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

CACV 57/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 57 OF 2012

(ON APPEAL FROM DCCJ NO. 1252 OF 2011)

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BETWEEN

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JUDGMENT

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Hon Lam JA (giving the judgment of the Court) :

1.  This is an appeal against the judgment of Judge Simon Leung in the District Court in respect of,

(a)  An application by the Plaintiff for leave to amend the Statement of Claim;

(b)  An application by the Defendant for summary judgment on the counterclaim and for striking out the Plaintiff’s claim.

2.  The Plaintiff (purchaser) and the Defendant (vendor) were parties to a conveyancing transaction in Jan 2011.  The original completion date provided by the formal agreement was 21 March 2011.  There was disagreement between the parties with regard to the liability arising from a Building Notice issued by the Building Authority on the subject property. The dispute was not resolved and the transaction was not completed on 21 March.  There were discussions between the solicitors for the cancellation of the transaction on 21 and 22 March.  However, they could not reach agreement on the terms of the cancellation agreement. The Defendant forfeited the deposit ($358,000) paid by the Plaintiff on 23 March 2011 on the ground of failure to complete on the part of the Plaintiff.  By this action, the Plaintiff sought to recover the deposit and damages whilst the Defendant counterclaimed for the vacation of the registration of the writ herein as lis pendens.

3.  By a judgment of 6 February 2012, the Judge dismissed the application for amendment and acceded to the Defendant’s application for summary judgment on the counterclaim.  The Judge also dismissed the Plaintiff’s claim which in the context of the Defendant’s summons must be regarded as a dismissal upon the striking out of the Plaintiff’s claim.

4.  The Judge granted leave to appeal on 20 March 2012.

5.  Since the judgment on the counterclaim was granted on an Order 14 application and the claim was struck out under Order 18 Rule 19, these decisions can only be upheld if there is no arguable defence to the counterclaim and it is plain and obvious that the Plaintiff’s claim is frivolous, vexatious or otherwise an abuse of process.

6.  Having regard to the factual matrix leading to the letter of 23 March 2011, even on the Defendant’s own case, we cannot agree with the Judge that summary judgment should be granted on the counterclaim and the claim ought to be struck out.  The relevant facts, as set out in the Affirmation of Chow Lai Ming, the clerk handling the conveyancing transaction in the solicitor firm acting for the Defendant, clearly disclosed an arguable case that the completion of the sale and purchase had been held in abeyance on 21 March 2011 pending negotiations on the terms of a cancellation agreement.

7.  Without pre-empting findings to be made at the trial, we only need to highlight the following events set out in a chronology prepared by Ms Wong SC based on the Affirmation of Chow and documents placed before us,

“18.3.2011	Provision of the draft Assignment & Undertaking Letter by the Purchaser and request by the Purchaser for split cheque instructions and apportionment account.
19.3.2011	Reply by KH to KM that Clause 14 did not absolve the Vendor from the liability to bear the costs of compliance with the Building Notice, citing Clause 17 (which contained the Vendor’s warranty of non-existence of any Government notices that required demolition or reinstatement and agreement to bear costs if such notice be discovered)
19.3.2011	Letter from KM to KH, making the Vendor’s offer to pay $18,000 on completion in full and final settlement of the costs of compliance with the Building Notice
19.3.2011	Approval of the draft Assignment, amendment of the Undertaking Letter and provision of split cheque instructions by the Vendor
21.3.2011
11:15 am	Ha rang Chow to reject the Vendor’s offer to pay $18,000 towards the costs of complying with the Building Notice and to request KM to stakehold part of the balance of the purchase price to secure compliance with the Building Notice.
11:30 am	After taking instruction, Chow rang back Ha that the Vendor’s offer of $18,000 was final.
11:45 am	Ha’s secretary (“Hau”) rang Chow to inform him that the Purchaser had decide not to purchase the Property and to request for refund of the Deposits and making of a cancellation agreement.
21.3.2011	Letter from KH to KM, referring to telephone conversation between Chow and Ha in the morning and stating that Purchaser “will exercise its right to rescind” the Formal Agreement and demanding for return of Deposits within 5 days
22.3.2011 11:30 am	Having taken instructions from the Vendor, Chow telephoned Hau and asked if KH would prepare draft cancellation agreement, to which Hau said it would e better for KM to do so.  Chow agreed.
22.3.2011 3:38 pm	Letter from KM to KH referring to KH’s letter of 21.3.2011 and enclosing a draft cancellation agreement (providing for cancellation of the Agreement and refund of the Deposits upon signing)
22.3.2011 4:55pm	KH faxed over their proposed amendments to KM’s draft cancellation agreement (adding an indemnity of the Purchaser by the Vendor regarding claims by estate agent under the Provisional Agreement)
5:25 pm	Having taken instructions from the Vendor, Chow telephoned Ha to inform him of the Vendor’s rejection of KH’s proposed amendments to the draft cancellation agreement.
23.3.2011	Letter from KM to KH purporting to terminate by accepting the Purchaser’s repudiation (which was the failure to complete by 5 pm on 21.3.2011)”

8.  It is therefore not disputed that there was negotiation between solicitors for the Plaintiff and solicitors for the Defendant with regard to the cancellation of the transaction and it was agreed on 22 March 2011 that the solicitors for the Defendant would prepare a draft cancellation agreement for the Plaintiff’s consideration.

9.  In the draft cancellation agreement prepared by the Defendant’s solicitor and sent to the Plaintiff’s solicitor in the afternoon of 22 March 2011, it recited that the parties had agreed to cancel the transaction in the manner set out in the agreement.  The draft agreement provided for the refund of the deposit to the Plaintiff, each party bearing its own costs and giving mutual release from the sale and purchase agreement.

10.  Though the draft cancellation agreement was not executed subsequently due to the disagreement on an additional term suggested by the Plaintiff’s solicitor, that negotiation only broke down on 23 March 2011.

11.  The lack of agreement on the cancellation does not mean that there was no agreement on the suspension of the sale and purchase agreement in the meantime.  On the evidence, it is reasonably arguable that there had been an agreement between the solicitors to hold the conveyancing transaction in abeyance pending negotiation for the cancellation. Otherwise, what is the point of carrying on with the negotiation after 21 March?

12.  It is noteworthy that there is no suggestion from the Defendant that the engagement in that negotiation was conducted on the basis that its right to claim for repudiation on account of the Plaintiff’s non-performance of its obligation on 21 March 2011 was reserved.  Nor is there any suggestion that the Defendant had asserted on 22 March 2011 that the Plaintiff was already in breach of the sale and purchase agreement.

13.  The Judge fell into error by focusing solely on the question whether there had been an oral agreement on the cancellation.  He took the view that once he rejected the allegation as to the conclusion of an oral agreement on cancellation, the Plaintiff’s claim must fail[1].  With respect, even if there were no concluded agreement on the cancellation, there could be an agreement on the suspension of the completion process in the meantime to facilitate the negotiation for cancellation.  Once the parties embarked on such process of negotiation, it is at least arguable that they had represented to each other by conduct that they would not rely on the non-performance by the original deadline as a repudiatory breach of the sale and purchase agreement.

14.  In other words, it is arguable that the Defendant had through its solicitor represented to the Plaintiff (also through its solicitors) by conduct that it would not insist on the strict adherence to the original deadline for completion.

15.  Whether a finding is to be made to such effect depends on the detailed evidence on what were said between the solicitors from 21 to 23 March 2011.  This has to be a matter for trial.

16.  In the circumstances, we allow the appeal and set aside the order of the Judge.  We would give unconditional leave to the Plaintiff to defend the counterclaim and the striking out application is dismissed.

17.  With regard to the amendments, since there will have to be a trial, we would allow the amendments including the plea regarding the oral agreement.  On the evidence, we do not think we should shut the Plaintiff out from raising the plea.

Submission on Costs by Counsel

18.  We also order the Defendant to bear the costs of the appeal, such costs to be taxed if not agreed without certificate for 2 counsel.  As regards costs below, we would order costs in the cause of the action.