SMART EDGE LTD (RECEIVERS AND MANAGERS APPOINTED) v. HG PROPERTY INVESTMENT HK LTD

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.