J & J Chemtrading Co Ltd v. Citichem International Ltd

HCCW356/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 356 OF 2007

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BETWEEN

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Before : Hon. Barma J in Chambers (Open to public)

Date of Hearing : 23 August 2007

Date of Decision : 23 August 2007

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D E C I S I O N

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1.This is an application by Citichem International Limited for a validation order in respect of the proposed transfer of certain property owned by it, being office premises in Lippo Centre, to the purchaser under a sale and purchase agreement dated 8 July 2007. 

2.The winding-up petition was presented on 8 August 2007, about a month after the sale and purchase agreement was entered into.  There is no suggestion that the sale and purchase agreement was made otherwise than bona fide and there does not appear to be any suggestion that the price at which the property is to be sold is other than an appropriate price for the property.

3.The Petitioner has expressed some concern as to the validity of two second mortgages, which were granted over the property shortly before the sale took place, about a month or a one and a half months before the presentation of the petition.  The Petitioner’s evidence suggests that there may be a relationship between one of the second mortgagees and the company, although I have to say that the evidence of that is somewhat lacking in particulars since all that is said is that unspecified inquiries have been made in the market, which have led to such a belief on the part of the Petitioner.

4.Be that as it may, the application before me is simply for the validation of the transfer of the property itself.  Mr Ho, who appears for the company, has referred me to the case of Re French’s Wine Bar Limited [1987] BCLC 499, in which it was held that where there was a specifically enforceable sale and purchase agreement in respect of the property sought to be transferred, it was probably not strictly necessary for a validation order to be obtained at all, but that, should there be any doubt about it might well be prudent for the company to seek a validation order to ensure that no question was raised in the future.  Mr Ho says that this application, relating, as it does, only to the transfer of the property itself, is brought precisely for that reason, as a matter of caution.

5.It seems to me that to grant a validation order in those terms, whether or not it be strictly necessary, would not prejudice any party.  It is true that if the sale goes through and payment of the sale proceeds is made to the mortgagees, including the second mortgagees, it may be somewhat more difficult for a liquidator to recover those monies in the event of a winding-up order being made at some future date and in the event that it is shown that those monies could be recoverable from the second mortgagees on the basis that there were some defect or invalidity in relation to those mortgages.

6.However, I have very little information as to that aspect of the matter today and it seems to me that, in the circumstances, the appropriate course for me to take would simply be to grant the order that is sought and to say nothing further about the validity or otherwise of the second mortgages.  If payments are made to the second mortgagees then nothing that I have said today will affect the liquidator’s right or ability to look into those mortgages and take such steps as he may think appropriate to do so in future in relation to them.  In the circumstances, therefore, I will grant a validation order in the terms of the summons. 

7.Mr Ho also asked for a validation order in respect of the costs of involved in the completion of the sale, and of this application itself.  It seems to me that the application was one that was properly brought by the company and, insofar as the company has incurred costs in relation to the validation order application itself, I shall grant a validation order in relation to those costs as well. 

(Submissions on costs)

9.In the circumstances, since the application was made by the company out of an abundance of caution to ensure that the sale could go through, it seems to me that the fairest order, as between the company and the petitioner, would be no order as to costs.  However, as far as the Official Receiver’s costs are concerned, I will assess those costs in the gross sum of HK$2,000 and those costs are to be paid by the company.  Insofar as necessary, of course, those costs are also validated.

Mr Alfred Cheng, counsel, instructed by Messrs Siao, Wen & Leung, for the Petitioner

Mr Peter Ho, counsel, instructed by Wilson Yeung & Co, for the Respondent

Ms Anne Chow, for the Official Receiver