XCHRX VICTORY FORTUNE (HONG KONG) LTD. v. ASIAWORLD TRAVEL LTD.

1997, No. A13434

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is an application by the Defendant for an order that sufficient security be given by the Plaintiff for the Defendant's costs of the action and for an order that all proceedings be stayed until such security be given.

2. This application is made under Section 357 of the Companies Ordinance (Cap. 32) and the matter is discretionary.

3. By an Agreement for Sale and Purchase dated 31st May 1997, the Defendant as vendor and the Plaintiff as purchaser entered into the said Agreement whereby the Defendant agreed to sell and the Plaintiff agreed to purchase all that Flat No. 12 on the Twenty-first Floor of the Apartment Tower on the Western Side of Convention Plaza, No. 1 Harbour Road at a purchase price of $14,200,000.00 subject to the terms of the agreement.

4. Completion was to take place on 17th November 1997. Completion did not take place then but by an agreement made between the parties on 22nd October 1997, the Plaintiff and the Defendant agreed to postpone the completion date to 2nd December 1997 on condition that the Plaintiff would pay the Defendant an additional sum of $16,800.00 upon completion. However, completion did not take place on 2nd December 1997.

5. On 28th November 1997 as is pleaded in the Defence, the Plaintiff through its solicitors sent a notice on the Defendant's solicitors notifying the Defendant that the Plaintiff required formal completion to take place on 2nd December. This meant that the Defendant had to get everything ready for formal completion, and by a letter dated 29th November 1997, the Defendant's solicitors notified the Plaintiff's solicitors of the time and place for formal completion.

6. On 2nd December 1997, the Defendant's directors and its solicitor attended the offices of the mortgagee's solicitors which was the appointed place for completion. The Plaintiff represented by Mr. Chow, one of its directors and solicitors also attended the same offices at about 4:15p.m. After the Plaintiff's solicitor had ascertained that the Defendant was in fact ready willing and able to complete, the Plaintiff did not tender the balance of the purchase price and left the offices of the mortgagee's solicitor.

7. Mr. Warne who appears for the Plaintiff accepts that the Plaintiff is in breach of contract by not completing. As a result of the breach the Defendant forfeited the deposit that had been paid under the Sale and Purchase Agreement and seeks to claim damages.

8. The deposit that had been paid was equivalent to 20% of the purchase price. This was paid on different dates and the total amount paid was $2,840,000.00 which is equivalent to 20% of the purchase price. This is more than what is normally paid on agreements for sale and purchase but in this case completion was to take place six months after the entering of the Provisional Agreement made on 18th May 1997. That in Hong Kong conveyancing is an unusually long period of time, and for this reason, the Defendant says that this was a special circumstance which justified a deposit of 20%.

9. In the case of China Pride Investment Ltd. v. Silverpole Ltd. [1994] 2 HKC 341, it was held that it was reasonable for a vendor to ask for and take a deposit of 20% where there were "special circumstances".

10. The Plaintiff's claim in this action is for the return of the deposit as it alleges that the clause which provided for forfeiture of the deposit was a penalty.

11. In view of the circumstances of the long period within which completion was to take place, namely six months, it seems to me that the Defendant has a strong case for saying that there was special circumstances which justified the deposit of more than the usual 10%.

12. The evidence shows that the share capital of the Plaintiff company is $10,000.00 divided into 10,000 shares of $1.00 each. Only 2 shares have been allotted and paid up. It also shows that the directors are a Mr. Chow who is a medical practitioner and his wife who is a housewife. More significantly, the registered office of the Plaintiff is the same as the residential address of Mr. and Mrs. Chow and this leads to a strong inference that the Plaintiff does not carry on any trading activity but that it is a company which it was intended that the property the subject matter of the Sale and Purchase Agreement should be held by. Mr. Warne accepts that for the purpose of these proceedings, the Plaintiff has no assets.

13. I also accept the submission of counsel for the Defendant that the Plaintiff's conduct in the proceedings demonstrates that the Plaintiff is not bringing the proceedings bona fide. The writ was issued on 10th December 1997. However, the Plaintiff did not proceed to file a Statement of Claim within time and it only did so when it was ordered by the court to do so. Also, notwithstanding that Cheung J. on 10th March 1998 ordered the Plaintiff to file an affidavit in respect of this application, the Plaintiff has simply failed to do so.

14. I am satisfied that in all the circumstances of the case, this is a proper case where I should order that the Plaintiff do provide sufficient security for the Defendant's costs of the action.

15. The Defendant has presented a draft bill of costs which shows that the estimated total costs including counsels fees would amount to approximately $205,000.00. Without going into the items in detail, I think that sufficient security should be in the sum of $150,000.00 and I so order.

16. I also order that until the sum of $150,000.00 is paid into court within 28 days from to-day all proceedings be stayed. The Defendant is to have its costs of this application such costs to be taxed and paid forthwith.

(Arjan H. Sakhrani)

Judge of the Court of First Instance