Kar Ho Development Co. Ltd. v. Axis Investment Ltd.

CACV000218/2000

CACV 218/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 218 OF 2000

(ON APPEAL FROM HCA NO. 15562/1999)

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Coram: Hon Mayo VP and Keith JA in Court

Date of Hearing: 12 December 2000

Date of Judgment: 21 December 2000

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J U D G M E N T

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Hon Mayo VP:

1. This is an appeal from an interlocutory order made by Lugar-Mawson J. He in turn was hearing an appeal from a Master. The application in question was an application by the plaintiff to strike out part of the defendant's defence and all of their counterclaim. The master had declined to make such an order and the Judge upheld this decision.

2. The plaintiff is the developer of the development known as "Laguna Verde" in Kowloon. It obtained the consent of the Director of Lands to sell uncompleted units in the development. It entered into a sale and purchase agreement with the defendant on 25 March 1997 in respect of Flat B on the 8th floor of Tower 2.

3. As is customarily the case the agreement provided that the buildings being built must be completed by a stated date subject to obtaining a certificate from the authorised person certifying that any delay could be justified. There was delay and a certificate was obtained in the manner prescribed under the contract.

4. After the building was completed the plaintiff called upon the defendant to complete its purchase. It failed to do so hence this action.

5. The defendant by its defence is contending that it rescinded the agreement on or about 9 July 1998 being the date when the plaintiff's notice to complete expired. It also by way of its counterclaim is claiming the return of the payments made by way of deposit.

6. One of the main issues in this case revolves around the interpretation of clause 4 of the sale and purchase agreement and the fact that the defendant did not give written notice to the plaintiff of its intention to rescind as provided in clause 4(4)(c). Clause 4(4) is as follows:

"(4)(a) Subject to sub-clause (4)(b), if the Vendor fails to complete the Buildings by the date specified in sub-clause (1)(c) as extended by any extensions of time granted by the Authorised Person under sub-clause (5)(a), the Purchaser shall be at liberty by notice in writing to the Vendor to rescind this Agreement and upon service of such notice, this Agreement shall be rescinded within 7 days thereafter and the Vendor shall repay to the Purchaser all amounts paid by the Purchaser hereunder together with interest thereon at the rate of 2% per annum above the prime rate specified by the Hongkong and Shanghai Banking Corporation Limited from time to time from the date or dates on which amounts were paid up to the date of repayment, the payment of such amounts and interest to be in full and final settlement of all claims by the Purchaser against the Vendor hereunder.

(b) If the Purchaser does not rescind this Agreement under sub-clause (4)(a) within 28 days from the date specified in sub-clause (1)(c) or any extended date, he shall be deemed, without prejudice to his rights under sub-clause (4)(c) hereof, to have elected to wait for completion of the Buildings. In such event the Vendor shall pay to the Purchaser interest at the rate of 2% per annum above the prime rate specified by the Hongkong and Shanghai Banking Corporation Limited from time to time on all amounts paid under this Agreement from the date following the date or extended date specified in sub-clause (1)(c) or any extended date up to the date of completion of the Buildings. Such interest shall be paid or allowed as a credit to the Purchaser in respect of the purchase price on completion of the sale and purchase.

(c) If the Buildings are not completed in accordance with the building plans and the other provisions of this Agreement within a period of 6 months from the date specified in sub-clause (1)(c) or any extended date under sub-clause (5), the Purchaser shall be at liberty either to rescind this Agreement in which event the provisions of sub-clause (4)(a) relating to repayment and interest shall apply or to await the completion of the Buildings in which event the provisions of this sub-clause (4)(b) relating to the payment of interest shall apply."

7. In his judgment the Judge was satisfied that the outcome of the case depended upon the interpretation of these sub clauses relied upon by the respective parties and was satisfied having regard to the strict requirements of Order 18 rule 19 that the plaintiff had not established that this was a plain and obvious case which justified invoking the provisions.

8. In the original grounds of appeal lodged by the plaintiff there were nine grounds. These were as follows:

(1) The learned Judge erred in failing to hold as he should have that the defendant has no arguable case of any obligation under Clause 4(1)(c) of the contract to complete the public transport terminus ('PTT') by the contractual deadline and that any claim for rescission based on failure to complete the PTT by the contractual deadline is bound to fail.

(2) The learned Judge erred in failing to hold as he should have that it is clear and obvious that the PTT does not form part of 'the Buildings' within the meaning of the contract.

(3) The learned Judge erred in holding that this 'will not only require a complex exercise in construction, it will also require recourse to the building plans approved by the Building authority' (Lines C - H, p. 5 of the Judgment) in that it is clear and obvious that the PTT does not form part of 'the Buildings' within the meaning of the contract and that the building plans are irrelevant to the question whether the PTT forms part of 'the Buildings'.

(4) The learned Judge erred in failing to hold as he should have that the defendant's case of rescission under Clause 4(4)(c) of the contract for failure to complete the Buildings within 6 months from the contractual deadline is obviously unsustainable in that it is clear and obvious that notice in writing to the plaintiff of rescission is necessary but none has been alleged.

(5) The learned Judge erred in failing to hold as he should have that the defendant's case of the plaintiff's failure to complete the Buildings by the contractual deadline and of the invalidity of the extension granted by the authorised person is frivolous or vexatious, may prejudice, embarrass or delay the fair trial of the action or is otherwise an abuse of the process of the court in that the defendant has not rescinded under Clause 4(4)(a) of the contract, whether within the 28-day contractual time limit or at all, and was deemed by Clause 4(4)(b) of the contract to have elected for wait for completion of the Buildings.

(6) The learned Judge erred in holding that the plaintiff's application to strike out parts of the Defence and Counterclaim does not satisfy the principle that it is only in plain and obvious cases that recourse should be had to the summary process provided for by Order 18, rule 19 of the Rules of the High Court.

(7) The learned Judge erred in that he improperly took the following matters into consideration:

(a) that the Defence in this case would involve the court in the construction of a number of definition clauses in the sale and purchase agreement to see exactly what works the vendor was obliged to complete before a given date provided for in the agreement;

(b) that the Defence would also involve the court in determining exactly what works are included in the queried definition;

(c) that the Defence would also require recourse to the building plans approved by the Building Authority;

(d) that the court will be called upon to construe two subtly different worded clauses in the agreement; and

(e) that the question of whether or not in certain circumstances the fact of rescission can be communicated to the other party by conduct or inactivity.

(8) The learned Judge further erred in holding that applying the principles that should guide a Master or Judge when deciding an application under Order 18, rule 19, he cannot say that Master Wong was wrong in dismissing the plaintiff's application; he cannot say that the parts of the Defence and Counterclaim that the plaintiff takes exception to are scandalous, frivolous or vexatious; he cannot say that they may prejudice, embarrass or delay the fair trial of this action; and he cannot say that they are in any way an abuse of the process of the court.

(9) The judgment of the learned Judge was wrong and ought to be set aside."

9. During the course of the hearing before us Mr Kwok SC for the plaintiff applied to amend the grounds in two ways. The first was to add an additional ground ten in this form:

"(10). The learned Judge erred in failing to hold as he should have that the defendant's case of rescission on or about 9/7/1998 is obviously unsustainable in that the option to rescind under clause 4(4)(c) ceased upon

(1) the completion of the Buildings,

(2) the issue of the consent to assign by the Director of Lands, and

(3) the defendant being notified of (1) and (2) above by the letter dated 25/6/1998 giving notice to complete the sale and purchase under clause 5."

10. He also sought to amend ground four by expanding the reference to notice in writing to include any form of communication such as may be required in accordance with the passage at the beginning of p. 811 of Vitol S.A. v Norelf Ltd. [1996] AC 800. Ground 4 should accordingly be amended to read:

"(4) The learned Judge erred in failing to hold as he should have that the defendant's case of rescission under Clause 4(4)(c) of the contract for failure to complete the Buildings within 6 months from the contractual deadline is obviously unsustainable in that it is clear and obvious that conveying to the plaintiff that the defendant was treating the contract as at an end is necessary but none has been alleged."

11. Having heard submissions from counsel we ordered that we should proceed on a de bene esse basis. Having regard to the fact that I do not think that Mr Li for the defendant would suffer any prejudice if these amendments were allowed I would be disposed to grant the leave sought.

12. It would seem to me that these grounds can be boiled down to three issues.

13. The first is whether the public transport terminus ("PTT") referred to forms part of the buildings as defined in the agreement.

14. The second is the issue raised in the new ground ten. That is whether it could be argued that the defendant still had an option to rescind the contract after it received the notice to complete on 25 June 1998 or to complete the purchase.

15. The third is the nature of the notice or communication (if any) which the defendant needed to give the plaintiff if it wished to rescind the contract.

1. PTT. I have no doubt that Mr Kwok's submissions on this topic were not well founded. In my view it is clearly arguable that the PTT does form part of the buildings as defined. It is referred to in the building plans and the occupation permit both of which are extensively referred to in the agreement. Although on the evidence which was available to us it was not clear exactly what form the PTT took it would seem to comprise part of the first level of the podium upon which the tower blocks are constructed. This being the case the Judge was in my opinion right to order that the paragraphs in the defence on this subject should not be struck out (subject, of course, to the other arguments).

2. The option. To arrive at the answer to this question it is necessary to consider the timing of the relevant stages in this matter.

Under the agreement the date for the completion of Phase I was 30 November 1997. On 7 November 1997 the authorised person certified 131 days of delay thus extending the time for completion up to 10 April 1998. Mr Li argued that as issue was being taken on the validity of the certificate it was still possible at the trial that a substantial part of the delay claimed would be disallowed and that while this possibility continued to obtain the defendant should not be required to exercise the option to rescind the contract. Mr Kwok's answer to this was that this contention amounted to a red herring. If the extension of time was disallowed the time for the defendant to exercise this option would already have expired. I do not see any answer to this.

Be that as it may the buildings were completed on 2 June 1998. The plaintiff informed the defendant of this and on 25 June 1998 served a notice on the defendant requiring him to complete within 14 days. The defendant did not respond to this notice. Mr Li argued that on 9 July 1998 the date of the expiration of the notice the defendant in effect rescinded the contract. As to whether this contention is correct will be the subject of the third issue to be considered.

Mr Kwok argued that when the defendant was served with the notice to complete he was formally put on notice that the building had been completed. At that point of time the option contained in clause 4(4)(c) came to an end. It was then incumbent upon the defendant to decide whether to rescind the contract or to complete the purchase. I am satisfied that this is unarguably a correct analysis of the position. This then leads to the third issue.

3. Notice. Both counsel placed heavy reliance upon the Vitol case.

Mr Kwok placed reliance upon the passage at p. 810 H of the speech of Lord Steyn:

"My Lords, the question of law before the House does not call for yet another general re-examination of the principles governing an anticipatory breach of a contract and the acceptance of the breach by an aggrieved party. For present purposes I would accept as established law the following propositions. (1) Where a party has repudiated a contract the aggrieved party has an election to accept the repudiation or to affirm the contract: Fercometal S.A.R.L. v. Mediterranean Shipping Co. S.A. [1989] A.C. 788. (2) An act of acceptance of a repudiation requires no particular form: a communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end. (3) It is rightly conceded by counsel for the buyers that the aggrieved party need not personally, or by an agent, notify the repudiating party of his election to treat the contract as at an end. It is sufficient that the fact of the election comes to the repudiating party's attention, e.g. notification by an unauthorised broker or other intermediary may be sufficient: Wood Factory Pty. Ltd. v. Kiritos Pty. Ltd. (1985) 2 N.S.W.L.R. 105, 146, per McHugh J.A.; Majik Markets Pty. Ltd. v. S. & M. Motor Repairs Pty. Ltd. (No. 1) (1987) 10 N.S.W.L.R. 49, 54, per Young J.; Carter and Harland, Contract Law in Australia, 3rd ed. (1996), pp. 689-691, para. 1970."

16. He argued that if these principles were applied to the present case it was clear that the defendant had not communicated to the plaintiff in any unequivocal manner an intention to rescind the contract. The failure to complete the contract was equally consistent with a breach of contract to complete it as required by the notice which had been served upon it.

17. Mr Li's answer to this was that the defendant is not required to do anything. In support of this he referred to a passage later in Lord Steyn's speech at p. 811:

"It is now possible to turn directly to the first issue posed, namely whether non-performance of an obligation is ever as a matter of law capable of constituting an act of acceptance. On this aspect I found the judgment of Phillips J. entirely convincing. One cannot generalise on the point. It all depends on the particular contractual relationship and the particular circumstances of the case. But, like Phillips J., I am satisfied that a failure to perform may sometimes signify to a repudiating party an election by the aggrieved party to treat the contract as at an end. Postulate the case where an employer at the end of a day tells a contractor that he, the employer, is repudiating the contract and that the contractor need not return the next day. The contractor does not return the next day or at all. It seems to me that the contractor's failure to return may, in the absence of any other explanation, convey a decision to treat the contract as at an end. Another example may be an overseas sale providing for shipment on a named ship in a given month. The seller is obliged to obtain an export licence. The buyer repudiates the contract before loading starts. To the knowledge of the buyer the seller does not apply for an export licence with the result that the transaction cannot proceed. In such circumstances it may well be that an ordinary businessman, circumstanced as the parties were, would conclude that the seller was treating the contract as at an end. Taking the present case as illustrative, it is important to bear in mind that the tender of a bill of lading is the pre-condition to payment of the price. Why should an arbitrator not be able to infer that when, in the days and weeks following loading and the sailing of the vessel, the seller failed to tender a bill of lading to the buyer he clearly conveyed to a trader that he was treating the contract as at an end? In my view therefore the passage from the judgment of Kerr L.J. in the Golodetz case [1989] 2 Lloyd's Rep. 277, 286, if it was intended to enunciate a general and absolute rule, goes too far. It will be recalled, however, that Kerr L.J. spoke of a continuing failure to perform. One can readily accept that a continuing failure to perform, i.e. a breach commencing before the repudiation and continuing thereafter, would necessarily be equivocal. In my view too much has been made of the observation of Kerr L.J. Turning to the observation of Nourse L.J. [1996] Q.B. 108, 116-117, that a failure to perform a contractual obligation is necessarily and always equivocal I respectfully disagree. Sometimes in the practical world of businessmen an omission to act may be as pregnant with meaning as a positive declaration. While the analogy of offer and acceptance is imperfect it is not without significance that while the general principle is that there can be no acceptance of an offer by silence, our law does in exceptional cases recognize acceptance of an offer by silence. Thus in Rust v. Abbey Life Assurance Co. Ltd. [1979] 2 Lloyd's Rep. 334 the Court of Appeal held that a failure by a proposed insured to reject a proffered insurance policy for seven months justified on its own an inference of acceptance: see also Treitel, The Law of Contract, 9th ed. (1995), pp. 30-32. Similarly, in the different field of repudiation, a failure to perform may sometimes be given a colour by special circumstances and may only be explicable to a reasonable person in the position of the repudiating party as an election to accept the repudiation."

18. The critical point to be noted is that while the defendant's silence may have indicated that the contract was at an end it could not in any sensible way be interpreted as being the exercise of a right to rescind.

19. While I am mindful of the high threshold which has to be surmounted by a party seeking to strike out pleadings at an early stage in litigation I am satisfied that the defence which the defendant is attempting to run is not sustainable. Also in my view this is a case where it would be in order to interfere with the exercise of the discretion reposed in the Judge as no useful purpose would be served in there being a trial. In my opinion the appeal should be allowed.

Hon Keith JA:

20. Introduction

I agree that this appeal should be allowed, but I wish to add a few words of my own since we are disagreeing with the conclusion reached by the master and the judge. I shall refer to the Plaintiff as the vendor and the Defendant as the purchaser.

The relevant contractual terms

21. The purchaser claims to have rescinded the agreement for the sale and purchase of the flat pursuant to the provisions of clause 4 of the agreement which provided for its rescission in certain circumstances. The relevant provisions of clause 4 of the agreement are as follows:

(a) Clause 4(1)(c). The vendor was required to complete the buildings comprised in phase I of the development by 30 November 1997, though an extension of time could be granted by the vendor's architect.

(b) Clause 4(4)(a). If the vendor did not complete the buildings comprised in phase I of the development by 30 November 1997, or by the date to which the vendor's architect had extended the date for completion, the purchaser was entitled to rescind the agreement "by notice in writing" to the vendor.

(c) Clause 4(4)(b). If the purchaser did not rescind the agreement within 28 days after 30 November 1997, or within 28 days after the date to which the vendor's architect had extended the date for completion, the purchaser would be deemed to have elected to wait for the completion of the buildings comprised in phase I of the development.

(d) Clause 4(4)(c). If the vendor did not complete the buildings comprised in phase I of the development within six months after 30 November 1997, or within six months after the date to which the vendor's architect had extended the date for completion, the purchaser was entitled "either to rescind" the agreement "or to await the completion" of the buildings comprised in phase I of the development.

The purchaser's case

22. The purchaser's pleaded case is that the vendor's architect purported to extend the date for the completion of the buildings comprised in phase I of the development by 131 days. That purported extension was of no effect, and the vendor had therefore been required to complete the buildings by 30 November 1997. That had triggered the purchaser's entitlement to rescind the agreement under clause 4(4)(a) of the agreement. However, since the purchaser had not done that within 28 days after 30 November 1997, it was deemed (subject to its rights under clause 4(4)(c)) to have elected to affirm the agreement. But when the vendor had failed to complete the buildings within six months after 30 November 1997, i.e. by 31 May 1998, the purchaser was entitled to rescind the agreement under clause 4(4)(c). Its case is that it did so on 9 July 1998 by failing to complete the agreement when called upon by the vendor to do so.

23. This defence has four separate elements, each of which has to be established if the defence is to succeed:

(a) The vendor's architect's purported extension of time must have been of no effect. If the purported extension of time was valid, the vendor's time for the completion of the buildings in phase I of the development had been extended to 10 April 1998. Although the purchaser claims that the buildings were not completed by then, the purchaser did not exercise its right under clause 4(4)(a) to rescind the agreement within 28 days after that date. Thus, it would be deemed to have affirmed the agreement. The purchaser does not claim that the buildings had not been completed by 10 October 1998 so as to trigger its entitlement to rescind the agreement then under clause 4(4)(c).

(b) The vendor must not have completed the buildings in phase I of the development by 31 May 1998. If the vendor had completed the buildings by then, the vendor's right to rescind the agreement under clause 4(4)(c) had not been triggered.

(c) The vendor must not have lost its right of rescission by 9 July 1998. It will have lost its right of rescission by then either if its right to rescind the agreement under clause 4(4)(c) had lapsed by then or if its failure to rescind the agreement before then had amounted to an election to affirm the agreement.

(d) The vendor must have been able to exercise its right of rescission under clause 4(4)(c) without giving notice to the vendor to that effect - simply by failing to complete the agreement when called upon to do so.

If any of these elements of the purchaser's defence can be shown - without the hearing involving prolonged and serious argument which would cause the hearing to degenerate into a mini-trial of the action - to be so plainly and obviously unsustainable that it would be an abuse of the court's process for the purchaser to be permitted to argue them at the trial of the action, the paragraphs in the Defence and Counterclaim in which the relevant averments were made must be struck out. Mr Kenneth Kwok SC for the vendor did not suggest that element (a) of the defence - i.e. that the vendor's architect's purported extension of time was of no effect - is plainly and obviously unsustainable, but he contends that elements (b), (c) and (d) of the defence are all plainly and obviously unsustainable.

Element (d) of the defence

24. For reasons which will become apparent in due course, I propose to deal with element (d) of the defence first. The difference in language between clause 4(4)(a) and clause 4(4)(c) makes it at least arguable that, if the exercise by the purchaser of its right to rescind the agreement under clause 4(4)(c) required it to notify the vendor of that election, that notification did not need to be in writing. The critical question is whether the exercise by the purchaser of its right of rescission under clause 4(4)(c) was effective without any notice at all - by simply failing to complete the purchase when called upon to do so.

25. The law on the topic is tolerably clear. As Lord Steyn said in Vitol S.A. v. Norelf Ltd. [1996] AC 800 at pp. 810G-811C:

"For present purposes I would accept as established law the following propositions. (1) Where a party has repudiated a contract the aggrieved party has an election to accept the repudiation or to affirm the contract: Fercometal S.A.R.L. v. Mediterranean Shipping Co. S.A. [1989] AC 788. (2) An act of acceptance of a repudiation requires no particular form: a communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end."

However, the conduct relied on as constituting the acceptance of the repudiation must not merely unequivocally convey to the repudiating party that the aggrieved party is treating the contract as at an end, but must also unequivocally convey to the repudiating party that the aggrieved party is treating the contract as at an end because of the repudiating party's repudiatory breach of the contract. That is clear from what Lord Steyn said later in his speech. He was addressing the question whether a failure to perform a contractual obligation is, as a matter of law, ever capable of constituting an unequivocal acceptance by the aggrieved party of the repudiating party's repudiatory breach of the contract. At p. 812D, he said:

".... in the ... field of repudiation, a failure to perform may sometimes be given a colour by special circumstances and may only be explicable to a reasonable person in the position of the repudiating party as an election to accept the repudiation."

26. The purchaser's case is that its failure to complete the purchase when called upon to do so should be regarded as unequivocally conveying to the vendor that it was treating the vendor's failure to complete the buildings comprised in phase I of the development by 31 May 1998 as a repudiatory breach by the vendor of the agreement such as to entitle the purchaser to treat the agreement as at an end. Is an argument on those lines so plainly and obviously unsustainable that it would be an abuse of the court's process to permit the purchaser to rely on the argument at trial? In my opinion, the argument is plainly and obviously unsustainable. There are any number of reasons why, so far as the vendor was concerned, the purchaser might have failed to complete the purchase when called upon to do so. The purchaser might not have been able to raise the balance of the purchase price. Or it might have wanted to pull out of the purchase because of a decline in the property market, and the flat was no longer worth what it had agreed to pay for it. Without being told what the reason for the failure to complete was, there was no way that the vendor would inevitably have realised that the purchaser was pulling out of the purchase because of the vendor's failure to complete the buildings comprised in phase I of the development by 31 May 1998. That is especially so when

(a) the only part of the buildings which it is alleged was not completed was a public bus terminus, which may have not have been a building at all, but merely a part of the podium of the building designated as a bay at which public buses could pick up and drop off passengers, and

(b) (i) by clause 4(7) of the agreement, the issue by the Director of Lands of a consent to assign was to be conclusive evidence of the completion of the buildings comprised in phase I of the development,

(ii) the Director of Lands had issued such a consent on 2 June 1998 (i.e. only two days after the deadline for the completion of the buildings comprised in phase I of the development), and

(iii) the purchaser had been notified of that by letter on 25 June 1998 (i.e. when it was called upon to complete the purchase by 9 July 1998).

The consequence of element (d) being unsustainable

27. The consequence of this conclusion is that it is unnecessary for me to consider element (c) of the defence since the question whether the purchaser had the right to rescind the agreement is academic if it was not a right which it can assert that it exercised. Thus, there is no need to consider the proposed amendment to the notice of appeal to enable Mr Kwok to argue that element (c) of the defence is plainly and obviously unsustainable. It also follows that the paragraphs in the Defence which seek to rely on the purchaser's purported rescission of the agreement on 9 July 1998 must be struck out. So too must the Counterclaim because that proceeds on the premise that the agreement was validly rescinded on 9 July 1998. So too must those paragraphs in the Defence which set out the grounds on which the purchaser purported to rescind the agreement, because once the purchaser has to be regarded as not having rescinded the agreement, the grounds on which he might have been entitled to do so also become academic. Having considered the Defence and Counterclaim with care, that means that paras. 12, 13, 14, 15, 16, 17 and 20 of the Defence, and the whole of the Counterclaim, must be struck out.

28. Technically, the notice of appeal did not initially take the point that the judge should have found that the purchaser's failure to complete the purchase on 9 July 1998 could not have amounted to an unequivocal acceptance of the vendor's repudiatory breach of the agreement. Accordingly, in the course of the hearing, Mr Kwok applied for leave to amend the notice of appeal to enable the point to be taken. In my view, leave to amend should be granted, by deleting the words "notice in writing to the plaintiff of rescission" in para. (4) of the grounds of appeal in the notice of appeal, and by substituting for them the words "conveying to the plaintiff that the defendant was treating the contract as at an end".

Element (b) of the defence

29. I turn to element (b) of the defence. Strictly speaking, that element does not have to be addressed either: once the question whether the purchaser had the right to rescind the agreement becomes academic, so too do the grounds on which the purchaser claims to have acquired that right. However, I propose to address the question briefly since it was argued at some length before us. It is not disputed that the conditions of the Government Grant required the vendor to provide a public bus terminus in the development. There is no evidence as to what the public bus terminus was to consist of. As I have said, I suspect that it was to consist simply of a part of the podium being designated as a bay at which buses could pick up and drop off passengers. However, I cannot assume that it was not to consist of something more than that. If, therefore, it is possible that the terminus was something more than a mere bay on the podium and could have been characterised as a part of the building, the issue is whether such a terminus could be said to be part of the buildings comprised in phase I of the development. Having regard to the definition of "phase I" in the agreement, the issue is whether the terminus can be said to be part of the buildings comprised in the phase of the development comprising Towers 1, 2, 3, 4 or 5 and the kindergarten of the Greenwood of Laguna Verde of the development of which the flat forms part. I do not think that the argument on this issue deployed by Mr C. Y. Lee for the purchaser in his skeleton argument is so plainly and obviously unsustainable that it would have been an abuse of the process of the court for him to develop the argument at the trial of the action.

Conclusion

30. Having said all that, the core of the defence is that the purchaser rescinded the agreement on 9 July 1998. If, as I have concluded, the purchaser cannot argue that it rescinded the agreement on that date, the question whether it was entitled to rescind the agreement on that date becomes, as I have said, completely academic. I leave it to the purchaser's advisers to decide whether, so much of the Defence and the whole of the Counterclaim having been struck out, there is much left to be argued over. However, since the vendor has succeeded on a point which, albeit technically, was not pleaded in the notice of appeal, the order nisi as to costs which I would make is that there be no order as to the costs of the appeal, but that the purchaser must pay to the vendor the vendor's costs of and occasioned by its summons, including the costs of the hearings before the master and the judge.

Hon Mayo VP:

31. In conclusion the appeal is allowed. So far as the necessary order is concerned I agree that the paragraphs referred to by Keith JA must be excised. I also agree with the costs order proposed by him and that will be our order.

Representation:

Mr Kenneth Kwok, SC and Mr Michael Yin, instructed by Messrs Allen & Overy, for the plaintiff

Mr Li Chau-yuen, instructed by Messrs Tang, Lai & Leung, for the defendant