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

HCA6859/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6859 OF 1997

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J U D G M E N T

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1. The Plaintiffs, being husband and wife and being the purchasers of Block A, 2nd floor and roof of Lung King Villa in Lung Mei Village New Territories ("the Property") bring this claim against the Defendants for breach of the Sale and Purchase Agreement and ask for the return of the deposit paid by them alternatively damages for breach of that Agreement.

Background

2. The 2nd and 3rd Defendants are also husband and wife and together operate and carry on business as property developers. The 1st Defendant is an indigenous villager in the New Territories who is granted land by the Government to build a village-type house in the New Territories. It appears that a practice has developed in the New Territories whereby property developers would purchase this right to build from the indigenous villager and then would handle the necessary application with the relevant government department on behalf of the indigenous villager. At the same time the developer would make themselves responsible for the costs of building the village-type house and would sell off the units as "pre-sold units" to purchasers even before the relevant building licence and/or government permission were obtained so as to generate the cash needed for the building. This appears to have been what happened in this case and accounts for the fact that the 1st Defendant has been named as one of the Defendants albeit that the real dispute is between the Plaintiffs and the 2nd and 3rd Defendants who were the actual vendors although in name the 1st Defendant must necessarily be a vendor.

3. However, at the outset of this case I was informed by counsel for the Plaintiffs that no point would be taken by the Plaintiffs that the Agreement is either unlawful or against public policy.

The Plaintiffs' Case

4. The Plaintiffs' case is that they entered into a Sale and Purchase Agreement for the Property on 31st March 1994 ("the Agreement") with the Defendants. They dealt with the 3rd Defendant at all times and she represented the other two Defendants at all times. The purchase price was $1,480,000. The Agreement was a standard form printed in Chinese. At the time of the signing of the Agreement on 31st March 1994, it is common grounds that $296,000 (which included an initial deposit of $30,000) had been paid to and received by the 2nd and 3rd Defendants. The sum of $296,000 represents 20% of the total purchase price of the Property.

5. Clause 3 of the Agreement provides as follows : -

"Stage 1 : 20% of purchase price payable upon signing this agreement, HK$296,000 (including initial deposit of $30,000).

Stage 2 : The purchaser shall, within two weeks of the starting/completion of construction works in respect of the second floor of the building, pay 10%, $148,000.

Stage 3 : The balance of $1,036,000 shall be paid within one month of the issuance of the certificate of compliance and the payment of premium (pay all balance)."

Before moving on, it should be pointed out that in the English certified translation of the Agreement, that part of Clause 3 is translated as : "Stage 2 : The purchaser shall, within two weeks of the starting (my underlining) of construction works ...". However at the hearing, both counsel informed me that the Chinese character used can equally mean "starting" or "completion" and that at all times both parties and their legal advisers have treated, understood and accepted that the obligation under Stage 2 in Clause 3 arises upon the completion of construction works in respect of the second floor. I have been asked by both counsels to add back the word "completion" into the certified translation and to treat Stage 2 of Clause 3 as referring to "completion" rather than "starting" of construction works in respect of the second floor.

6. The Plaintiffs say that it is implied in the Agreement, in particular Clause 3 thereof, that the Defendants were under a duty to inform the Plaintiffs as to when completion of construction works in respect of the second floor takes place. The Plaintiffs deny that they have ever been notified by the Defendants of such before 8th January 1996 but that several days after 8th January 1996, the 1st Plaintiff saw on his desk in his office in Tai Po Plaza a faxed message from the Defendants informing him that the building work for the 2nd floor of the building in respect of which the Property was located had been completed in September 1995 and that he would have to pay the further 10% i.e. $148,000 within seven days failing which the Defendants would re-sell the Property and refund all the deposit to him.

7. Adhering strictly to the terms as contained in the Agreement the Plaintiffs say that they are entitled to 14 days notice. On that basis the 1st Plaintiff delivered a cheque in person to the 3rd Defendant's office for $148,000 on 17th January 1996 but it was not accepted by the 3rd Defendant. On 20th January 1996, the 1st Plaintiff sent by post a cheque for $148,000 to the 3rd Defendant's office. This cheque was returned to the 1st Plaintiff by the 3rd Defendant. Accordingly the Plaintiffs say that the Defendants are in breach of the Agreement by refusing to accept the cheque on 17th January 1996 and/or by returning the cheque on 20th January 1996.

8. The Plaintiffs also rely on a further argument which Mr Sham for the Plaintiffs calls a "lawyer's point". As I understand it this is not a point which the Plaintiffs, as laymen, rely on but is an argument put forward by their counsel. Clause 8(iii) of the Agreement provides -

"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."

9. Mr Sham's argument is this. It is common ground that the construction of the building in which the Property is located was not completed by 31st December 1994 and the certificate of compliance was only issued on 22nd August 1996. Relying on Clause 8(iii) of the Agreement, Mr Sham submits that the Plaintiffs, despite having given instruction in writing to the builder on 26th September 1995 that they required a double sink for the kitchen and also indicated the various tiles they wished for the kitchen wall, the floor, the roof, the toilet floor and the balcony floor, thereby indicating their intention to continue with the Agreement after the material date of 31st December 1994, are now still in a position to request the refund of all sums paid plus bank interests.

The Defendants' Case

10. The Defendants' case is that since around March 1995 building works started in respect of the Property. Construction work up to the 2nd floor was completed towards the end of August. Upon completion of the construction works up to the 2nd floor, the 3rd Defendant's secretary, Miss Ng Ming Chu, informed all the purchasers by phone that the further 10% had to be paid in two weeks time in accordance with the agreement. She had called both Plaintiffs informing them of same. All the other five purchasers apart from the Plaintiffs had paid the further 10% deposit by 9th October 1995.

11. In the case of the Plaintiffs, after the Plaintiffs had been contacted by Miss Ng, the Defendants did not receive any response from the Plaintiffs so at the instruction of the 3rd Defendant, a letter was prepared by Miss Ng and sent by post to the Plaintiffs' home address as appears on the Agreement. This letter was in Chinese, dated 1st October 1995 and signed by the 2nd Defendant. The contents of the letter informed the Plaintiffs that the construction of the 2nd floor of the building (in respect of the Property) had been completed in August and reminded them that the further 10% had to be paid within two weeks of such completion otherwise the deposit would be forfeited and the Property resold.

12. After this letter was sent to the Plaintiffs, Miss Ng followed up with several further phone calls to the 1st Plaintiff. From the conversation she had with the 1st Plaintiff, she was told by the 1st Plaintiff that he was having some financial difficulties and requested time for payment.

13. Subsequently the 1st Plaintiff spoke directly to the 3rd Defendant on the phone repeating that he was in financial difficulty. As a result the 3rd Defendant agreed over the phone to allow an extension of time until 1st January 1996 to the Plaintiffs for payment of the further deposit.

14. On 2nd January when no further deposit was forthcoming form the Plaintiffs, Miss Ng again called up the 1st Plaintiff by phone. On the phone the 1st Plaintiff told her he would contact the Defendants direct. A further seven days extension was granted by the 3rd Defendant to the 1st Plaintiff. When by 8th January, the Defendants did not hear from the Plaintiffs, the 3rd Defendant (who was not in her office in the earlier part of that day) gave instructions to Miss Ng on the phone to issue yet another letter to the Plaintiffs and to fax this letter to the 1st Plaintiff's office since by then it was known to the Defendants that the 1st Plaintiff was a real estate agent working in Joy House Property Agency Co. which also had dealings with the Defendants' property development business.

15. Due to a misunderstanding by Miss Ng of the 3rd Defendant's instructions given over the phone, Miss Ng had erroneously put in this letter faxed to the 1st Plaintiff words to the effect that if the Plaintiffs failed to pay the further 10% deposit within seven days, the Property would be resold and all the deposit would be refunded back to the Plaintiffs. (This was the faxed letter which the Plaintiff said he saw on his office desk several days after 8th January 1996.)

16. Later the same day when the 3rd Defendant returned to the office and noticed this error on the letter which had already been faxed to the 1st Plaintiff's office, she immediately instructed Miss Ng to prepare a further letter also dated 8th January 1996 retracting this error and informing the Plaintiffs that if the Plaintiffs still ignore this letter, the Defendants will resell the Property and forfeit all the deposits received by them. This second letter dated 8th January 1996 was hand delivered by Miss Ng to the 1st Plaintiff's office in Tai Po Plaza. However according to Miss Ng, she did not hand the letter directly to the 1st Plaintiff but gave it to a female at the 1st Plaintiff's office to be handed to the 1st Plaintiff.

17. When no response was received from the Plaintiffs pursuant to this second letter of 8th January 1996 after seven days, the 3rd Defendant wrote another letter on 15th January 1996 to the Plaintiffs giving notice that the Property would be resold and all the deposit forfeited in accordance with the terms of the Agreement. This letter was sent by post to the Plaintiffs' home address as stated in the Agreement.

18. It is because of this notice given by the Defendants in respect of forfeiting the deposit and reselling the Property that the Defendants did not accept the Plaintiffs' cheque for the further payment of $148,000 on 17th January 1996 and returned the Plaintiffs' cheque for same sent by post on 20th January 1996.

19. Subsequently, having accepted the Plaintiffs' repudiation of the Agreement, the Property was re-sold by the Defendants to one Lai Ka Pik in March 1996 for $2,180,000.

20. Based on this, the Defendants say that it was the Plaintiffs who were in breach of the Agreement for failing to pay the further deposit of 10% until after the Defendants had issued the notice of 15th January 1996 forfeiting all the deposit paid.

21. Moreover the Defendants counterclaim against the Plaintiffs for damages for breach of the Agreement, declarations that the Agreement has been terminated by the letter of 15th January 1996 and that the Defendants are entitled to forfeit the deposit of $296,000.

22. The Defendants also counterclaim for damages for wrongful registration by the Plaintiffs of the lis pendens which I shall deal with later.

Findings of Fact

23. It can be seen from the above that the main issue of fact in dispute between the parties in this case revolves around whether or not the letters of 1st and 15th October 1995 and also the second letter of 8th January 1996 as well as the letter of 15th January 1996 were sent by the Defendants and/or were received by the Plaintiffs. Also in dispute is whether or not there were the phone conversations between the 1st Plaintiff on the one hand with either the 3rd Defendant or her secretary Miss Ng on the other hand in September and the early part of October 1995 and also in early January 1996 when the 1st Plaintiff is alleged to have asked the 3rd Defendant for extension of time for the payment of the further amount of $148,000.

24. Having seen and heard the 3rd Defendant and her witness, Ng Ming Chu, I find them both to be honest and truthful witness. Both their evidence of informing the Plaintiffs, in particular the 1st Plaintiff by phone and later by letter of the completion of construction of the 2nd floor of the building in which the Property was located are supported by the fact that other purchasers of other units in the same two blocks (i.e. Block A and Block B) were also notified at or about the same time at the end of August or early September 1995 and all the other purchasers had by 9th October 1995 already paid their further payments due in their respective agreements which contain similar terms to the Agreement.

25. On the other hand, I find the version of events as told to me by the 1st Plaintiff odd and unsupported by reason. I cannot imagine that the Defendants would have notified all the other purchasers of Block A and Block B but for some unknown reason have left out notifying the Plaintiffs in August or September of the completion of construction of the 2nd floor of the building in respect of the Property, especially when the Defendants depend upon the various stages of payment by these purchasers to finance the construction of the building. Neither can I visualise the fact that three letters sent by ordinary pre-paid post at different dates to the 1st Plaintiff's home address (which is stated in the Agreement) and one letter hand delivered to the 1st Plaintiff's office by Miss Ng would all of them fail to reach the 1st Plaintiff. It may just be possible if one such letter failed to reach its destination by reason of its being misdirected along the way but the chances of all four letters failing to reach the 1st Plaintiff must be so small as to be almost negligible. The only conclusion that I can draw from this evidence of the Plaintiff is that the 1st Plaintiff was not entirely frank and truthful to the Court when he gave this evidence that he did not receive those letters (excepting the first letter of 8th January 1996 sent by fax).

26. I accept, however, that the two Plaintiffs together (as can be seen from their various bank accounts statement produced) had sufficient money during the period from September 1995 to January 1996 to have been able to pay the further payment of $148,000.

27. On the other hand, I also accept the evidence of the 3rd Defendant and that of her witness Miss Ng that the 1st Plaintiff gave the reason of financial difficulty in asking for extension of time to pay the further payment.

28. The conclusion that I draw from these two pieces of evidence is that the 1st Plaintiff was seeking to stall or to delay paying the 10% further payment for as long as he thought he could. In doing so he overstepped the line and when he received the letter of 15th January 1996 from the Defendants informing him that his deposit was to be forfeited, the 1st Plaintiff tried to deliver a cheque in person to the 3rd Defendant's office on 17th January 1996 but unfortunately for him the Defendants would not accept it. A classic case of the 1st Plaintiff getting burnt playing with fire.

29. I therefore make the following findings of facts of those issues in dispute :

1. Construction of the building in which the Property was located was completed up to the 2nd floor in the sense that the superstructure had been built up to the 2nd floor some time towards the end of August 1995 which was the sense understood and intended by the parties to the Agreement.

2. The Plaintiffs were informed by Miss Ng Ming Chu by phone of this fact some time in September and further informed that the further payment of 10% had to be paid in two weeks time.

3. When there was no response from the Plaintiffs to this request, the letter dated 1st October 1995 was sent to the Plaintiffs by the Defendants.

4. Some time between the 1st and 15th October 1995, the 1st Plaintiff, by phone, requested the 3rd Defendant for extension of time to pay the further 10% payment which was agreed to by the 3rd Defendant and an extension granted to the end of the year.

5. The Defendants issued the letter of 15th October 1995 to confirm the said extension of time, this letter being addressed and posted to the Plaintiffs' residential address.

6. On 1st January 1996, the 3rd Defendant again chased after the 1st Plaintiff by phone for the payment of the further 10% when the 1st Plaintiff again requested a further seven days extension.

7. On 8th January 1996 when no payment was forthcoming from the Plaintiffs, a letter prepared by the 3rd Defendant's secretary was faxed to the 1st Plaintiff's office. This letter contained an error due to a misunderstanding by Miss Ng of the 3rd Defendant's instructions in that it stated words to the effect that if the further 10% was not received by the Defendants within one week, the Property would be resold and the deposit would be returned to the Plaintiffs by the Defendants upon the resale.

8. However, immediately on the same day and before such offer was accepted by the Plaintiffs, the Defendant hand delivered a second letter of the same date to the 1st Plaintiff's office correcting that error.

9. When after seven days and no further deposit was paid by the Plaintiffs, on 15th December 1996, the Defendants sent a letter to the Plaintiffs' residential address informing the Plaintiffs that the Property would be resold and the deposit forfeited in accordance with the Agreement which I find was sent to and received by the Plaintiffs.

10. After receipt of the letter of 15th January 1996, the 1st Plaintiff tried to tender the further 10% payment by a cheque on 17th January 1996, but it was not accepted by the Defendants. Likewise a cheque for the same amount sent by registered post by the Plaintiffs to the Defendants on 20th January 1996 was returned by the Defendants.

11. The Property was resold by the Defendants to one Lai Ka Pik for $2,180,000 on 25th March 1996.

Liability on the Plaintiffs' claim

30. On these facts as I have found them, it is clear that the Plaintiffs were in breach of the Agreement.

31. Neither do I accept the further argument put forward by Mr Sham that the Plaintiffs are entitled to a refund of all sums paid plus bank interest under Clause 8(iii) of the Agreement for the simple reason that after 31st December 1994, the Plaintiffs had elected to continue with the Agreement by giving instructions to the builder as to their requirement for the various parts of the Property and must necessarily therefore be estopped from alleging otherwise.

32. Accordingly the Plaintiffs' claim is dismissed.

Defendants' Counterclaim and Reliefs sought

33. Insofar as the Defendants' counterclaim is concerned, it follows that the Defendants are entitled to a declaration that the Agreement was terminated by the Defendants' letter of 15th January 1996.

34. As for the Defendants' counterclaim for damage for breach of contract, it is not disputed that the Property was resold by the Defendants to Lai Ka Pik in March 1996 for $2,180,000. As such the Defendants have suffered no loss as a result of the Plaintiffs' breach. Accordingly there will be no damages awarded for the breach by the Plaintiffs.

35. The Defendants have also counterclaimed for a declaration that they are entitled to forfeit the total sum of $296,000 paid by the Plaintiffs as deposit. This sum represents 20% of the purchase price for the Property. The clause which the Defendants rely on in the Agreement is Clause 8(i) which provides as follows : -

"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."

36. In this respect, the Plaintiffs have taken two points. Firstly that the reference to "initial deposit" in Clause 8(i) means and is intended by the parties to mean the "initial deposit of $30,000" referred to in Clause 3 Stage 1 of the Agreement (which has already been stated above). Secondly, if the words "initial deposit" referred to in Clause 8(i) refers to the full deposit of $296,000 already paid, then it tantamounts to a penalty clause and is unenforceable.

37. In this connection I have been referred to the Privy Council case of Workers Trust & Merchant Bank Ltd v. Dojap Investment Ltd. [1993] AC 573, (being an appeal from the Court of Appeal of Jamaica) and also extensively to Hong Kong Conveyancing, Cases and Materials by Sihombing and Wilkinson. I have also been referred to the local case of China Pride Investment Ltd. v. Silverpole Ltd. [1994] 2 HKC 341 where the Court of Appeal applied the decision in the Workers Trust case.

38. I respectfully accept that the law as stated in China Pride by the Court of Appeal to be the correct law in Hong Kong relating to 'deposits' of over 10%.

39. Coming back to the present case I note first of all that 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. I note also that neither the sum of $296,000 nor the sum of $148,000 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.

40. 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 Defendants vendor would be entitled to forfeit the initial deposit of $30,000.

41. In the circumstances it is not necessary for me to decide whether or not the $296,000 was or was not a penalty if it was to be forfeited. However if it was necessary to decide that issue, I would have no hesitation in holding that it was a penalty and not a genuine pre-estimate of damages in case of breach. The reason is that in all the circumstances of this case, there is nothing to suggest that there was any special reason to fix a genuine pre-estimate of damages at 20% of the purchase price. Rather the only plausible reason that I can see for a payment of 20% at the signing of the Agreement was because the Defendants vendor depended on these payments agreed to be made at various stages in order to finance the building or construction of the Property. As such this 20% of the purchase price paid when the Agreement was signed by the parties herein on 31st March 1994 did not represent and was not intended to represent earnest money to ensure the performance of the Agreement. Thus it can only be a penalty and unenforceable.

42. 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.

43. 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 and therefore that the balance of the $266,000 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.

Conclusion

44. To sum up, I shall make the following orders : -

1. The Plaintiffs' claim is dismissed;

2. A declaration that the Agreement was terminated by the Defendants' letter of 15th January 1996;

3. There will be no damages awarded for the Plaintiffs' breach of the Agreement as the Defendants have suffered none;

4. A declaration that the Defendants are entitled to forfeit the initial deposit of $30,000, the balance amount of $266,000 to be returned to the Plaintiffs;

5. The Defendants' counterclaim for damages for wrongful registration of the lis pendens by the Plaintiffs is dismissed.

Costs

45. I shall make the following costs order nisi that the costs of the Plaintiffs' claim and the costs of the Defendants' counterclaim be to the Defendants to be taxed if not agreed and that the Plaintiffs' own costs to be taxed in accordance with Legal Aid Regulations.

Representation:

Mr Walker Sham, inst'd by M/s Stevenson, Wong & Lai, for the Plaintiffs

Mr Andrew Mak, inst'd by M/s Simon Siu, Wong, Lam & Chan, for the Defendants

1997, No.A6859

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. There are two applications before me :

(1) the Defendants' application under ss.19 and 20 of the Land Registration Ordinance, Cap.128, that the registration (by the Plaintiffs) in the Land Registry of the Writ of Summons in this action as a lis pendens be vacated;

(2) the Plaintiffs' application to amend their Statement of Claim.

2. By an agreement in writing dated 31 March 1994 the Plaintiffs agreed to purchase from the 1^st Defendant a three-storey small house ("the Property") to be built on a piece of land in the New Territories, for a price of $1.48 million. In terms of the Agreement, payment was to be effected as follows :

(a) a deposit of 20% of the purchase price in the sum of $296,000 to be paid upon signing the Agreement;

(b) a further deposit of 10% of the purchase price in the sum of $148,000 to be paid within two weeks of the completion of construction works in respect of the 2^nd floor of the building;

(c) the balance in the sum of $1,036,000 to be paid within one month of the issuance of the Certificate of Compliance and the payment of premium.

3. It is common ground that the Plaintiffs did pay the first deposit in the sum of $296,000 upon signing the Agreement.

4. Construction work upon the house was in due course completed in about September 1995. The Plaintiffs did not pay the further deposit which was required in terms of paragraph (b) above. They alleged that it was an implied term of the Agreement that the 1^st Defendant would give them notice of the completion of the construction work, thus enabling them to comply with their duty to pay the further deposit within two weeks thereof. The Defendants denied the implication of such a term in the Agreement, but alleged that in any event they did repeatedly inform the Plaintiffs of the completion of the construction works, most particularly by letters dated 1 and 15 October 1995 and 8 January 1996.

5. The Plaintiffs denied having received the earlier letters, and claimed that it was only upon their receipt of the letter of 8 January 1996 that they received notice, for the first time, of the completion of the construction works. They contended that by extension of the aforesaid implied term in the Agreement, they had 14 days from 8 January 1996, namely until 22 January 1996, within which to pay the further deposit required. They duly sent cheques in the required amount to the Defendants on 17 and again on 19 January 1996 which were not accepted by the Defendants, who took the view that the Plaintiffs were out of time in attempting to pay the said further deposit and therefore in breach of the Agreement. The Defendants had communicated this stance to the Plaintiffs in a letter dated 15 January 1996, claiming that the Plaintiffs had repudiated the Agreement, which repudiation was accepted by the Defendants who thereupon exercised their rights in terms of the Agreement to forfeit the initial deposit which had been paid by the Plaintiffs, and expressed their intention to sell the property to a third party. (The Plaintiffs claimed that they did not receive this letter either.)

6. On 27 January 1996 the Plaintiffs' solicitors wrote to the 2^nd Defendant (who was acting on behalf of the 1^st Defendant) claiming that in refusing to accept the payments tendered by the Plaintiffs, the Defendants had breached the Agreement, and that unless they rectified such breach and performed all their obligations under the Agreement, including the completion of the construction works and delivery of vacant possession of the premises, the Plaintiffs would take appropriate action to enforce the Agreement and recover any damages due to them.

7. Thereafter there was no further communication between the parties. Some 13 months later, by an agreement dated 5 March 1997, the 1^st Defendant sold the property to the Third-Party Purchasers and on 19 June 1997 formally assigned it to them. Then on 27 June 1997 the Plaintiffs issued their Writ of Summons in this matter, in which they claimed :

1. payment of the sum of $592,000 by way of a refund of the initial deposit which they had paid and compensation in the same amount, as provided for by the Agreement;

2. alternatively -

(a) a declaration that the Agreement of 5 March 1997 is void and of no force or effect;

(b) a decree of specific performance of the Agreement;

3. damages for breach of the Agreement;

4. further and/or other relief.

On 15 July 1997 the Plaintiffs registered the Writ of Summons in the Land Registry. On 8 August 1997 the Defendants registered their Assignment of the property in favour of the Third-Party Purchasers.

Defendants' application to vacate the registration of the Writ

8. The first point taken by Mr Mak who appeared on behalf of the Defendants, was to the effect that the Plaintiffs' Writ of Summons was not properly registrable since it did not fall within the definition of a lis pendens provided by s.1A of the Land Registration Ordinance, namely -

"1A. Any action or proceeding pending in a court or tribunal that relates to land or any interest in or charge on land".

He submitted that the Plaintiffs, by their conduct in issuing a summons for default judgment in which they claimed only the return of the initial deposit and damages, had elected not to pursue their claim for specific performance and were bound by such election, and that their aforesaid claim for the return of the initial deposit and damages is not an "action or proceeding ... that relates to land or any interest in or charge on land".

9. Mr Chong who appeared on behalf of the Plaintiffs further refined this issue by formally abandoning the claim for specific performance on behalf of the Plaintiffs, on the basis that it was not open to the Plaintiffs to pursue the mutually inconsistent claims for damages on the one hand and specific performance on the other. He submitted that the Plaintiffs' claim was nevertheless one which "relates to land or any interest in or charge on land", in particular because the Plaintiffs as purchasers acquired a lien on the property upon their payment of the initial deposit. In support of this proposition he referred to Halsbury's Laws of England, 4^th Edn, Vol 28 at para.763 :

"A purchaser of land who has paid a deposit or money on account of the purchase price to the vendor and has then lawfully repudiated his contract has, in addition to a legal lien on any title deeds in his possession, an equitable lien on the vendor's interest in the land agreed to be sold for all sums paid by him under the contract on account of the purchase money, together with interest on it. ... In all these cases 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."

And at para.764 :

"A purchaser who obtains damages in lieu of specific performance may be entitled at the court's discretion to an equitable lien on the property for his damages if he has formally claimed the declaration of a lien."

I was also referred to the decision of Farwell J in Whitbread & Co., Limited v. Watt [1901] 1 Ch 911 in which he endorsed as a complete and accurate statement of the law the following passage from Robbins on Mortgages, Vol 2, page 1376 :

"If a purchaser advanced all or any part of the money to the vendor, and the contract is broken off, an implied contract arises, by which the purchaser has a lien on the land; and if the purchaser properly declines to complete, he has a lien for the deposit and interest on unpaid purchase-money, and for interest on the payments, and also for the costs of a suit by himself or the vendor to compel performance of the contract, and this lien attaches on the deeds. If the purchase goes off through the fault of the purchaser, of course he has no lien for what he has paid."

Farwell J's decision was subsequently upheld by the Court of Appeal, [1902] 1 Ch 835.

10. In relation to enforcement of the lien, I note the following in Halsbury's Laws of England, loc. cit., at para.754 :

"An equitable lien is a form of equitable charge over the subject property. Both an equitable lien and an equitable charge are enforceable by the same remedies, namely by the appointment by the court of a receiver and a judicial order for sale."

11. I respectfully adopt the foregoing authorities as correctly stating the law. Mr Chong submitted that, applying those principles to the facts of the present case, the Plaintiffs have since 31 March 1994 been entitled to an equitable lien on the suit property, and that the Plaintiffs' action is therefore one which "relates to land or any interest in or charge on land".

12. Mr Mak submitted that it was not open to the Plaintiffs for the purposes of the present application to rely upon the existence of a lien, since they have not specifically pleaded that a lien was raised. He referred to Bullen and Leake and Jacob's Precedents of Pleadings, 13^th Edn., page 1284 where the learned authors state :

"Where the defence of lien is raised, it should in all cases be specially pleaded and particulars of the circumstances giving rise to the lien should be given."

13. I should add that in their Amended Statement of Claim for which they are seeking leave, the Plaintiffs do specifically plead that a purchaser's lien was raised in their favour upon their payment of the initial deposit. However, bearing in mind that the present issue is whether the Writ was properly registrable when the Plaintiffs registered it on 15 July 1997, the point falls to be decided on the basis of the Statement of Claim as it was then framed. Mr Chong submitted that while the Plaintiffs had not specifically pleaded that a purchaser's lien had been raised in their favour, all the necessary facts to found the creation of such a lien by operation of law had been pleaded; further that the lien was in fact brought into being by operation of law when the Plaintiffs paid the deposit, and that it has always been and remains open to them to amend their Statement of Claim in order to specifically plead reliance upon such lien.

14. I agree with Mr Chong's submissions. It is clear on the authorities that provided the contract did not fail through the fault of the Plaintiffs, and that it was the Plaintiffs who lawfully repudiated the contract, they did acquire an equitable lien on the Property to secure the return of the initial deposit paid by them, which lien is enforceable by the appointment by the court of a receiver and a judicial order for sale. The question as to which of the parties was in breach of the Agreement is of course disputed, which dispute will be determined at the trial of this matter : for present purposes it suffices to note that the Plaintiffs will be entitled to rely upon their purchaser's lien provided they can make good their allegations that it was the Defendants, and not themselves, who were in breach of the Agreement. All the facts necessary to establish such lien have been pleaded in the Statement of Claim, and it is procedurally open to the Plaintiffs at any time to amend in order to plead express reliance upon it. That is a relevant factor to bear in mind in considering this issue.

15. Mr Mak further submitted that if the Plaintiffs are permitted to amend their Statement of Claim to plead their reliance upon a purchaser's lien, such "new" Statement of Claim would require to be registered afresh in the Land Registry, and would thus rank lower in priority to the Assignment of the property in favour of the Third-Party Purchasers which was registered on 8 August 1997. That is fallacious in my view : any amendment to plead reliance upon a purchaser's lien will take effect not from the date of the amendment, but from the date of the original statement of claim. (See The Supreme Court Practice 1997 Vol 1 page 357, 20/5-8/2.)

16. In Chow Chiu-tai v. Chan Tak-ming [1994] 1 HKLR 274 P. Chan J (as he then was) analysed in depth the question as to what actions or proceedings do properly constitute lites pendentes as defined in the Ordinance, and after a detailed review of the English authorities (concerning an almost identical statutory provision in the English Act) summarised the position as follows :

"A lis pendens, to be registrable, must be one which affects an interest in land so that if it is not registered or registered in time, the interest affected by it may lose priority to some other interest in the same land if the document relating to that other interest is registered. In other words, the question to be answered is : will the interest which is to be affected by the action or proceeding be adversely affected by or deferred to some other interest in the land if the action or proceeding is not registered or registered in time? ... Little or no difficulty will arise in an action which makes a claim for a proprietary interest or an easement in land. However, there may be actions in which there are no direct or expressed claims for an interest in land and yet the judgment or order to be given may affect the land in question. This type of action should also be registrable because if they are not registered, they are not binding on any purchaser or mortgagee of the land intended to be affected. And if the purchaser or mortgagee is to be bound, it is only fair that he can have notice of the pending action (that is the lis pendens) if the same is registered. On the other hand, there are cases which although they can be said to be in one way or another relating to land, are not registrable because whatever their outcome, the subsequent purchaser or mortgagee of the land in question will not be affected by the registration, or lack of it, of the action at the Land Office. The material consideration is therefore .... whether any subsequent purchaser or mortgagee will take a free title in the land or lose priority if the action is not registered."

17. I respectfully adopt those dicta as correctly stating the law. On the facts of the present case it is clear that the interest of the Plaintiffs as embodied in their Statement of Claim would have lost priority to the interests of the Third-Party Purchasers to whom the Property was subsequently sold, if the Plaintiffs' interest had not been registered when it was, prior to the registration of the later transaction by the Defendants.

18. It is clear, in my view, that the Plaintiffs' action is one which "relates to land or any interest in or charge on land", and was therefore properly registrable as a lis pendens.

19. Mr Mak submits that even if it was properly registrable, the registration of the Plaintiffs' Writ ought to be vacated under s.19 of the Ordinance which provides as follows :

"19. The court or judge before whom any property sought to be bound is in litigation, may on the determination of the lis pendens, or during the pendency thereof, where the said court or judge is satisfied that the litigation is not prosecuted bona fide, or for other good cause shown, make an order for the vacating of the registration in the Land Office of such lis pendens without the consent of the party who registered it...."

He submitted that the history of this litigation demonstrates that the Plaintiffs have not prosecuted their claim bona fide, bearing in mind in particular the long period of inaction (18 months) following the Defendants' refusal to accept the payments tendered by the Plaintiffs, and the letter subsequently sent by the Plaintiffs' solicitors dated 27 January 1996. (It will be recalled that thereafter there was no further communication between the parties, that the Defendants sold the property to the Third-Party Purchasers on 5 March 1997, and assigned it to them on 19 June 1997, and it was only thereafter on 27 June 1997 that the Writ of Summons was issued by the Plaintiffs.) He contended that when the Plaintiffs' delay in taking any action to enforce their alleged rights under the Agreement of March 1994 is considered in conjunction with the fact that it was the estate agency for whom the 1^st Plaintiff was working at the time who in due course introduced the property to the Third-Party Purchasers and drafted the agreement of sale, it becomes abundantly clear that the Plaintiffs issued the Writ and subsequently registered it on 15 July 1997 simply by way of spoiling tactics to put pressure upon the Defendants to "pay the Plaintiffs off" in order to clear the registration of the lis pendens (whatever the demerits of the claim therein), so that they would be in a position to deliver good title to the Third-Party Purchasers.

20. The extent of the 1^st Plaintiff's involvement in the introduction of the property to the Third-Party Purchasers and in the preparation of the agreement of sale to them are matters in dispute which can only be resolved upon evidence at the trial of this matter. For present purposes, while there may be ground for some disquiet on the face of the facts relating to the Plaintiffs' prosecution of their claim, this falls short of establishing that they have not prosecuted the litigation bona fide.

21. Under the category of "other good cause shown", Mr Mak submitted that since it is common ground that the parties' Agreement of purchase and sale dated 31 March 1994 has never been registered, by virtue of the provisions of s.3(2) of the Ordinance it is "absolutely null and void to all intents and purposes" as against any subsequent bona fide purchaser for valuable consideration, which the Third-Party Purchasers were; and since the Plaintiffs' claim as contained in the Writ is founded squarely upon the aforesaid unregistered Agreement, that the Writ itself is similarly condemned by the provisions of s.3(2), which constitutes good cause for the registration of it to be vacated under s.19.

22. While it is clear that in terms of s.3(2) of the Ordinance the unregistered Agreement of 31 March 1994 is indeed "absolutely null and void to all intents and purposes" as against the admittedlybona fide Third-Party Purchasers, it is not correct to say that the Writ itself is directly impacted by the aforesaid provisions of the Ordinance. What I believe Mr Mak was really submitting was that because the Plaintiffs' claim as contained in the Writ is founded squarely upon the Agreement, which Agreement is thus relegated by the provisions of s.3(2), the claim is doomed to failure as against the Third-Party Purchasers, and that this constitutes good cause for the Writ to be set aside under s.19 of the Ordinance. These submissions however miss the point that the Plaintiffs' claim against the Defendants is not one for the recovery of the property but for the return of the deposit and/or damages, which is not dependent upon the registration of the Agreement or upon any question of priority of registration.

23. In sum, the Defendants' application to vacate the registration in the Land Registry of the Writ of Summons in this action is refused. I make an order nisi that the Defendants are to pay the Plaintiffs' costs of this application.

Plaintiffs' application to amend the Statement of Claim

24. The Plaintiffs' application to amend their Statement of Claim was not opposed save for those amendments which seek to plead Plaintiffs' reliance upon the purchaser's lien, and also the claim for specific performance. (Since this latter claim has now been formally abandoned by the Plaintiffs, no issue arises in this respect.) Mr Mak relied upon the same arguments in relation to the lien point which he advanced in support of the application to vacate the registration of the Plaintiffs' Writ, which I have rejected for the reasons indicated above.

25. Applying the general principle which is applicable to an application for leave to amend - that amendments made "for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings" should be allowed - I grant the Plaintiffs' application for leave to amend, subject to the further amendments which will be necessitated by the Plaintiffs' abandonment during this hearing of their claim for specific performance.

26. As far as costs are concerned, the normal principle is that the party seeking the amendment should pay in any event all the costs incurred and thrown away by the amendment : The Supreme Court Practice, 1997, Volume 1, page 371, 20/5-8/33. I accordingly make an order nisi that the Plaintiffs are to pay in any event all the costs incurred and thrown away by the amendment and the costs of any consequent amendment, save for those costs which are attributable to the Defendants' opposition to this application - which in practical terms have merged with the costs of the Defendants' application to vacate the registration of the Writ, all of which are payable by the Defendants.

Representation:

Mr Chong Chun Sang, inst'd by M/s Rene Hout & Co., for the 1^st and 2^nd Plaintiffs

Mr Andrew Mak, inst'd by M/s Simon Siu, Wong, Lam & Chan, for the 1^st, 2^nd and 3^rd Defendants