XCHRX VIEWEXCEL LTD. v. PRIORITY GAME TRADING LTD. AND ANOTHER

HCA 10809/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.10809 OF 1999

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J U D G M E N T

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The application

1. The 2nd defendant applies to strike out the Statement of Claim of the plaintiff. It also applies for security of costs against the plaintiff.

The Head Agreement

2. The 2nd defendant is the owner of a property. On 29 March 1999, it entered into a Provisional Sale and Purchase Agreement ("the Head Agreement") for the sale of the property to the 1st defendant for $75 million. Of this amount, $5 million was to be paid on the signing of the Head Agreement, $25 million on the signing of the Formal Agreement, $10 million to be paid on 13 June 1999 and $35 million to be paid on completion. The 1st and 2nd defendants entered into a Cancellation Agreement on the sale of the property on 14 June 1999.

The Sub-sale Agreement

3. On 14 June 1999, the 1st defendant entered into a Provisional Sub-sale Agreement ("the Sub-sale Agreement") with the plaintiff for the sale of the property in the sum of $90 million. $3 million was to be paid on the signing of the Sub-sale Agreement, $15 million to be paid on the signing of the Formal Agreement and $17 million on the completion of the sale on 13 July 1999. The balance of the purchase price of $55 million was to be withheld by the plaintiff to enable payment to be made to the government as a modification premium on the property. In three months after the issuance by the government of the notice regarding payment of land premium, the difference between the $55 million and the actual land premium to be paid would be paid by the plaintiff to the 1st defendant.

Plaintiff's claim for specific performance

4. The plaintiff had paid $3 million deposit to the 1st defendant. This sum had since been repaid to the plaintiff. The plaintiff contends that due to the fault of the 1st defendant, the Formal Agreement was not signed by the parties. The plaintiff commenced an action against the 1st and 2nd defendants, seeking specific performance of the Head Agreement and the Sub-sale Agreement.

Amount due on completion

5. According to the plaintiff, the 1st defendant had paid the deposit and part-payment of the purchase price in the sum of $40 million to the 2nd defendant under the Head Agreement. Hence the amount that is due to the 2nd defendant on completion of the Head Agreement is $35 million. However, the 2nd defendant said that the whole of $75 million is payable upon the completion of the Head Agreement. According to the 2nd defendant, the cheque of $5 million given by the 1st defendant was not presented. The 1st defendant also provided another cheque of $40 million. It was also not presented. There was reference of another cheque of $10 million paid by the 1st defendant. Sir John Swaine SC, counsel for the 2nd defendant, stated that this cheque was intended for another transaction.

The complaint

6. When the matter first came before me in November, the complaint of the 2nd defendant was that the Statement of Claim did not provide any undertaking that the plaintiff is willing to perform the outstanding obligations of the 1st defendant to the extent of the true balance of the purchase price outstanding. The 2nd defendant submitted that if it is proved right in its contentions, the plaintiff may disavow its claim for specific performance and leave the 2nd defendant uncompensated for the immobilisation of the property in the meantime. The writ is registered against the property. The application then was that if the plaintiff wished to continue with its claim for specific performance, it should give security to show that it will be able to discharge the obligations of the 1st defendant under the Head Agreement.

7. The Statement of Claim has since been amended by the plaintiff by pleading that it is willing to pay the outstanding balance of $35 million or whatever sum as may be adjudged by the court as the true balance due under the Head Agreement.

8. The 2nd defendant maintains its application for security. Sir John submitted that the jurisdiction to order security is under the inherent jurisdiction of the court on an application to strike out the Statement of Claim. The security can be ordered as a condition for not striking out the Statement of Claim.

The court has no jurisdiction

9. In my view, the court does not have jurisdiction to make the order asked by the 2nd defendant. This tantamounts to requiring a plaintiff in a litigation to furnish security for its claim. No authority has been shown that this can be done in a striking out application.

10. The plaintiff is the equitable assignee of the 1st defendant's interest in the property. The principle in this regard is well-known,

"... The assignee may enforce the contract against the other party to it in an action for specific performance, provided that he assumes the position of his assignor and either fulfils or secures the fulfilment of all his liabilities under the contract."

(Halsbury's, Laws of England, Vol.42, 1999 Ed., para.201).

11. In my view, the obligations of the assignee are to be imposed when the decree for specific performance is to be ordered and not before. The suggestion by Lord Hoffmann in Ji Shan International Investment Ltd v. Resources Main Enterprises Ltd & Another [1999] 1 HKLRD 456 on the making of an interlocutory order where a vendor is prepared to grant specific performance to the sub-purchaser is clearly not intended to cover a situation such as this. The interlocutory order is in respect of the rights and liabilities of the head purchaser. In McDonald v. Isaac Construction Co. Ltd [1995] 3 NZLR 612, a New Zealand case which was approved by the Court of Appeal in Ji Shan [1998] 1 HKLRD 800, it is stated that :

" It will be relevant to consider the equities between the sub-purchaser and the head vendor because specific performance is an equitable remedy not available as of right. There may be cases where the head vendor will be able to resist a derivative action for specific performance on the grounds that such an order would prejudice him more than the prejudice which would be caused to the sub-purchaser in leaving him to his claim for damages against his vendor."

Whether the plaintiff is entitled to specific performance is a matter to be dealt with at the trial and this is not the time when the court should intervene and order the plaintiff to furnish securities for its claim.

First principles

12. On first principles, the matter can be tested in this way : if the claim is lodged by a purchaser against the vendor for specific performance and if there is a dispute as to the actual amount due to the vendor on the completion of the sale, this clearly cannot be the basis for the court to require the purchaser to furnish the amount that it may be found liable before it can proceed with its claim. The position is not any different when the sub-purchaser seeks specific performance against the head vendor of the property. Unless a head vendor restricts the right of a purchaser to resell the property, he will always be faced with the same situation now faced by the 2nd defendant.

13. In the circumstances, the 2nd defendant's application for security has to be refused. There is no basis to strike out the statement of claim.

Speedy trial

14. In my view, the way forward for this case is to order a speedy trial of the action. Sir John stated that the 2nd defendant is prepared to complete either on the $35 million or $75 million whichever is found due. Instead of simply ordering a speedy trial on the issue of the amount due to the 2nd defendant, I will order a speedy trial of the action to ensure all the issues are covered. Mr Louis Chan, counsel for the plaintiff, agreed to a speedy trial.

15. The orders I will make at this stage are :

(1) The 2nd defendant will file the defence within 7 days.

(2) Reply within 7 days thereafter.

(3) Discovery within 7 days thereafter and inspection within 7 days thereafter.

(4) The affidavits filed in this case will stand as witness statements.

(5) Both parties will file one further witness statement within 10 days of the inspection.

(6) Either party may apply to set down this case for trial within 10 days of the filing of the witness statement.

16. Sir John submitted that there may be further directions regarding the question of interest by reason of the delay in completing the sale. The parties are at liberty to ask for further directions either before me or before the listing judge.

Security for costs

17. The plaintiff is a two-dollar company. The 2nd defendant seeks security for costs in the sum of $1,670,000. Mr Law Kar Po, a director and shareholder of the plaintiff, stated that he is financially sound and is in a position to finance the plaintiff.

18. In the absence of a specific undertaking by Mr Law that he will personally be responsible for any order for costs that may be made against the plaintiff, it is only appropriate that an order for security for costs should be imposed. While securities are usually ordered in stages, I would not adopt the usual approach since the action is to proceed by way of a speedy trial. As for the quantum, I will order that security in the sum of $1.2 million is to be furnished by the plaintiff by way of payment into court within 14 days.

Costs

19. The costs nisi of the 2nd defendant's two applications be costs in the cause.