CIRCLE ANGLE LTD v. ORCHARD ENTERPRISE (HONG KONG) LTD

DCCJ 1252/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1252 OF 2011

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J U D G M E N T

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1.  This is a conveyancing dispute. There are 2 summonses before me. The first in time is the application by the defendant (“OEL”) for summary disposal of this action. This was followed by the application by the plaintiff (“CAL”) for amendment of its pleading. Both have been directed to be heard at the same time.

BACKGROUND

2.  The property in question is Flat E on the 12^th Floor, including the roof, of Aldrich House, No.373 Shaukeiwan Road, Hong Kong (“the Property”). OEL was at the material time the registered owner of the Property.

3.  By a provisional agreement dated 9 January 2011, OEL agreed to sell and CAL agreed to buy the Property subject to tenancy (“the Provisional Agreement”).  Upon that, CAL paid to OEL an initial deposit in the sum of HK$179,000.

4.  Pursuant to the Provisional Agreement, the parties entered into a formal sale and purchase agreement on 21 January 2011 (“the Formal Agreement”). Upon that, CAL paid to OEL a further deposit in the sum of HK$179,000.

5.  It was expressly stated in the Provisional Agreement that CAL was aware that the Property was subject to a Building Notice (Notice No. WC/TA01801/09/HK-P09) by the Building Authority under section 24C(1) of the Buildings Ordinance (“the Building Notice”).  It was provided (under clause 12) that CAT would not be entitled to refuse to complete for that reason.

6.  Similar condition was stipulated in the Formal Agreement (under clause 30 that incorporated Schedule 11).

7.  Completion was due to take place at or before 17:00 on 21 March 2011 (under clause 3 and Schedule 6).  Time was of the essence.

8.  The Formal Agreement contained the usual default provisions (clause 13):

“13.1 If the Purchaser shall for any reason (other than due to the default of the Vendor) fail to complete the purchase in accordance with the terms and conditions of this Agreement, the Vendor shall be entitled (without prejudice to any other right or remedy available to him) to forfeit the deposit and to resell the Property and after crediting the deposit, to recover from the Purchaser any deficiency in price which may result on and all expenses incurred in such resale.

13.2 If the Vendor shall for any cause (other than the default of the Purchaser) fail to complete the sale in accordance with terms and conditions of this Agreement, the said deposit shall forthwith be refunded to the Purchaser who shall also be entitled to recover from the Vendor such further damages (if any) over and above the said deposit as the Purchaser may suffer by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution before taking any proceedings to enforce specific performance of the agreement or for damages for breach of the agreement.”

9.  Since 16 February 2011, Messrs Kenneth C C Man & Co (“KM”) for OEL and Messrs Kok & Ha (“KH”) for CAL have been engaged in correspondence regarding requisitions on title.  Soon the parties started to argue first about the responsibility to comply with the Building Notice; and then about the responsibility for the cost of complying with the Building Notice.

10.  By letter dated 21 March 2011, KH on behalf of CAL informed KM that CAL thereby rescinded the Formal Agreement; and demanded the return of the deposit paid in the total sum of HK$358,000 within 5 days.

11.  On the following day, KM tendered their draft cancellation agreement to KH for approval.  KH replied with suggested amendments to the draft on the same day. The cancellation agreement was not concluded or signed.

12.  On 23 March 2011, KM wrote to KH, stating that CAL was in breach of the Formal Agreement for failing to complete the sale and purchase by 5 pm of 21 March 2011 as agreed.  On behalf of OEL, KM forfeited the deposit paid by CAL.  The title deeds and documents were forthwith returned to KH.

13.  CAL commenced the present action against OEL claiming for a declaration that it is entitled to rescind the Agreement and the return of the deposit paid.  The basis of the claim is that by KM’s letter dated 18 March 2011 (above), OEL repudiated the Formal Agreement by denying liability for the cost to be incurred for complying with the Building Notice; and CAL accepted such repudiation by KH’s letter dated 21 March 2011 (above).  In April 2011, CAL caused the Writ and the Amended Writ herein to be registered against the Property in the Land Registry.

14.  OEL denies the claim, relying on the fact that CAL was aware of the Building Notice by the time of the 2 agreements between the parties and the terms of the agreements.  Insofar as the requisition on title by reason of the Building Notice is concerned, OEL contends that it has been satisfactorily answered.  In any event, it is said that the alleged refusal of OEL to bear the cost of complying with the Building Notice did not discharge CAL from the obligation to complete. In the circumstances, OEL says it was CAL which was in breach.  Accordingly the claim and the registration of the same against the Property are wrongful.

15.  By way of Reply, CAL added that KH’s letter dated 21 March 2011 was issued subsequent to an oral agreement between the solicitors to cancel the Formal Agreement. The draft cancellation agreement incorporating further terms followed.

16.  By summons dated 17 August 2011, OEL seeks to dispose of the case by summary procedure.  Under O.14A, OEL proposes 5 questions of law to be determined summarily.  Alternatively, the claim is liable to be struck out under O.18, r.19.

17.  Alternatively, OEL asks for summary judgment on the counterclaim.  The basis of the defence and counterclaim is that OEL has rightfully rescinded the Formal Agreement and forfeited the deposit.  Nevertheless OEL does not actually claim for rescission or forfeiture of deposit or declaration of its right to do so.  OEL seeks judgment in terms of the prayer of the Counterclaim, namely, an order for vacating the registration of the Writ and the Amended Writ as lis pendens against the Property.  In the circumstances, O.14 instead of O.86 was relied on.

18.  2 weeks later, on 31 August 2011, CAL took out a summons applying for leave to amend its statement of claim.  The principal amendments concern the pleading of the alleged implied rescission of the Formal Agreement by reason of the alleged oral agreement between the parties’ solicitors in the morning of the completion date; and the alternative contention of waiver of the time of completion on the part of OEL.

HOW THE FORMAL AGREEMENT WAS TERMINATED

19.  The Building Notice was issued on 12 January 2010 specifying the rectification works to be completed by 13 March 2010.  There is no dispute that the Building Notice was yet to be complied with by the time of the Provisional Agreement and Formal Agreement.

20.  Clause 12 of the Provisional Agreement reads:

“備註：本合約包括以下所列之條款：買方清楚知道上述楼宇有大厦令No. WC/TA0181/09/HK-P09 BY THE BUILDING AUTHORITY UNDER SECTION 24C(1) OF THE BUILDINGS ORDINANCE。買方日后不能藉此拒絕交易。本合約為必買必賣合約……“

21.  Likewise the Formal Agreement provide:

           Clause 30

“The parties hereto further acknowledge that the terms and conditions, if any, set out in Schedule 11 hereto shall be incorporated as part and parcel of this Agreement and be binding between them as if they were set out in the body of this Agreement. In the event of any conflict or inconsistency between the conditions in this Agreement and the terms and conditions as set out in the said Schedule, the terms and conditions set out in the said Schedule shall prevail.”

Schedule 11

“Additional terms:

(1) 買方清楚知道上述楼宇有大厦令No. WC/TA0181/09/HK-P09 BY THE BUILDING AUTHORITY UNDER SECTION 24C(1) OF THE BUILDINGS ORDINANCE。買方日后不能藉此拒絕交易。

……”

22.  By letter dated 17 February 2011, KH raised requisition with respect to the Building Notice:

“Please let us know[n] what steps your client has taken to ensure compliance with Building Notice Memorial No. 10061700420250 before completion, and let us know of the estimated costs involved for compliance thereof.”

[Emphasis added]

23.  KM’s reply came a month later on 16 March 2011.  It was suggested that the parties had reached settlement in respect of the Building Notice issue.  This was denied by CAL through KH’s letter dated 18 March 2011:

“3. We are instructed that no settlement has been reached between our respective client, and your client is obliged to comply with the said Government Notice at its costs and expenses by completion.”

[Emphasis added]

24.  Pausing here, I think it is clear that CAL had consistently agreed to complete notwithstanding the existence of the Building Notice.  In other words, CAL agreed to take the assignment of the Property subject to the Building Notice (if it still existed on the completion date).  As Mr Chong for OEL accepted, this amounted to encumbrance on his client’s title in the Property.  But CAL’s demand for OEL’s compliance with and thus removal of the Building Notice by completion was inconsistent with what the parties agreed.

25.  Having said that, I can see that the concern of CAL about the cost of complying with the Building Notice that it (as the successor in title of the Property) might have to incur after completion.  Hence, by another letter dated 18 March 2011, KH proposed that a sum of HK$80,000 be deducted from the balance of the purchase price payable to OEL to be stake-held by KH upon completion with a view to applying the same towards the cost and expenses for complying with the Building Notice after completion.  Together with the draft assignment, KH also tendered for KM’s approval the draft undertakings for completion consisting one for the payment of such cost by OEL.

26.  In reply to both letters from KH dated 18 March 2011, KM wrote on behalf of OEL on the same day refusing to acknowledge responsibility to bear the cost of compliance with the Building Notice on the ground that CAL agreed to purchase the Property on an “as is” basis; and that CAL could not refuse to complete notwithstanding the existence of the Building Notice.

27.  On the following day, KH replied and referred to clause 17 of the Formal Agreement:

“Property Repair Notice

The Vendor hereby warrants and declares that the Vendor has not received and is not aware of there being any notice and/or order from any Government or other competent authority requiring the Vendor to demolish or reinstate any part of the Property.  If it should be discovered that such notice and/or order existed prior to the date hereof or if any such notice and/or order shall be served before the date for completion, the costs for such demolition or reinstatement shall be borne by the Vendor.”

[Emphasis added]

28.  According to the pleading as it now stands, CAL treated the above reply from KM on behalf of OEL dated 18 March 2011 as repudiatory of the Formal Agreement.  But the fact was that notwithstanding such reply, the parties started to negotiate on the sum to be paid by OEL on account or in settlement of the cost that CAL might have to incur in complying with the Building Notice after completion.

29.  On 19 March 2011, KM on behalf of OEL by open letters offered to pay HK$18,000; and returned to KH the approved draft assignment and draft undertakings.  The negotiation resulted in no agreement; and there came KH’s letter to KM dated 21 March 2011 (i.e. on the completion date).

30.  Though KH stated that CAL “will” exercise its right to rescind the Formal Agreement, there was no real future sense in this communication.  The demand for the return of the deposit within 5 days from the date of the letter demonstrated the immediate nature of the exercise of the right.

31.  KH spoke of ‘rescission’ of the Formal Agreement; but the basis of that was not mentioned in their letter dated 21 March 2011.  As mentioned, CAL’s pleaded case is repudiation by OEL that CAL allegedly accepted by that letter.  The pleaded case of CAL is therefore termination, not rescission, of the Formal Agreement.  This, I say, was loose terminology.  Nevertheless the communication was unequivocal in that CAL would not complete.

32.  Obviously for certainty and finality, the parties attempted to crystallise the extent of the liability for the cost of complying with the Building Notice by way of undertaking upon completion.  However much the parties would have hoped to do that, CAL was not in a position to insist on the provision of such undertaking by OEL upon completion.

33.  The fact was that OEL was already bound by clause 17 of the Formal Agreement.  In the absence of the undertaking upon completion, CAL would have been entitled to hold OEL liable for the cost incurred in complying with the Building Notice after completion.  This was a contractual right that had to survive completion in order to be effective.  Further acknowledgement by OEL of such obligation before the completion date was unnecessary.

34.  In the circumstances, I do not agree that OEL actually refused to acknowledge the responsibility under clause 17 of the Formal Agreement.  I also do not agree that CAL could treat OEL’s refusal to agree to provide the undertaking as to the cost of complying with the Building Notice upon completion as repudiatory of the Formal Agreement.  Seeking to terminate the Formal Agreement on such basis was unjustified.  This amounted to repudiation of the Formal Agreement.

35.  The time for completion lapsed.  On the following day, KM sent to KH the draft cancellation agreement.  This was apparently connected with the telephone conversation between Mr Ha of KH and Mr Chow of KM that morning, the exact content of which is in dispute.  On the same day, KH returned the draft with proposed amendments.

36.  No cancellation agreement was concluded.  As mentioned, on 23 March 2011, KM wrote to KH as follows:

“……

In blatant breach of the Agreement, by 17:00 o’clock on 21^st March 2011, your client has nonetheless failed to pay the balance of purchase price in the sum of HK$3,222,000.00 to our client to complete the purchase of the Property. Such blatant breach of the Agreement clearly and unequivocally amounts to a repudiation of the contract made between our respective clients which repudiation our client hereby accepts. Consequently, in exercise of its rights conferred upon it under the Agreement, our client hereby forfeits the deposit paid by your client under the Agreement in the total sum of HK$358,000.00.

……”

37.  At any time after KH’s letter dated 21 March 2011 and up to 17:00 on 21 March 2011, CAL’s unequivocal communication of its decision not to complete was still anticipatory breach by nature.  OEL did not accept that.  That moment of the day having passed, the breach became one of non-completion on the completion date as agreed, which was no longer anticipatory but actual breach.  This was apparently KM’s turn in mixing up the terminology in its letter dated 23 March 2011.

THE PROPOSED AMENDMENTS

38.  As mentioned, reference is made in the Reply to the alleged oral agreement between the solicitors for the parties whereby the parties were said to have agreed to cancel the Formal Agreement and OEL to return the deposit.  But the relevance of such reference is unclear.  It is not suggested that the Formal Agreement was terminated pursuant to the alleged oral agreement.

39.  Apparently the proposed amendments of the Statement of Claim are introduced exactly to build on the alleged oral agreement between the parties to cancel the deal in the morning of 21 March 2011.

The amendments

40.  The substantial amendments proposed consist of §§7A to 8 of the statement of claim.  There was the alleged oral agreement between the parties’ solicitors on 21 March 2011 whereby the Formal Agreement would be rescinded and the deposit would be returned (“the Alleged Oral Agreement”).  Pursuant to the Alleged Oral Agreement, KM on behalf of OEL tendered the draft cancellation agreement on 22 March 2011.

41.  The allegation is not new, as the same has been pleaded in the Reply (at §5).  Newly introduced by the proposed amendments are the relevance and effect of the Alleged Oral Agreement, namely:

(1)  By reason of the lack of completion as agreed and the preparation of the cancellation agreement pursuant to the Alleged Oral Agreement, the Formal Agreement has been impliedly rescinded (§§7C-7D).

(2)  Alternatively, OEL has waived the time for completion under the Formal Agreement so that the parties were entitled to complete within a reasonable time thereafter.  By its notice to terminate the Formal Agreement and to forfeit the deposit by letter dated 24 March 2011, OEL is said to have evinced the intention not to be bound and thus repudiated the Formal Agreement.  Such repudiation was accepted by CAL by the filing of the Statement of Claim herein.

42.  Mr Chong submitted that the amendments would not salvage CAL’s case as the contentions are unsustainable both in law and fact.  As such, the proposed amendments should not be allowed.

The Alleged Oral Agreement and implied rescission

43.  Miss Lam for CAL relied on Morris v Baron [1918] AC 1 at 18-19 and Chitty on Contracts Vol.1 at 22-030 for her contention of implied rescission.  The alleged implied rescission of the Formal Agreement is said to have taken effect upon the reaching of the Alleged Oral Agreement in the morning of 21 March 2011 prior to the letter from KH.

44.  In her submissions, Miss Lam described that the Alleged Oral Agreement was reached between the parties’ solicitors on the completion date to cancel the Formal Agreement on the terms of the draft cancellation agreement that was sent on the following day.  The draft cancellation agreement was said to have been prepared to give effect to the terms already agreed between the parties.  Was that the case?

45.  The Alleged Oral Agreement is said to have been reached during the telephone conversation between the parties’ solicitors in the morning of 21 March 2011, the completion date.  According to the affidavit evidence, the existence of a telephone conversation between the solicitors in that morning is not disputed by KM.

46.  The telephone conversation between the solicitors was referred to in KH’s letter dated 21 March 2011.  But instead of reciting what the parties had allegedly agreed during the telephone conversation just referred to, KH suggested that his client unilaterally exercised the right to rescind (or terminate) the Formal Agreement and to demand the return of the deposit.

47.  Further on behalf of CAL, KH demanded the return of the deposit within 5 days from the date of the letter dated 21 March 2011.  This differed from the draft cancellation agreement, which, without controversy, provided for the return of the deposit only upon the signing of the cancellation agreement.  Upon receipt of the draft cancellation agreement, KH on behalf of CAL were still proposing the inclusion of an indemnity by OEL to CAL against any claim by the estate agent.

48.  Contrary to Miss Lam’s submission, it can hardly be said that the terms of the draft cancellation agreement were already agreed during the telephone conversation in the morning of 21 March 2011; and that the draft cancellation agreement was prepared merely to give effect to them.

49.  The contemporaneous documents show that whatever the parties might be negotiating with a view to entering into a cancellation agreement, nothing was meant to be final unless and until such an agreement was signed.  The terms of the draft cancellation agreement made that clear.  The parties were yet to and in fact failed to do so after CAL’s unilateral termination of the Formal Agreement.

50.  In the circumstances, even on the principles submitted by Miss Lam, the contention of a concluded agreement to cancel the deal is inconsistent with the contemporaneous evidence.  The very basis for the contention of implied rescission does not take root.

Waiver and notice to complete

51.  This is CAL’s alternative stance by way of the proposed amendments, contemplating that the Alleged Oral Agreement or implied rescission may not stand.  It is contended that OEL had by conduct waived the provision for completion to take place by the completion date.  OEL could not then seek to terminate the Formal Agreement unless CAL refused to complete despite OEL’s notice.  OEL had not given such notice to complete before KM’s letter dated 24 March 2011.  On this basis, it was allegedly OEL that repudiated the Formal Agreement; and CAL accepted the same by the commencement of the present action.

52.  Miss Lam relied on Town Bright Industries Ltd v Bermuda Trust (Hong Kong) Ltd [1998] 2 HKC 445 (on appeal, CACV 137/1998 (21 January 19990 at pp.20-22).  But in both the first instance and the appeal, the court in Town Bright Industries did not actually spoke in terms of waiver.  It is therefore necessary to understand the nature of the waiver being referred to and more importantly the circumstances of that case that led to the court’s conclusion there.

53.  As mentioned, the stance of CAL as per KH’s letter dated 21 March 2011 constituted anticipatory breach of the Formal Agreement.  At any time prior to 17:00, OEL would have entitled to terminate the deal by accepting such repudiation.  That did not happen; and the Formal Agreement remained alive until 17:00.  That was waiver of repudiatory breach by election, the election being between the right to accept the repudiation (and thus terminating the Formal Agreement) and the right to wait until the time for completion.  OEL had effectively elected the latter.  The Formal Agreement was affirmed until the last minute of the time for performance/completion.

54.  What CAL now seeks to contend by way of the proposed amendments is that OEL had waived the obligation to complete on the completion date.

55.  Chapter 22 of Chitty on Contracts (part of which was referred to by Miss Lam above) provides a good starting point in understanding such waiver.  At §22-040:

“Waiver or forebearance. Where one party voluntarily accedes to a request by the other that he should forbear to insist on the mode of performance fixed by the contract, the court may hold that he has waived his right to require that the contract be performed in this respect according to its original tenor. Waiver (in the sense of “waiver by estoppel” rather than “waiver by election”) may also be held to have occurred, if, without any request, one party represents to the other than he will forbear to enforce or rely on a term of the contract to be performed or observed by the other party, and the other party acts in reliance on that representation.”

At §22-042:

“Effect on party forbearing. The party who forbears will be bound by the waiver and cannot set up the original terms of the agreement. If, by words or conduct, he has agreed or led the other party to believe that he will accept performance at a later date than or in a different manner from that provided in the contract, he will not be able to refuse that performance when tendered……If the period of postponement is not specified in the waiver, the party forbearing is entitled, upon reasonable notice, to impose a new time-limit, which may then become of the essence of the contract……”

56.  The above principles noted, it should also be noted that the obligation to complete on the completion date was mutual.  If both sides by conduct continue towards the deal notwithstanding the lapse of the completion date, either party is not entitled to subsequently take the stand that the other fails to complete, and is thus in breach, unless time for completion has been made of the essence again by reasonable notice to complete.

57.  This was what the court in Town Bright Industries spoke of in the first instance and somehow in the appeal.  There the originally agreed completion date had been extended by agreement.  The purchaser requested for further extension; but was never acceded to.  The parties continued their correspondence in respect of the requisitions on title.  On the extended completion date, the vendor gave notice to complete without specifying any new date for completion.  Correspondence in respect of conveyancing points nevertheless continued on both sides.  Neither side made time of the essence, still less either side stipulated a reasonable time for completion.  The purchaser gave notice to the vendor seeking to rescind the deal.

58.  In the first instance, Hartmann J (as he then was) found (at 458H-460F) that notwithstanding the lapse of the extended completion date, the vendor was continuing to attempt to answer the purchaser’s requisitions and was doing so with candour in a bona fide attempt to show good title.  The contract did not terminate at the midnight of the extended completion date but continued with the substitution of a reasonable time for the failed express condition that completion be on the specified date.  In the circumstances, the purchaser was not able, without notice, to rescind in the manner it did without first serving a notice to complete within a reasonable time and to make it of the essence.

59.  The purchaser appealed.  Rogers JA agreed with what Hartmann J said above in the first instance; and dismissed the appeal.  The appeal was nevertheless allowed by majority, who did not really discuss the issue of the entitlement of the purchaser to rescind in the absence of a reasonable notice to complete.

60.  In any event, even on the basis of what Hartmann J and Rogers JA said in Town Bright Industries (above), the present case is distinguishable on the facts.  Rogers JA (at pp.22-23 of the judgment) said:

“in view of the facts of the case……the Plaintiff’s attempt to rescind the agreement was, in the circumstances, premature. Although it might not have been necessary to have waited any further period had the Defendants indicated unequivocally that they would do nothing further, the position, seems to have been sufficiently fluid that more time should have been allowed to elapse.”

61.  The peculiar circumstances of the present case were that CAL communicated its unequivocal decision not to complete and its demand for the return of the deposit in 5 days while the parties were yet to agree on a cancellation agreement. Whilst the 21 March 2011 letter apparently did not affect the parties’ negotiation to enter into such an agreement, CAL could hardly suggest that nevertheless it was, or would have been, ready and willing to complete, only that it was led to believe that the contractual completion date would not be adhered to.

62.  What CAL now effectively seeks to do is to capitalise to its advantage the fact that OEL was prepared to consider entering into a cancellation agreement by suggesting that the position was still fluid (as Rogers JA put it) so that CAL was entitled to a reasonable notice to complete.  This cannot be right.

63.  In the absence of premature termination of the Formal Agreement, for instance by acceptance of anticipatory breach prior to 17:00 on 21 March 2011, the actual failure of CAL to complete gave rise to the entitlement of OEL to forfeit the deposit as of right pursuant to clause 13 of the Formal Agreement (above).  Apart from OEL’s readiness to consider entering into a cancellation agreement, which did not materialise, there is no suggestion of any conversation between the parties or conduct of OEL since the completion date that amounted to waiver of the right under clause 13(2).

THE PARTIES’ APPLICATIONS

64.  Against the above background and on the basis of the above discussion, I shall deal with the parties’ respective applications as follows.

O.14A

65.  OEL proposes the following questions for determination:

Question 1(a)

Whether upon entering into the Provisional Agreement with the express term set out in the Remark Column (i.e., clause 12), CAL is entitled to (i) raise requisition on the title of the Defendant; or (ii) refuse to complete the sale and purchase by reason of the existence of the Building Notice affecting the title of the Property?

Question 1(b)

Whether upon entering into the Formal Agreement with the Additional Term therein (i.e., clause 30; clause (1) of Schedule 11), CAL is entitled to (i) raise requisition on the title of the Defendant; or (ii) refuse to complete the sale and purchase by reason of the existence of the Building Notice affecting the title of the Property?

Question 2

Whether, upon the express terms in the Formal Agreement, in particular, inter alia, clauses 2, 3, 6, 8, 12, 13 and 30 thereof (and the 2^nd Schedule to the Conveyancing and Property Ordinance, Cap.219 being incorporated), CAL would have contractually accepted OEL’s title？

Question 3

Whether upon drawing attention to CAL’s solicitors in the letter dated 18 March 2011 the express terms of the Formal Agreement and that CAL could not refuse to complete the purchase by reason of the existence of the Building Notice, OEL has sufficiently answered the requisition raised by CAL？

Question 4

Whether refusal on the part of CAL to complete the sale and purchase unless OEL would be willing to bear the cost of complying with the Building Order constituted repudiation of the Formal Agreement as would entitle OEL to accept the same as an end？

Question 5

Whether the Amended Writ of Summons and Statement of Claim constituted lis pendens for the purpose of the Land Registration Ordinance as would render it registrable？

66.  The principles governing the applicability of O.14A are not in dispute. The Court of Appeal stated following approach in Rockwin Enterprise Ltd v Shui Yee Ltd [2003] 3 HKC 174 (at 182I – 185I):

(1)  The first two requirements under O.14A(1) must be satisfied, namely, that the question of law or construction is one that is suitable for determination without a trial; and that it would finally determine the entire cause or matter or any issue or claim therein.

(2)  Even where the above requirements under O.14A(1) are satisfied, the court retains a residual discretion whether or not to embark on a determination of a question under the Order.

(3)  As to how the residual discretion should be exercised in any given case, this would depend on the circumstances and the perception and instinct of the judge seized of the matter.  But the court must be satisfied that it has all the necessary facts and matters before it in order to determine the question of law of construction.

(4)  The circumstances relevant to the exercise of the discretion would be: (i) that the question of law or construction is a dominant feature of the case; (ii) if the question of construction is dealt with, this may or would enable the parties to avoid the expense of trial and assist them in the efficient disposal of the action.

(5)  The court will take an overall view of the matter to see the context in which the question arose.  If the court is of the view that there would be no great saving of time or costs in determining the question, this would be a factor against adopting the procedure.

67.  By now, OEL probably expect answers to the questions proposed for determination to be in its favour.  However, taking an overall view of the matter, as I did above, and considering the questions, I am not satisfied that merely answering the questions will be a satisfactory way to achieve final determination of the dispute.

68.  The questions are proposed on the basis of OEL’s termination of the Formal Agreement upon acceptance of anticipatory breach on the part of CAL by refusing to complete unless OEL accepted liability for the cost of complying with the Building Notice to be incurred by CAL after completion.  This is particularly apparent from question (4) above.  As discussed, OEL’s case is actual breach on the part of CAL by failing to complete on the completion date.

69.  Though the reference to the Alleged Oral Agreement in the Reply bears no elaboration of its relevance or effect, the contemporaneous evidence of negotiation for the cancellation of the deal by agreement after KH’s letter dated 21 March 2011 is not to be ignored, even without the proposed amendments.  Answering the questions proposed alone will not address such concern of the court.

70.  I also have doubt about question (5) which is apparently about whether the writ and amended writ constituted lis pendens and therefore registrable in the first place.  The lien arises out of the payment of the deposit while the security of the lien thus arisen is enforced when the vendor is said to have failed to complete: see Li Sze Fat v Cheng Ka Leung Tommy [2000] 3 HKC 224 (at 232D-H).

71.  In Fung Kan Wai v Leung Shui Fat [1999] 4 HKC 70 (which was referred to by both counsel), the court had this to say (at 77C-D):

“ It follows, therefore, that if the purchaser chooses to terminate the contract by repudiation and thereby to disentitled himself to the property, there are no ground for a lien. That is no injustice to the purchaser, for the lien is created by the contract and exists in support of it, and it is the purchaser who has brought the contract to an end.

         It follows, therefore, that the registration of the lis pendens was wrongful.”

72.  Therefore the claim on lien did by nature constitute lis pendens and is prima facie registrable.  Whether CAL’s claim for the lien is well founded is another question to be decided.  If it was CAL that is found to be in breach and therefore disentitled itself from the right to the Property and hence the lien, registration of the lis pendens ought to be vacated because the registration is found to be wrongful, not that it was not registrable by nature in the first place.

O.14

73.  The principles governing summary judgment under O.14 are not in dispute.  The consideration of the case under O.14 is not confined to the formulation of questions of law or construction.  Nor is that affected by the principles governing O.14A.  For the application for judgment to be entered on the counterclaim, what I have to consider is whether the defence of CAL to the counterclaim is credible and arguable.

74.  The only real factual dispute that CAL seeks to raise relates to the Alleged Oral Agreement.  As discussed, the allegation of a concluded oral agreement to cancel is contradicted by the contemporaneous documentary evidence.  I find the defence to the counterclaim to be incredible and unarguable, even assuming that the proposed amendments are allowed.

75.  The basis for the claim for the lien falls; and therefore the registration of the lis pendens must go.

The application to amend

76.  The contentions on the basis of the proposed amendments are unsustainable as a matter of law and fact, even if allowed.  The application to amend the Statement of Claim by CAL should therefore be dismissed.

Conclusion

77.  CAL’s application to amend is dismissed.  On OEL’s application, I enter judgment in terms of paragraph (1) of the prayer of the counterclaim.  The entering of judgment on the counterclaim mirrors that the claim cannot stand.  Insofar as necessary, I dismiss the claim.  Following this event, I make a nisi order that OEL shall have the costs of this action as well as these applications.  Costs shall be taxed, if not agreed.  With no disrespect, I certify the engagement of one counsel in these applications.  In the absence of application within 14 days to vary, the nisi costs order shall become absolute.