Extinguishing a purchaser’s lien

A purchaser’s lien can be extinguished by operation of law, by the common intention of the parties or by a holder of the lien. The test of intention is objective. Unless the intention is express, the burden is on the party denying the existence of the lien to prove by clear and manifest inference that such was the parties’ intention.

In Re Bank of China (Hong Kong) Ltd ([2011] HKEC 660, CFI) V and P entered into an agreement for the sale of a flat and P paid very substantial deposits to V. By operation of law, a purchaser has an equitable lien over property as security for the deposit paid. V and P later entered into a cancellation agreement that terminated the sale agreement and contained a clause purporting to give security for repayment of the deposits. V and P later sought a consent order under which V would repay the deposits and the agreement would be terminated. Between the cancellation agreement and the application for the consent order, various other interests were created in respect of the property. This case concerned the priority between P’s equitable lien and the other later interests.

To J explained that a purchaser’s lien can be extinguished by operation of law, by the common intention of the parties or by a holder of the lien. The test of intention is objective. Unless the intention is express, the burden is on the party denying the existence of the lien to prove by clear and manifest inference that such was the parties’ intention. The more extensive security arrangements contained in the cancellation agreement showed a common intention to extinguish the lien. In the circumstances, the application for the consent order had the same effect. The equitable lien was extinguished and the later claims were not subject to it.

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