FUNG KAN WAI AND ANOTHER v. LEUNG SHUI FAT AND OTHERS

CACV 71/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 71 OF 1999

(ON APPEAL FROM HCA NO. 6859 OF 1997)

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J U D G M E N T

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Nazareth V-P (giving the judgment of the Court) :

Background

1. The 1st Defendant is an indigenous villager in the New Territories. He was in the happy position of being entitled to build a village-type house on land granted by the Government. Apart from building a house for self occupation, it is apparently not uncommon for the value of the entitlement to be exploited by getting small scale developers to construct village-type houses of which individual floors can be sold off as separate units. Thus two houses or blocks were constructed by the 2nd and 3rd Defendants who were brought in as developers. In fact, the 1st Defendant having received whatever benefit that was agreed remained only to lend his name to whatever was needed. The Plaintiffs, who, like the 2nd and 3rd Defendants, were husband and wife, came into the matter as the purchasers of "Block A, 2nd Floor including Roof" under a sale and purchase agreement ("the Agreement") they entered into with the Defendants. The Agreement came to a premature end when the Defendants terminated it and forfeited the first stage payment on the ground that the second stage payment was late. The Plaintiffs unsuccessfully took proceedings against the Defendants in the Court of First Instance. On the other hand, the Defendants did not succeed completely on their counterclaim. The Plaintiffs now appeal to this Court. A helpful starting point is the Agreement.

The Agreement

2. The following provisions of the sale and purchase agreement are relevant:

"2. Purchase Price: HK$1,480,000.00. Block A, 2nd Floor including Roof (uncompleted building).

3. Method of payment:

Stage 1: 20% of purchase price payable upon signing this agreement, HK$296,000.00 (including initial deposit of $30,000.00).

Stage 2: The purchaser shall, within 2 weeks of the completion of construction works in respect of the second floor of the building, pay 10%, HK$148,000.00.

Stage 3: The balance of $1,036,000.00 shall be paid within one month of the issuance of the certificate of compliance and the payment of premium (pay all balance).

5. The vendor shall be responsible for all construction works of the said property.

6. The said property has 3 storeys, the vendor shall be responsible for duly preparing the separate deed in respect of (that particular) floor and the purchasing and selling procedure in respect of the said property.

7. The premium of the said property shall be paid by the builder, and has been included in the purchase price.

8. The rights and obligations of the vendor and the purchaser.

(i) The purchaser's obligations: if the purchaser shall breach this agreement, the vendor shall be entitled to forfeit the initial deposit paid by the purchaser, and to re-sell the said property by any means. The purchaser shall not object thereto.

(ii) The vendor's obligations: if the vendor shall breach this agreement, the vendor shall compensate the purchaser by paying double the deposit, in addition the purchaser shall be entitled to reserve the right to purchase the said property.

(iii) If the construction of the above-mentioned property shall not be completed by 31st December 1994, or the certificate of compliance shall not be issued (by that date), then the purchaser shall be entitled to a refund of all sums paid plus bank interest, and the agreement shall be cancelled. However (the purchaser) shall also be entitled to continue to request the developer to complete this agreement.

(iv) Both parties acknowledge their understanding of this agreement and (are) willing to observe it. This agreement is in triplicate, each party holds one copy as proof.

9. During construction, the purchaser is entitled to request a change of some of the (building) materials, but the same must comply with Government regulations (details to be separately written)."

The Facts

3. At the time of the signing of the Agreement on 31st March 1994 $296,000.00, which included the initial deposit of $30,000.00, was paid to and received by the 2nd and 3rd Defendants.

4. There was a dispute between the parties as to the circumstances the second stage payment of $148,000.00 was made and refused by the Plaintiff. It is now no longer necessary to be concerned about those matters given the factual findings made by the judge, which have not been appealed.

5. Reverting to the facts, the Defendants on 15th January 1996 terminated the Agreement and forfeited the first stage payment of HK$296,000.00 (including the initial deposit of $30,000.00). The Defendants then on 25th March 1996 entered into a sale and purchase agreement of the property with one Lai Ka Bik for $2.18 million. This agreement was not registered and was later cancelled. On 19th June 1996 they entered into another sale and purchase agreement which was registered with the Land Registry on 8th August 1997.

6. Before that on 27th June 1997, the Plaintiffs took out their writ of summons and on 15th July 1997 registered it in the Land Registry. In their writ they sought inter alia specific performance of the Agreement or alternatively return of their deposit and damages. On 9th December 1997, the Defendants' application to vacate the registration of the writ of summons was dismissed by Deputy Judge Whaley in the High Court but, with leave from him, the Plaintiffs amended their Statement of Claim to include a claim for a lien against the property in respect of the deposits and a further sum equivalent to the deposit. The Plaintiffs also formally abandoned their claim for specific performance. On 25th March 1998 the Plaintiffs registered their Amended Statement of Claim at the Land Registry. On 9th September 1998 the Plaintiffs abandoned their claim for a lien and were accordingly ordered to vacate the lis pendens at the Land Registry by Yeung J. He also granted the Defendants leave to re-amend their defence and counterclaim. In the result, the Defendants counterclaimed:

(i) a declaration that the Agreement was validly terminated by their letter of 15th January 1996,

(ii) a declaration that they were entitled to "forfeit the deposits in the sum of HK$296,000.00 paid by the Plaintiff and to re-sell the said property" and

(iii) a declaration that they were entitled to recover from the Plaintiffs such damages for which they might be held liable to pay to the final purchaser in respect of the lis pendens being wrongfully registered until 9th September 1998.

7. The matter came for trial before Suffiad J. in January 1999. He held that the Plaintiffs were in breach of the Agreement and by his formal order adjudged and declared that:

"1. the Sale and Purchase Agreement between the Plaintiffs and the Defendants dated 31st March 1994 ('the Agreement') was terminated by the Defendants' letter of 15th January 1996;

2. there be no damages awarded for the Plaintiffs' breach of the Agreement as the Defendants have suffered none;

3. the Defendants are entitled to forfeit the initial deposit of HK$30,000.00, the balance amount of HK$266,000.00 be returned to the Plaintiffs;

4. the Defendants' counterclaim for damages for wrongful registration of the lis pendens by the Plaintiffs be dismissed."

The Defendants' appeal

8. The Defendants appealed to this Court seeking the following orders:

1. a declaration that they are entitled to forfeit the deposit in the sum of $296,000.00 paid by the 1st and 2nd Plaintiffs and to re-sell the property;

2. a declaration that the registrations of the writ of summons and subsequently the Amended Statement of Claim in the Land Registry as lis pendens were wrongful;

3. a declaration that the Defendants are entitled to recover from the Plaintiffs such damages for which they might be held liable to pay to the final purchaser in respect of the lis pendens being wrongfully registered and an order that such damages be assessed.

Whether $296,000.00 rightly forfeited

9. Submissions were made on both sides as to whether the deposit of $296,000.00, i.e. 20% of the purchase price, amounted to a penalty. In the event we have not found it necessary to consider these submissions. The judge dealt with the construction of the relevant provisions in the Agreement at p. 13R-14H in the following way:

"..... Clause 8(i) of the Agreement allows the vendor to forfeit the "initial deposit" paid by the purchaser if the purchaser should be in breach of the Agreement. Secondly I note that the only other reference to "initial deposit" in the Agreement is contained in Clause 3 where under Stage 1 the initial deposit refers to $30,000.00. I note also that neither the sum of $296,000.00 nor the sum of $148,000.00 are referred to as deposits in Clause 3 or any other part of the Agreement. Moreover, it is a cardinal principle that in construing a document, the same word used in different parts of the same document should be given the same meaning.

In all the circumstances of this case, I have come to the conclusion that the parties intended that in the event of a breach of the Agreement by the purchaser (in this case the Plaintiff), the Defendant vendor would be entitled to forfeit the initial deposit of $30,000.00.

In the circumstances it is not necessary for me to decide whether or not the $296,000.00 was or was not a penalty if it was to be forfeited....."

10. We agree. This meaning emerges so clearly that there is no need to consider the matter of penalty. We can find nothing in Mr. Mak's submissions for the Defendants that even begins to dent that conclusion. A further consideration in support of the latter is that since forfeiture is only provided in relation to the initial deposit, the inference must be that it does not extend to the balance of the Stage 1 payment. We have no hesitation whatever in dismissing the Defendants' appeal in that respect.

Whether Registrations of Lis Pendens were Lawful

11. In dismissing the Defendants' counterclaim for damages for wrongful registration of the lis pendens the judge said this at p. 14S-15G:

"Lastly, I turn to deal with the Defendants' claim for damages due to the wrongful registration of the lis pendens. Having found the Plaintiffs to be in breach of the Agreement, it appears at first blush that the Defendants must be entitled to damages for the wrongful registration of the lis pendens by the Plaintiffs.

However, on further reflection of the matter, particularly in view of my judgment above that the Defendants are only entitled to forfeit the initial deposit of $30,000.00 and therefore that the balance of the $266,000.00 has to be returned to the Plaintiffs, and which have all this time been held by the Defendants, I am of the view that there has been no wrongful registration of the lis pendens. Accordingly, the Defendants' counterclaim in this respect fails."

12. What the judge seems to be saying in the foregoing reasons is that since it has finally emerged that the Defendants were wrongly holding on to the $266,000.00 the Plaintiffs were somehow entitled to register the lis pendens. But plainly, it is necessary to see whether this accords with the law.

13. Mr. Sham, for the Plaintiffs, does not adopt the judge's approach. He points to section 1A of the Land Registration Ordinance, (Cap. 128), which defines lis pendens as meaning

"Any action or proceeding pending in a court or tribunal that relates to land or any interest in or charge on land."

14. He accepts the statement in Calgary and Edmonton Land Co. Ltd. v. Dobinson [1974] 1 Ch 102; 107G that

"What is registrable as a pending land action is an action or proceeding which claims some proprietary right in the land, and not an action merely claiming that the owner should be restrained from exercising his powers of disposition."

He submits that from the outset, the Plaintiffs' claim was for specific performance of the Agreement which was thus a claim to a proprietary interest in land and was accordingly registrable as a lis pendens. But then, as he says, the Plaintiffs' formally abandoned their claim for specific performance in December 1997. However, with respect to this, he submits that the Plaintiffs at the same time amended their claim to include a claim for a lien against the property in respect of the "deposit". Clearly here his submission must fail for the claim to the lien in respect of the first stage payment, was not a claim to a proprietary interest in the land; on the contrary it would appear to be a claim merely that the owners should be restrained from exercising their powers of disposition. In any case, the claim to the lien was then also abandoned on 9th September 1998 so that the registration of thelis pendens was ordered to be vacated. However, in truth Mr. Sham's submission is simply that because the Plaintiffs were entitled in terms of section 1A, read with sections 2 and 14 of the Land Registration Ordinance, to apply for registration of a lis pendens, the resulting registration must be lawful, or to use the language of the judge, there has been no wrongful registration. This facile submission must be rejected on its face.

15. Mr. Sham also seeks to rely on para. 763 of Vol. 28 of the 4th Edition Reissue, Halsbury's Laws of England p. 388 which recognises that

"A purchaser who has paid a deposit or money on account of the purchase price to the vendor and has then lawfully repudiated his contract has an equitable lien on the vendor's interest in the land agreed to be sold."

However, it can be seen from the authorities cited in support of the statements in that paragraph in particular Whitbread & Co. Ltd. v. Watt [1902] 1 Ch 835, 915, that

"The lien is created by the contract under which the money is paid as part of the purchase-money, and on the faith that the contract will be carried out, and not by the default of the vendor. The default give rise to the necessity for enforcing the lien, but the lien arises from the contract..... the purchaser has a lien, both when the contract goes off for want of title and when the contract is rescinded under a condition enabling the purchaser to rescind. If the purchaser himself makes default the case is entirely different. If the purchaser makes default in such a way as to deprive himself of any debt at all, he cannot have a lien for that which does not exist."

16. The lien is the same in effect as if the vendor had executed a mortgage of the property in the purchaser's favour for the amount covered by the lien (Rose v. Watson [1864] 10 HL Cas 672; Cabra Estates Plc. and other v. Glendower Investments, Chancery Division, 11th November 1992, per Roger Kaye Q.C. (unreported).

17. It follows, therefore, that if the purchaser chooses to terminate the contract by repudiation and thereby to dis-entitle himself to the property, there are no grounds 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.

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

Order for Damages to be Assessed

19. There remains the Defendants' claim for a declaration that they are entitled to recover from the Plaintiffs' damages for which they may be held liable to the subsequent purchasers in respect of the wrongful registration of the lis pendens and for an order that such damages be assessed.

20. Mr. Mak, for the Defendants, has not referred us to any provisions of law or any authority that points to this Court having power to award damages for wrongful registration. In particular section 19 of the Land Registration Ordinance (Cap. 128), which confers power on the court to order vacation of the lis pendens, only confers power to direct the party on whose behalf the registration was made to "pay all the costs and expenses occasioned by the registration or the vacating thereof". The implication of that omission, coupled with the references in some of the authorities cited to statutory provisions in other jurisdictions enabling such damages to be awarded, occasions us some concern. Moreover, no claim in tort and no special damages for wrongful registration of lis pendens were ever pleaded. The only proceedings that are pending are between the subsequent purchasers of the property, their solicitors, and the Defendants who have been brought in as third parties by those solicitors. We are not persuaded that a cause of action exists on these pleadings and that these facts do entitle the Defendants to damages for wrongful registration. Accordingly, we allow the appeal only to the extent of declaring the registration of the lis pendens as wrongful, reserving the matter of damages for determination in the other proceedings. With reference to the other relief sought by the Defendants, we dismiss the appeal. As to costs, the Defendants have only succeeded in part. It seems to us having regard to the entire matter that the appropriate order should be that the Defendants should receive only 50% of their costs.

21. We accordingly allow the appeal only to the extent of declaring the registration of the lis pendens to have been wrongful. As to the costs of the appeal, we make an order nisi that the Defendants are to have 50% of their costs, to be taxed if not agreed.