Chu Yin Fan v. Inter Rivers Ltd

DCCJ 4314/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4314 OF 2012

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DECISION

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The plaintiff’s application

1.By this summons (“the Summons”), the plaintiff applied for summary judgment against the defendant pursuant to Order 86, r 1 of the District Court Rules, Cap 336H.  The reliefs sought by the plaintiff as per the Minutes of Order attached to the Summons were as follows:-

(a) An order for rescission of a preliminary agreement (“the Preliminary Agreement”) for sale and purchase of the subject property[1] (“the Property”) dated 18 September 2012, or alternatively a declaration that the Preliminary Agreement has been duly rescinded by the plaintiff;

(b) A declaration that the plaintiff is entitled to a lien on the Property for the deposits in the total sum of HK$618,000.00 together with interest, costs and expenses incurred by the plaintiff in the aforesaid sale and purchase;

(c) Repayment of the deposits in the total sum of HK$618,000 paid by the plaintiff to the defendant pursuant to the Preliminary Agreement;

(d) Damages for breach of the Preliminary Agreement to be assessed;

(e) Costs of this application.

The legal principles applicable

2.The legal principles for Order 86 application were succinctly set out in the judgment of To DHCJ (as he then was) in Super Town Investments Ltd v Ines Developments Ltd & Others, unreported, HCA 86/2006, 22 May 2007, at paragraphs 5 and 6:-

“5. While the scope of application of Order 86 and Order 14 of the RHC are different, the legal principles applicable to an application for summary judgment under both Orders are the same......The cardinal principle is that a defendant ought not be driven from the judgment seat if he has an arguable defence. Thus, summary judgment should only be given where it is a clear and obvious case and ought therefore not be tried: see Hong Kong Civil Procedure 2007 Note 86/4/1, Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106 and Chow Yim Woon v Lam Yung Ming [2000] 3 HKLRD 373.

6. A concise statement of the standard approach in an application for summary judgment is to be found in the dicta of Ma J, as he then was, in Schindler Lifts (Hong Kong) Ltd v Ocean Joy Investments Ltd [2004] 1 HKC 438.   The court has to determine two questions: firstly, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law.  In determining the first question, the court should not embark on a mini trial of the action on affidavit evidence.  The burden of proof is not a heavy one.  It is not the function of the court at this stage to assess if a defence will succeed at trial.  The court should not rule out a defence simply because it thinks the defence would not be believed by the trial judge because of some inherent weaknesses, save where what the defendant says is practical moonshine.  Insofar as the second question is concerned, summary judgment will not be granted if there are arguable defences or serious disputes of law: see Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 and Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106.”

The background

3.By virtue of an assignment (“the Assignment”) dated 28 December 1984 and registered in the Land Registry by Memorial No UB270640, Sze Man Kung (“Sze”), the defendant’s predecessor in title, acquired the Property and became the registered owner of the Property.

4.Since about 1987, Sze has been in arrears of the management fees of the Property.  Consequently, a number of Memoranda of Charges^[2]were registered by Taikoo Shing (Management) Limited (“the Management Company”), the management company of the Property, against the Property in the Land Registry in respect of the outstanding management fees.

5.Subsequently, on 21 August 2007, in High Court Action No 1266 of 2006 (“the Enforcement Proceedings”), the Management Company successfully applied to the Court of First Instance to enforce the aforesaid charges against Sze and obtained an order (“the Order for Sale”) for sale of the Property.  By the Order for Sale, it was ordered by Master Lung of the High Court that the Property be sold by the Management Company as chargee which was assigned to execute all agreements for sale and purchase of the Property and/or all other documents necessary to assign the Property to its purchaser.

6.Pursuant to the Order for Sale, by a provisional agreement dated 22 May 2008, the Management Company sold the Property to the defendant.  The assignment by the Management Company in favour of the defendant was executed on 4 July 2008 and registered in the Land Registry by Memorial No 08072902450018.

The present dispute

7.The parties’ dispute arose from a conveyancing transaction in which the plaintiff was the purchaser and the defendant was the vendor.

8.By the Preliminary Agreement dated 18 September 2012, the defendant agreed to sell and the plaintiff agreed to purchase the Property at the price of HK$6,180,000.00.  Completion was stipulated to take place on or before 2 November 2012. 

9.An initial deposit of $400,000.00 was paid by the plaintiff to the defendant upon the signing of the Preliminary Agreement.  On or about 3 October 2012, a further deposit of $218,000 was paid by the plaintiff. 

10.In this conveyancing transaction, Messrs Wong, Fung & Co (“WFC”) acted for the plaintiff and Messrs Jimmie K S Wong & Partners (“JWP”) acted for the defendant.

11.On 9 October 2012, WFC received from JWP the title deeds of the Property which included a certified copy of the Assignment. 

12.In its letter dated 22 October 2012 to JWP, WFC by way of a requisition requested for the production of the original (“the original Assignment”) of the Assignment.

13.The defendant was unable to provide the original Assignment sought by WFC.  Accordingly, by a letter of reply dated 25 October 2012, JWP claimed to rely on section 13(2)(b) of the Conveyancing and Property Ordinance (“the CPO”), Cap 219 which provided that the production of a certified copy of a title document should be permissible for the purpose of proving title.  In support, JWP referred to the Order for Sale registered in the Land Registry to show that the Management Company “did not know the whereabouts of the title deeds”.  Further, JWP pointed out that by the registration of the assignment in favour of the defendant, the defendant’s interest in the Property should take priority over any unregistered interest, if any, and therefore there was “no risk in the title”.

14.WFC did not however find JWP’s answer to be satisfactory.  By a letter dated 29 October 2012 to JWP, WFC insisted that the original Assignment should be produced under section 13A of the CPO and asked for its production by at least 7 working days before the completion date.

15.By a letter dated 30 October 2012 to WFC, JWP answered that in the Enforcement Proceedings, it had been explained to and accepted by the Court that the original title deeds could not be found.  Therefore, the production of the certified copy of the Assignment should be sufficient to prove title in accordance with the common law rule.

16.In its letter dated 30 October 2012 to JWP, WFC in reliance on the judgments of Yiu Ping Fong v Lam Lai Hing [1999] 1 HKLRD 793 and Guang Zhou Real Estate Development (HK) Co Ltd v Summit Elegance Ltd (2000) 2 HKLRD 855 insisted on the production of the original Assignment or an explanation by way of statutory declarations as to the reasons why they were missing.

17.Further, by referring to paragraph 4 of the Order for Sale which ordered Sze, the then defendant in the Enforcement Proceedings that Sze “do within 28 days after service upon him of this Order file an affidavit stating what (if any) deeds and other documents relating to the title of the Property are in his possession or power and whether any deeds or other documents relating to the said title are known by him to be in the possession or power of any person or persons and if so stating the name and address of every such person and that he do within 28 days after service upon him of this Order lodge with the Plaintiff’s Solicitors, Messrs Johnson Stokes & Master, all (if any) such deeds and documents as are stated by him to be in his own possession or power”, WFC raised the following requisitions with JWP:-

(1) What was the result in relation to paragraph 4 of the Order for sale?

(2) Whether exhaustive efforts have been made to search for and locate the original title deeds and documents?  And what steps have been taken to search for and locate the missing original title deeds and documents?

(3) Whether the original title deeds and documents have been deposited with another party as security for a loan or as security for some other purpose?

(4) Whether any third party’s interest existed in respect of the Property?

18.By a letter dated 31 October 2012, JWP answered WFC’s requisitions as follows:-

(1) In 2008 when the defendant purchased the Property from the Management Company, the Management Company told the defendant that Sze had never shown up and the title deeds could not be located, and the fact of their missing were stated clearly in the Memorandum of Sale;

(2) Before granting the Order for Sale, the court has been satisfied with the steps taken by the Management Company to locate Sze and the title deeds of the Property;

(3)&(4) There was no evidence to show that the title deeds were used for a loan or to create any third party’s interest, and even if such unregistered interests were created, by the registration of the assignment dated 4 July 2008 in favour of the defendant, the defendant’s interest in the property should take priority over all unregistered interests (if any), and therefore there was no risk in the title.

19.Subsequently, there were further exchanges of letters between WFC and JWP which largely expressed their disagreement with each other.  Finally, by a letter dated 3 November 2012 to JWP, WFC gave notice to terminate the Preliminary Agreement and demanded the return of the deposits within 5 days.

20.In consequence, the transaction fell through and the plaintiff brought the present proceedings against the defendant alleging, inter alia, that the defendant has failed to show, prove and/or give good title to the Property pursuant to sections 13 and 13A of the CPO and/or has failed to answer the requisitions satisfactorily.  This was denied by the defendant which refused to return the deposits to the plaintiff and alleged that it was entitled to forfeit the same because of the plaintiff’s failure to complete the purchase on or before the completion date.

The obligations to show, prove and give title

21.In the present case, there was no dispute that the Assignment was the intermediate root of title document relating exclusively to the Property.  As such, its production was required under section 13(1) and 13A of the CPO for the purposes of showing, proving and giving title to the Property.

22.Insofar as the duty to show or prove title was concerned, it was not disputed by the parties that despite the absence of the original Assignment the production of its certified copy was permissible under sections 13(1) and 13(2)(b) of the CPO.

23.As for the obligation to give title to the Property, the matter is now governed by section 13A of the CPO which provides:-

(1) Unless the contrary intention is expressed, a purchaser of land shall be entitled to require the vendor to deliver to him, for the purpose of giving title to that land, the original of both of the following only:

(a) if there is a Government lease that relates exclusively to the land, the lease; and

(b) any document that relates exclusively to the land and is required to be produced by the vendor as proof of title to that land under section 13(1)(a) and (c).

(2) Subsection (1) does not affect any rule of common law under which the vendor may discharge his obligation to give title to that land otherwise than by delivering the Government lease or document to the purchaser.

(3) If the vendor is not required to deliver to the purchaser a document in giving title to that land, the purchaser has no proprietary right or ownership in the document.

(4) The fact that:

(a) the vendor is not required to deliver to the purchaser a document in giving title to that land; and

(b) the purchaser has no proprietary right or ownership in the document,

does not affect the right or interest of any other person in that land.

24.Section 13A(2) of the CPO expressly preserves the common law rule on the vendor’s duty to give title to the property.  At common law, this duty to give title requires the vendor to deliver to the purchaser upon completion a duly executed assignment of the property sold together with all original title documents relating exclusively to the property.  The purpose of the rule is to ensure that the title given to the purchaser is a good title which would be free from any encumbrance.

25.In the present case, the Assignment, the original of which was sought by the plaintiff in the requisitions, was missing from the title documents supplied by the defendant. It was therefore submitted by Mr Wong, counsel for the plaintiff, that in the absence of any statutory declaration or some cogent conveyancing evidence explaining about the missing title document, the defendant which was unable to deliver the original Assignment to the plaintiff upon completion had thereby failed to discharge his duty to show, prove and give title to the property and/or failed to answer the requisition satisfactorily.

26.The question of missing title documents was considered by the Court of Final Appeal in De Monsa Investments Limited v Whole Win Management Fund Ltd (2013) 16 HKCFAR 419 and the correct approach as laid down by the Court of Final Appeal was neatly summarised by Cheung CJHC in Zhang Xueshuai v Lai Chan Wing [2015] HKEC 295 at paragraphs 30 to 33:-

“30. But the true legal position has since been clarified by the Court of Final Appeal in De Monsa……The real significance of missing title documents, assuming that contents and due execution are not in issue, only lies in the fact that it may, depending on the facts of each case, give rise to a real risk of a successful assertion of an encumbrance against the property after completion, thereby rendering the title of the vendor defective or doubtful……”

31. A statutory declaration to explain why the relevant title documents are missing is only relevant in the above context if and when it is required to remove a doubt which would otherwise arise by reason of the missing title documents……

32. However, as the Court of Final Appeal decided in De Monsa, where there is no real risk arising, there is no place for a statutory declaration or any other conveyancing evidence……

33. ……the Court of Final Appeal decided in De Monsa that barring any specific contractual provisions requiring otherwise, the inability to deliver upon completion all original title documents does not, by that mere fact alone, entitle the purchaser not to complete, absent a real risk regarding a future challenge to title, regardless of whether there is any satisfactory statutory declaration or other conveyancing evidence to explain the missing title documents, and even if the failure to deliver is wilful and deliberate.”

27.Thus, as decided by the Court of Final Appeal in De Monsa, supra, the real point arising from the missing title documents is whether there was a real risk of a successful assertion against the purchaser of an encumbrance on title.  Whether the risk involved was a real or fanciful one was a matter of degree depending on the circumstances of the particular case.

28.Turning to the facts of the present case, I was invited by Mr Wong to take note of the following facts:-

(a) The Assignment was the only title document that was required to be produced by the defendant under the CPO for the purposes of showing, proving and/or giving title to the Property;

(b) Since about 1987, Sze has been in arrears of management fees which resulted in a number of Memoranda of Charges being registered against the Property and the subsequent granting of the Order for Sale;

(c) Besides, the Property has been subject to other charges (albeit subsequently discharged) created in favour of, inter alia, the Commissioner of Inland Revenue in respect of some unpaid tax liability or other liability on the part of Sze.

29.Accordingly, Mr Wong submitted that Sze had obviously been in financial trouble in the past and hence there was a real possibility of an equitable mortgage or some other encumbrance being created by the deposit of the original Assignment by Sze with a third party lender as security to raise a loan.

30.In De Monsa, supra, Litton NPJ at paragraphs 111, 112, 115 and 118 analysed the means by which a loan could be created by the deposit of the missing title deeds. According to the analysis by Litton NPJ, such a loan could be created in two ways, either with or without a memorandum.

31.As for the possibility of creation of a loan by parol without any memorandum, Litton NPJ commented in the same case at paragraph 120 that

“[i]t is difficult to imagine a situation where a person would lend a substantial sum of money with nothing more than an oral commitment and a deposit of title deeds, when he could have safeguarded his security by requiring a memorandum of deposit and having it registered”.

In my view, the same comment is also applicable in the present case.  While, as submitted by Mr Wong, Sze might have been in financial trouble and hence eager to raise a loan, it was yet difficult to imagine that any person was willing to lend him a substantial amount of money without a memorandum evidencing the loan and its terms.

32.In case that a loan was created by the deposit of the original Assignment with an unregistered memorandum, in accordance with the land registration system in Hong Kong, once the Assignment to the defendant was registered, the defendant’s interest in the Property should take priority over any such unregistered interest.  In this regard, I note that some 23 years have lapsed between the date of the Assignment and the assignment to the defendant.  During these 23 years or so, there have been no signs of any third party coming forward to claim any interest in the Property by reason of the deposit of the original Assignment as security for a loan.

33.On the basis of the evidence presently available and based on the reasons indicated above, I consider it arguable at this stage that there was no real risk of the plaintiff’s title being blemished by a prior encumbrance arising from the missing of the original Assignment, and accordingly there was no place for a statutory declaration or any other conveyancing evidence as requested in the requisitions.

34.One further point taken by Mr Wong at the hearing was that since the conveyancing transaction in the present case took place before the Court of Final Appeal’s decision in De Monsa, supra, the common law rule then applicable to the defendant’s duty to give title to the Property should be that laid down by Yuen J (as she then was) in Yiu Ping Fong v Lam Lai Hing, supra, as affirmed by the Court of Appeal in De MonsaInvestments Limited v Whole Win Management Fund Ltd[2011] 4 HKLRD 478.

35.According to the judgment of Yiu Ping Fong, supra, unless excluded by express contractual provisions and irrespective of any risk of title being impeached, a vendor cannot give title, by handing over only certified true copies at completion without a statutory declaration or some conveyancing evidence to explain why the originals cannot be handed over.

36.Therefore, Mr Wong submitted that even if there was no risk of a defect in title arising from the missing title document, in accordance with the judgment of Yiu Ping Fong, supra, the defendant was nonetheless duty bound to deliver the original Assignment to the plaintiff upon completion in order to give title, or to provide a statutory declaration or some conveyancing evidence to account for its missing.

37.The answer to the further point raised by Mr Wong can be found in the speech of Lord Browne-Wilkinson in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 A C 349 at p 358G:-

“The theoretical position has been that judges do not make or change law: they discover and declare the law which is throughout the same. According to this theory, when an earlier decision is overruled the law is not changed: its true nature is disclosed, having existed in that form all along. This theoretical position is, as Lord Reid said, a fairy tale in which no one any longer believes……But whilst the underlying myth has been rejected, its progeny, the retrospective effect of a change made by judicial decision, remains. As Lord Goff in his speech demonstrates, in the absence of some form of prospective overruling, a judgment overruling an earlier decision is bound to operate to some extent retrospectively: once the higher court in the particular case has stated the changed law, the law as so stated applies not only to that case but also to all cases subsequently coming before the courts for decision, even though the events in question in such cases occurred before the Court of Appeal decision was overruled.”

38.I should respectfully adopt and follow the above observation made by Lord Browne-Wilkinson. Accordingly, I reject the further point raised by Mr Wong.

39.For the reasons given above, on the question whether the defendant has failed to show, prove and/or give good title to the Property pursuant to sections 13 and 13A of the CPO and/or has failed to answer the requisitions satisfactorily, I find that the defendant has obviously an arguable defence to this part of the plaintiff’s claim.

The subject to finance clause

40.Clause 1 (“Clause 1”) of the annexure of the Preliminary Agreement provided that “買賣雙方同意，如果由於樓契問題，銀行未能接受按揭，買方有權取消交易，大家互不追究”.  In English, it read as follows: “the Vendor and the Purchaser agree that if the bank does not accept a mortgage application as a result of a problem with the title deeds, the Purchaser has the right to cancel the transaction, and the Vendor and the Purchaser shall not claim against each other.” (The literal English translation of Clause 1 as pleaded in paragraph 5 of the Statement of Claim).

41.It was the plaintiff’s case in this respect that after entering the Preliminary Agreement with the defendant, she has applied to the Bank of China (Hong Kong) Limited (“BOC”) for a mortgage loan to pay for the balance of the purchase price.  For the approval of her mortgage application, it was BOC’s requirement that the plaintiff should obtain a clean title on the Property upon completion of the transaction of the mortgage.

42.In the mean time, in relation to the plaintiff’s mortgage application, by an instruction letter dated 3 October 2012 from BOC, WFC was instructed by BOC to prepare a first legal charge/mortgage of the Property subject to WFC’s approval of the plaintiff’s title on the Property.  As a pre-condition to the granting of the facilities under the mortgage, WFC was specifically required in the said instruction letter to provide BOC with a written confirmation that WFC has reviewed all the title documents of the Property and that the plaintiff should obtain a clean title on the Property.

43.Pursuant to the said instruction letter, by a letter dated 2 November 2012, WFC reported the matter to BOC.  The letter read as follows:-

“We refer to your letter of instructions dated 3 October 2012 instructing us to prepare a First Legal Charge/Mortgage of the above property in manner as therein mentioned.

We write to inform you that upon perusal of the title deeds and documents in respect of the said property we find that the original title deeds are missing and cannot be produced by the vendor and that there is no any statutory declaration provided for explanation of lost as needed by case law in the famous Court cases of Yiu Ping Fong & Another v Lam Lai Hing Lana (1998) 4 HKC 476 and Chor Kar Yin and Chan Hung Fung Fannie vWong Siu Hung (HCMP 1728/2006). The vendor in the sale of the said property to the Mortgagor has not answered our requisitions raised on the issue satisfactorily. The vendor has not proved a good title to the said property. We are therefore unable to let the Mortgagor to execute the First Legal Charge/Mortgage for putting through the same.

We have advised the Mortgagor thoroughly on the matter. During this afternoon’s telephone conversation between your Ms Chau and our Mr Fong we have reported this case initially and understand that the Bank would not accept the First Legal Charge of the said property in the situation aforesaid.”

44.Acting on the advice of WFC, BOC turned down the plaintiff’s mortgage application.  Subsequently, by a letter dated 2 November 2012, WFC informed JWP about the decision of BOC.  In the circumstances, the plaintiff claimed to be entitled to rescind the Preliminary Agreement pursuant to Clause 1.

45.The defendant did not dispute the above facts put forward by the plaintiff but challenged the plaintiff’s right to rescind the Preliminary Agreement under Clause 1 on the following grounds:-

(a) Clause 1 was void for uncertainty since it did not specify whether the title deed problem, on the basis of which the bank refused the mortgage application and gave rise to the plaintiff’s right to rescind, was due to a failure to provide, show or give a marketable or a good title to the Property;

(b) Clause 1 was void for uncertainty in that it did not specify either the maximum or minimum number of banks to which the plaintiff was required to make her mortgage application before she was entitled to rescind the Preliminary Agreement;

(c) It was the plaintiff’s own solicitors, WFC, which wrongfully advised BOC that the defendant had failed to prove, show and give title to the Property and this resulted in the rejection of the plaintiff’s mortgage application;

(d) The plaintiff failed to try her best endeavours in approaching some other bank than BOC for applying for a mortgage loan.

46.Firstly, as for point (a) above, I see no uncertainty about Clause 1 even in the absence of the specifications suggested by the defendant. According to Clause 1, where the mortgage application was refused by a bank on grounds of title deed problems, the plaintiff would have the option to rescind the Preliminary Agreement. For the purpose of giving rise to the plaintiff’s right under Clause 1, it was clear that it did not matter whether the title deed problem related to a failure to show, prove or give a marketable or good title to the Property or otherwise. Any problem relating to the title deeds of the Property would suffice.

47.It was, of course, open to the parties to make express provisions in the Preliminary Agreement to specify the title deed problems in the manners as suggested by the defendant, but in case that they did not do so as in the present case, this should not render Clause 1 void for uncertainty. In this regard, I should respectfully adopt what Litton NPJ said at De Monsa, supra, at paragraph 100:-

“100. A contract for the sale of land depends upon the ordinary law of contract. As Lord Hoffmann said in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, 299C: "Contracts for the sale of land are not exceptions to the principle that parties have freedom of contract and may agree to whatever terms they like." ”

48.As for point (b), for similar reasons stated above, the mere fact that the parties did not restrict the maximum or minimum number of banks which the plaintiff should approach for making her mortgage application should not render Clause 1 void for uncertainty.

49.The defendant’s complaint under point (c) was two-fold, namely:-

(i) that WFC acted for the plaintiff in the conveyancing transaction for the purchase of the Property and at the same time acted for BOC in advising the title on the Property in relation to the plaintiff’s mortgage application;

(ii) that WFC, in giving BOC its advice about the title on the Property, did not convey to BOC the replies given by the defendant’s solicitors in answering the requisitions so as to allow BOC to have a full legal picture to consider the plaintiff’s mortgage application or to allow BOC to seek independent legal advice.

50.Contrary to the defendant’s contention, I find nothing improper for WFC to act for the plaintiff in the conveyancing transaction and at the same time act for BOC in advising the title on the Property in the related mortgage application. In this regard, there was nothing from the defendant to suggest that by so “double acting” for BOC and the plaintiff, WFC has breached any rules or regulations.

51.Neither did the defendant identify the legal principle based on which the plaintiff could be held responsible for the advice of WFC given to BOC. In any event, if the defendant should suffer any loss or damage as a result of any wrongful advice given by WFC to BOC, the defendant might seek redress against WFC but I do not see how this could possibly affect the plaintiff’s right under Clause 1.

52.I consider that there is no substance in the defendant’s argument on point (c).

53.As for point (d), I understood the defendant’s argument was to the following effect - there should be an implied term in the Preliminary Agreement that the plaintiff should use her best endeavours to obtain a mortgage loan. Since the plaintiff has failed to approach some other banks than BOC in making the mortgage application, she was in breach of this implied term and was not entitled to rely on Clause 1 to rescind the Preliminary Agreement.

54.For the purpose of the present hearing, I was inclined to accept that there was such an implied term in the Preliminary Agreement on the basis that it was necessary to give business efficacy to the agreement (See Hong Kong Conveyancing—Law and Practice, 2015 Edition, Vol 1(A), Chapter 8, paragraph 1002).

55.Whether the plaintiff has used the best endeavours in obtaining a mortgage loan was essentially a question of facts depending on the circumstances of the case. The fact that the plaintiff has approached BOC but no other banks in making her mortgage application was only one of the relevant factors to be considered in the equation and it was far from conclusive. That said, the proper question that the court is concerned with in the context of an Order 86 application should be whether the point made by the defendant raised an arguable defence or a triable issue. In my judgment, the defendant’s argument on this point, being a question of facts, must raise an arguable defence or a triable issue since this is not a matter which can be decided on the basis of affidavit evidence alone, and deserves to be tested at trial when all relevant evidence shall become available after discovery.

56.My findings above should be sufficient to dispose of the plaintiff’s application although I would also observe here that the effect of a rescission, if any, on the parties’ respective rights under Clause 1 is less than clear.

57.At common law, where a contract is rescinded, a party to the contract may bring a restitutionary claim for the recovery of money paid under it provided that the consideration for the payment has wholly failed. However, according to the strict wording of the phrase “the Vendor and the Purchaser shall not claim against each other” (買賣雙方互不追究) in Clause 1, it may be arguable that no such restitutionary claim can be made for the return of the deposits in the event of a rescission under Clause 1. I shall however say no more on this subject at this stage although this seems to me another issue which should be allowed to go to trial whereinthere is bound to be full submissions on the effect of Clause 1 in the context of the facts as found by the trial judge.

Conclusion

58.For the reasons given above, I order that the defendant be given unconditional leave to defend the action.

Costs

59.I make an order nisi that costs of the Summons be paid by the plaintiff to the defendant with certificate for counsel, such costs to be taxed if not agreed. This order nisi will become absolute after 14 days in the absence of any application to vary the same.

Mr Tim Wong, instructed by Wong, Fung & Co, for the plaintiff

Mr Jeremy Cheung, instructed by Jimmie K S Wong & Partners, for the defendant