be before the Court. The Court will then be in a much better position to make its decision and give all case management directions which are most suitable to the actions. 

53.  I have not forgotten that HG Property Limited’s application to join Goldstone Limited is not going to be heard until 13 December 2023.  Hence, if case management directions (including the decision for the present applications) are given only after the close of pleadings in relation to Goldstone Limited, some delay may be caused to the Hundred Gain Action.  However, I do not think that matters, because if an order is made now, the Hundred Gain Action would have to wait for the progress of the HG Property Action anyway.

54.  Therefore, the practical and common sense approach dictate that the Court should not accede to the application at this stage.  The Court should at least wait until after pleadings have been closed in both actions.

55.  I therefore took the view that the Court should not accede to the 3^rd defendant’s application now.

56.  The next question was whether the Summonses should be dismissed.

57.  From the case management perspective, I think the Summonses should not be dismissed.  Rather, they should be adjourned to be heard at the Case Management Summons hearings of the actions.  This is because even if they are dismissed, the 3^rd defendant may make the same applications again after the close of pleadings.  It would be a waste of time and money to require the 3^rd defendant to start all over again.

58.  Normally, unless a case has been docketed to a particular Judge pursuant to Practice Direction 5.7, the Case Management Summons hearing should be heard before a Master.  However, in the circumstances of the present case, in which I have decided that the 3^rd defendant’s applications under Order 4 rule 9(1) of the RHC should be determined after the close of pleadings, I consider that the matter should be dealt with by myself in the Case Management Summons hearing of the actions.  Once that is done, suitable directions will also be given by myself in the same hearing so that no further delay will be caused.  The Case Management Conference may then be heard before a Master in the usual way.

59.  At the beginning of the hearing, I informed the parties of my preliminary view as explained above.  They sensibly accepted that the proposed way ahead should be adopted.

ORDER

60.  I therefore make the following orders:

(1)  Despite the court orders dated 2 May 2023 and 31 July 2023 respectively, the defendants in HCA 1469/2022 shall file and serve their respective Defence on or before 24 October 2023.

(2)  Upon the close of pleadings in relation to Goldstone Asset (HKSAR) Limited in HCA 1469/2022 or upon the dismissal of HG Property Investment HK Limited’s application to join Goldstone Asset (HKSAR) Limited therein, as the case may be, HG Property Investment HK Limited shall take out a Case Management Summons in HCA 1469/2022 within 14 days thereafter returnable before Deputy High Court Judge H. Au-Yeung (with 3 hours reserved).

(3)  HG Property Investment HK Limited shall serve a copy of the Case Management Summons in HCA 1469/2022 on Hundred Gain International Holding Limited forthwith upon filing thereof.

(4)  Upon receipt of the Case Management Summons in HCA 1469/2022, Hundred Gain International Holding Limited shall file and serve a Case Management Summons in HCA 502/2023 within 14 days thereafter returnable before Deputy High Court Judge H. Au-Yeung (with 3 hours reserved), to be heard at the same time as the Case Management Summons in HCA 1469/2022.

(5)  The Summonses filed on 24 April 2023 in HCA 1469/2022 and HCA 502/2023 respectively are adjourned to be heard at the Case Management Summons hearing of the actions.

(6)  Liberty to apply.

COSTS

61.  As I have not disposed of the Summonses yet, the costs thereof should be reserved, and will be considered in the Case Management Summons hearing.