Chater Properties Ltd v Estates Homes Ltd [2005] FJHC 371; HBC0352R.2005S (16 December 2005)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. 0352 OF 2005

Between:

CHATER PROPERTIES LIMITED
Plaintiff

-and -

ESTATES HOMES LIMITED
1st Defendant

CROMPTONS
2nd Defendant

Counsel: Ms. M. Chan for the Plaintiff
Mr. D. Naidu for the 1st Defendant

Date of Hearing: 2nd December 2005
Date of Ruling: 16th December 2005

RULING

By a summons filed on the 8th of July 2005 the plaintiffs seek a declaration that they are entitled to a deposit of one million dollars held by the second defendants, Cromptons, a law firm. This arises from a Sale and Purchase Agreement between the plaintiffs and the first defendants dated the 26th of July 2004. There are also claims for ancillary injunctions which would follow upon the making of such a declaration.

A Writ of Summons was also filed setting out the details of the Sale and Purchase Agreement, including the deposit of one million dollars by way of equivalent share transfers in Blue Chip New Zealand Limited to be held in escrow by the second defendant. The plaintiffs alleged that the eleven million dollar contract was not concluded and claimed the forfeiture to them of the deposit of one million dollars.

The first defendants filed a defence on the 6th of October 2005 alleging that the contract was void for illegality and, in the alternative, if it was not so void then it was a conditional agreement and the conditions had not been met.

On the 20th of October the plaintiffs filed a summons asking that the first defendants’ defence be struck out as containing no reasonable cause of action and as being an abuse of the process of the court.

On the 28th October the first defendants filed a summons asking that the claim be struck out “as containing no reasonable cause of action and an abuse of the court process” and asking for return of the deposit.

On 2nd of December I heard the arguments in these matters. The first defendant commenced by arguing that the claim should be struck out on the grounds that the agreement itself was void and as a matter of public policy the court should not do anything to enforce it. The grounds for this assertion were twofold: first, that there was a double agreement which was going to be used to perpetrate a fraud on the finance company and second, that various statutory, finance and money control requirements had not been complied with. They further argued that this was not a completed contract but a conditional one, the conditions not having been met.

The plaintiffs responded that the agreement they sought to enforce was lawful. They stated they were taken entirely by surprise by the first defendants assertion that any kind of dishonesty towards the finance company in this transaction was contemplated. They say it appears nowhere in the first defendant’s pleadings nor in any submissions or notices made before this hearing.

The plaintiffs argued that it is the first defendants’ case that should be struck as on the face of all the documents, there had been a contract in which a deposit had been paid and the defendants had failed to complete. Therefore, that deposit was forfeit.

John Stuart Hill, a director of the plaintiff company made an affidavit filed on the 8th of July. At annexure 1 he exhibited two agreements which apparently relate to the same set of shares. Those shares account for 100% of the shares in the plaintiff company. That company has, according to the face of those agreements, only one asset, namely Vulani Lagoon Resort. This comprises approximately 635 acres of Crown Lease land. The shorter of those two agreements is the one upon which the plaintiffs are suing. That is an agreement to sell and buy all the shares for a total sum of eleven million dollars. One million dollars is to be paid by way of deposit into the trust account of Cromptons Solicitors. That is the sum in contention in this case. The final settlement sum of ten million dollars was to be paid “in various separate amounts in a place and in a currency as directed by the vendors”.

The longer agreement appears to relate precisely to the same shares in the same company which has just the one asset, namely the resort project. That agreement is for a stated consideration of seventeen million dollars. However it must be noted that in paragraph 2(ii) it states “that the sole liability of CPL (plaintiffs) is a debt owed to J.S. Hill & Associates Limited and this debt is deemed to be three million dollars at settlement exclusive of any GST or VAT”. That in effect means that the purchase price for the shares is twenty million dollars.

At paragraph 2 of his affidavit John Hill states that “the agreement is actually two documents. The purpose of this is that the document with the higher amount was to be submitted to the purchaser’s bank for financing, with a result that the purchaser would have six million dollars working capital. It was always intended to rely on the lower amount”.

First of all, such an arrangement would only leave the first defendants with three million dollars working capital after the payment of the sole liability of CPL, namely the three million dollars, to J.S. Hill & Associates.

Second, and far more important, on the face of the documents and what is being said by Mr. Hill it might appear to a bank or finance provider that the project, land etc. on the face of the longer agreement was worth some twenty million dollars, not eleven million dollars. That could have severe consequences for a bank or finance provider when taking security over the property for a loan.

This is a point which needs careful consideration. The plaintiffs say they are taken by surprise.

I stress in this ruling I am not making any findings or coming to any conclusions. However, further material is required from the parties before these cross applications can proceed.

1. I give leave to the first defendant to amend its defence concerning this alleged double agreement. That must be filed and served by 3.00 p.m. on 13th January 2006.
   
2. Any affidavits of the first defendant in support of their arguments on this point and their arguments concerning failures to comply with various statutory finance requirements are to be filed and served by 3.00 p.m. on 13th January 2006
   
3. Within those affidavits or a separate schedule the first defendant should set out the section and the statute/regulation which is in point and the part of the contract or dealings which they say mean there has been failure to comply.
   
4. The plaintiffs have leave to file and serve by 3.00 p.m. on 27th January 2006 a reply to any amended defence.
   
5. Further, by the same date, the plaintiffs must file and serve any affidavits in response to those of the first defendants at paragraph 2.
   
6. I will then hear the completion of the parties’ arguments on these matters on a date to be fixed at the giving of this Ruling.
   

(R.J. Coventry)
JUDGE