Introduction

The recent decision on costs in Lee Hermie v Landscope Realty Limited and Chan Wei Shan v Landscope Realty Limited [2026] HKCFI 3998 (HCSD 1/2026 and HCSD 2/2026), we successfully obtained indemnity costs against a party that improperly invoked the bankruptcy jurisdiction of the court, where the Court of First Instance (“CFI”) awarded HK$280,000 in favour of the applicants.

Background

The applicants, Lee Hermie and Chan Wei Shan (collectively “Purchasers”), purchased a property (“Property”). The respondent, Landscope Realty Ltd (“Estate Agent”), was the estate agent acting for both the vendor and the Purchasers. At the relevant time, Ms Grace Oh (“Oh”) acted on behalf of the Estate Agent in the sale and purchase of the Property.

Following completion of the sale on 13 October 2025, the Estate Agent sought payment from the Purchasers. There were disputes between the parties regarding estate agent commission.

By letter dated 17 November 2025 to the Purchasers, the Estate Agent’s solicitors demanded payment of the alleged commission, interests accrued thereon and legal costs incurred to the date of the letter (“Alleged Debt”).

On 18 November 2025, the Purchaser’s former solicitors responded disputing the Purchasers’ liability to pay and stated that the Estate Agent should not be entitled to receive any commission because in the period leading up to completion of the sale and purchase of the Property, Oh made various false representations/assurances regarding the encumbrances affecting the Property and also failed to inform the Purchasers promptly about a building order for repair of drainage system to which the Property was subjected and therefore Oh failed to properly perform her duties as an estate agent towards the Purchasers.

By letter dated 16 December 2025, the Estate Agent’s solicitors denied the Purchasers’ assertions and enquired if the Purchasers’ former solicitors had instructions to accept service of the statutory demands on behalf of the Purchasers. Before the Purchasers’ former solicitors had responded, Oh on behalf of the Estate Agent purportedly served by WhatsApp the statutory demands on the Purchasers on the basis of the Alleged Debt (“SDs”).

By letter dated 24 December 2025, we (“ONC”) as the Purchasers’ solicitors, further elaborated on why there were clearly bona fide disputes on substantial grounds as to the Alleged Debt and that it amounted to an abuse of process. ONC demanded the Estate Agent to confirm whether it would withdraw the SDs and would undertake not to present any bankruptcy petition in relation to the Alleged Debt by 29 December 2025, failing which the Purchasers would apply to the CFI for setting aside the SDs and seek indemnity costs against the Estate Agent.

On 29 December 2025, the Estate Agent’s solicitors responded that ONC’s deadline to reply was unreasonable and unnecessary and that they would revert within the next 2 weeks.

On 2 January 2026, the Purchasers applied to the CFI to set-aside the SDs.

Only by letter dated 30 January 2026, the Estate Agent’s solicitors indicated that they were minded to withdraw the SDs purely as a matter of commercial consideration without prejudice to the Estate Agent’s right to claim against the Purchasers through other means but the draft consent summonses enclosed therewith proposed that there be no order as to costs of the actions.

Following correspondence between the parties’ solicitors, ultimately the parties agreed that both the SDs and the set-aside applications be withdrawn, leaving only the issue of costs for determination. The Purchasers sought costs on an indemnity basis, while the Estate Agent argued that only party-to-party costs should be ordered.

Indemnity costs principle

The legal principles governing indemnity costs were explained by the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114, where:

1.      The court has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered;

 

2.      An award of indemnity costs (which is a more generous basis and will usually enable the successful party to recover more of his costs than under a party and party award) may be perceived as achieving a fairer result for the successful party;

 

3.      There must be some “special or unusual feature”, but it need not involve an ulterior motive or underhand conduct;

 

4.      The discretion is not fettered beyond the requirement that indemnity taxation must be “appropriate”; and

 

5.      The attributes of the parties, the character of the proceedings, the conduct of the litigation and the circumstances leading to it may all be relevant.

Reasons for successful claim on indemnity costs

1.       Clear early warning

One of the most important features was the dispute was clearly documented from an early stage. Before the SDs were issued, the Estate Agent’s solicitors had already demanded payment on 17 November 2025, and the Purchasers’ former solicitors replied on 18 November 2025 disputing liability.

ONC then sent a further letter on 24 December 2025, setting out in clear terms why there were bona fide disputes on substantial grounds and why the SDs amounted to an abuse of process. ONC also requested confirmation of withdrawal and an undertaking not to present any bankruptcy petition by 29 December 2025, clearing stating that should the Estate Agent fail to withdraw and provide the undertaking sought, the Purchasers would apply to set-aside the SDs and hold the Estate Agent liable for indemnity costs.

The Estate Agent was well informed the Alleged Debt was disputed substantively by ONC’s letter of 24 December 2025, which created a solid foundation for the Purchasers’ indemnity costs application.

2.       Abuse of process

The CFI accepted the Purchasers’ submission that the statutory demand procedure is not intended to be used as a debt collection mechanism where the debt is genuinely disputed. It further accepted that where a creditor serves a statutory demand in the face of a bona fide dispute on substantial grounds, that amounts to an abuse of process justifying indemnity costs.

3.       The parties’ conduct

The Purchasers commenced the set-aside applications on 2 January 2026, before 6 January 2026, being the earliest date that the Estate Agent might have presented a bankruptcy petition. The Estate Agent argued that the Purchasers should have waited until 6 January 2026, but the CFI rejected that criticism.

The CFI found no basis to criticise the Purchasers for not allowing the Estate Agent more time. It was reasonable for the Purchasers to act promptly to protect themselves and progress with the setting aside applications. This was particularly so because by 24 December 2025 the Purchasers (through ONC) had clearly informed the Estate Agent, among other things, that they disputed the Alleged Debt on substantive grounds, the SDs were liable to set aside and constituted an abuse of process for which the Purchasers would hold the Estate Agent liable for indemnity costs.

Despite this, the Estate Agent still did not withdraw the SDs or undertake not to present any bankruptcy petition and maintained there should be no order as to costs. The CFI found no unreasonable conduct leading up to or in these actions on the part of the Purchasers. This is even taking into account that the Estate Agent is a company and would require time for the authorised person to make a decision and convey instructions to the Estate Agent’s solicitors. 

4.       Conclusion

The CFI held that the Estate Agent should pay the Purchasers’ costs on an indemnity basis and assessed those costs at HK$280,000.

Takeaway

The Landscope case serves as a stark reminder statutory demand procedure is not meant to be used for the purpose of debt collection and the court must not allow the procedure to be used to exert pressure on a debtor to pay a debt, the liability of which is not established by judgment and which is disputed.

In statutory demand disputes, the parties’ behaviour and written communication are important. In the Landscope case, the Purchasers succeeded in obtaining indemnity costs against the Estate Agent because they had informed the Estate Agent as early as 18 November 2025 that the Alleged Debt was disputed substantively and again by ONC on 24 December 2025, among other things, that the SDs were liable to be set aside and constituted an abuse of process for which the Estate Agent would be liable for costs on an indemnity basis.

Whereas the Estate Agent still did not withdraw the SDs or undertake not to present any bankruptcy petition, and later when the Estate Agent indicated it would, it maintained there should be no order as to costs. On the other hand, the Purchasers (through ONC) conducted themselves reasonably throughout the matter. As a result, the CFI ultimately ordered an indemnity costs order against the Estate Agent.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2026