SMART EDGE LTD v. HG PROPERTY INVESTMENT HK LTD

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.