AU WAI MING AND ANOTHER v. KAM TZE MING ALFRED AND ANOTHER

HCA 738/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 738 OF 2007

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J U D G M E N T

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1.  This is a sale and purchase dispute.  The defendants are the owners of a house in Sai Kung.  They entered into an agreement to sell it to the plaintiffs.  The agreement was dated 12 January 2007.  Completion was fixed to take place on 10 April 2007, at the defendants’ solicitors’ office. 

2.  There was nothing unusual about the terms of the agreement.  It provided for payment of the deposit being 10% of the purchase price in two instalments.  The plaintiffs paid these, totalling $989,800, on the due dates.

3.  The defendants were required to show and prove good title, and ahead of completion to forward certified copies of such documents that made up title.  There was a requisition clause, by which the plaintiffs were given the opportunity within seven days of receipt of the documents of title to object to a defect in the documents, with a further seven days to respond to the reply.

4.  The defendants appointed Messrs Y T Szeto & Company (YTS) to be their solicitors in the transaction.  They sent the documents of title to those instructed by the plaintiffs, Messrs Tam Pun & Yip (TPY), by letter of 29 January 2007.

5.  By letter of 3 February 2007 TPY raised a requisition concerning one of the documents which excited their attention.  They had spotted an irregularity in the execution of a discharge of a mortgage which secured repayment of an advance made to the defendants when they bought the house in 1997, subsequently released in 2003 when they refinanced.

6.  YTS responded to the effect that there was no irregularity.  Correspondence ensued as both sides maintained their contrary views.  Solicitors representing the plaintiffs’ prospective mortgagees Messrs Gary Mak Denis Wong & Chang shared the view that the discharge of mortgage had not been properly executed, that the title was irregular, and that until that had been made good the advance would not be approved.

7.  YTS whilst holding firm to its stance that the discharge was regular, wrote to TPY on 10 April 2007, the date of completion.  They stated therein that without prejudice to their position that all was in order, they would arrange a re-execution of the discharge, but upon condition that completion was undertaken in compliance with the agreement.  They concluded the letter with these words: 

“Our clients’ concession is made with a view to avoid dispute and to enhance a smooth completion.”

8.  That did not bring about a result.  The response from TPY of the same day was to say that the timing gave them insufficient time to consider their clients’ position, and was in breach of their rights under the requisitions clause.  Then they wrote:

“Entirely without prejudice to the above, our client will consider to complete the purchase on 18^th April 2007 subject to your undertaking to deliver to us within 17 days from the date of completion the Deed of Release Memorial No. SK551405 duly affixed the Common Seal of AIG Finance (Hong Kong) Limited for the second time.  Please take your client’s instruction herein and revert to us immediately.”

That of course was effectively to defer completion by seven days.

9.  YTS replied on the same day:

“We refer to your letter to us dated 10^th April 2007, the facsimile copy of which reached us at 16:34 pm,

With due respect, your requisition in respect of Release Memorial No. SK551405 is not a requisition on title but rather a requisition on conveyance.  The discharge of encumbrance (if any) is to be performed on completion.

Your clients’ failure to complete the purchase and tender the balance of purchase price in accordance of the terms and conditions in the Agreement for Sale and Purchase dated 12^th January 2007, i.e. on or before 5:00pm 10^th April 2007 is clearly a repudiation of the said Agreement.  And your clients are not ready and willing to complete the purchase at all.

Your request to postpone completion in the last paragraph of your said letter is not agreeable by our client.  In order to give your clients a last chance, our clients will only accept your clients’ completion the purchase on 12^th April 2007 at noon (sharp), in respect of which time is of the essence.”

That fell on deaf ears.

10.  By letter of 11 April TPY renunciated the agreement, called for the return of the deposit and reserved their clients’ position on a further claim in damages.

11.  The response from YTS of 12 April was to note the failure by the plaintiffs to complete on time and to accept their repudiation thus to terminate the agreement.  They told them that the deposit was thereby forfeited, reserving their clients’ rights to further damages.

12.  The plaintiffs began this action in April 2007 suing to recover the deposit of $989,800 and damages to be assessed, with a declaration of entitlement to an equitable lien over the house’s title to secure such rights.

13.  The defendants deny liability.  There is no counterclaim.

14.  A split trial was ordered.  My task is to determine the issue of liability.

15.  The mortgage central to the dispute came into being on 9 December 1997, when the defendants bought the house.  It was an all moneys charge, executed by the defendants in favour of American International Assurance Company Limited (AIA), the mortgagee.

16.  In due course AIA sold the mortgage, included in a basket of mortgages, to a related company called AIG Finance (Hong Kong) Limited (AIG).  That took place on 27 September 2000.  On the same date AIG sold the mortgages to The Hong Kong Mortgage Company Limited (HKMC). 

17.  By these transactions thus, HKMC became mortgagee of the defendants’ mortgage.  The transfers of mortgage were duly registered against title to the Sai Kung house.

18.  As an addendum to the sale between AIG and HKMC, HKMC contemporaneously appointed AIG to service the mortgages bought and sold, to undertake on its behalf the mechanics of discharging, releasing, varying or otherwise dealing with the mortgages as circumstances required.  To this end and for this purpose, HKMC entered into a power of attorney in favour of AIG, giving it inter alia the right to execute discharges on its behalf.

19.  The discharge of mortgage purportedly executed when the defendants repaid the debt secured thereby upon refinancing was dated 31 March 2003, and was registered on 24 April 2003, under memorial SK 551405.  That is the reference in the correspondence, part of which I have reproduced.

20.  The discharge is more than a bare acknowledgment of moneys paid and consequential release of the charge, for it recites the history I have recorded.  The parties include HKMC as mortgagee, AIG as servicer, and the defendants as mortgagors.

21.  The recitals record the transfers leading to HKMC becoming mortgagee, and the appointment of AIG as servicer.  Recital E records payment in full of all moneys secured by the mortgage.

22.  Within the body of the document HKMC discharged the mortgage and AIG as servicer confirmed the release.  The discharge is full, absolute and unequivocal.

23.  So far so good.

24.  When it came to execution, this was recorded:

“In witness whereof this Release has been executed and delivered as a deed by the HKMC and the Servicer on the day and year first before written.”

And then the attestations, in this format, occupying page 4 of the document:

	“	SEALED with the Common Seal of	)
		AIG FINANCE (HONG KONG)	)	(Signed)
		LIMITED and SIGNED by Cyrus	)	Cyrus T. K. Lo
		T. L. Lo, Assistant Vice President	)	Assistant Vice President
		and T. C. Leung, Alternate Director	)
			)
		its authorized signatory(ies)	)
		as the lawful attorney of THE HONG	)	(Signed)
		KONG MORTGAGE CORPORATION	)	T.C. Leung
		LIMITED whose signature(s) is/are	)	Alternate Director
		verified by :-	)
		(Signed)
		TAI SIU HUNG
		Solicitor, Hong Kong SAR
		AU YEUNG CHENG HO & TIN
		SEALED with the Common seal of	)
		AIG FINANCE (HONG KONG)	)	(Signed)
		LIMITED and SIGNED by Cyrus	)	Cyrus T. K Lo
		T. K. Lo, Assistant Vice President	)	Assistant Vice President
		and T. C. Leung Alternate Director	)
				(Signed)
		its authorized signatory(ies) whose	)	T. C Leung
		signature(s) is/are verified by :-	)	Alternate Director
		(Signed)
		TAI SIU HUNG
		Solicitor, Hong Kong SAR
		AU YEUNG CHENG HO & Tin”

25.  The irregularity spotted by TPY was that AIG’s common seal had not been affixed where it had purported to execute the release as attorney of HKMC.

26.  The short response from YTS to the proposition that the discharge had not been signed was that there was the affixing of the common seal, and:

“that there is no need to have it affixed twice or otherwise”.

27.  TPY would have none of that. They wrote back:

“Your answer is totally misleading and unacceptable as AIG Finance (Hong Kong) Limited executed and signed the Deed of Release twice.  Please note that the Deed was executed by HKMC by its lawful attorney, AIG Finance (Hong Kong) Limited without the affixing of it Common Seal thereon.  Thus, a Confirmatory Deed of Release should be executed by HKMC.  Please let us have the Deed of Confirmatory Release executed by HKMC and AIG Finance (Hong Kong) Limited and properly attested together with the signed Memorial thereof, the explanatory letter to the Land Registry and your cheque for the registration before completion.  Meanwhile, please let us have your draft Deed of Confirmatory Release for our approval.”

28.  And so the battle lines were drawn, from which neither side resiled.

29.  The way in which the differences emerged and the respective causes argued determines the issues to be resolved.  These I now list:

(1) Were the defendants entitled to hold out for re-execution of the discharge by HKMC as mortgagee?

If not, that must be the end of their case.  But if so,

(2) was their treating of the flaw in the discharge as a requisition on title justified, or was it a requisition on conveyance?

If so, then that must warrant judgment in their favour.  But if not, and it was a requisition on conveyance,

(3) were they in breach for not turning up to complete?

30.  I come now to consider these issues.

31.  Mr Lau who together with Mr Cheung represented the plaintiffs, focused on the same argument as had been mounted by the plaintiffs’ then solicitors through the correspondence that concluded when the transaction went off; that the mortgagee’s attorney had not effectively discharged the mortgage because its seal was not affixed so that that attestation (as against the one below on the same page) was not complete.  The attestation below was that of AIG as servicer, or confirmer, and not as attorney for and on behalf of the mortgagee.

32.  I was taken to various cases as authority for the proposition that execution of a conveyancing document such as a release of mortgage had to be proper and complete to validate the same.  Where the party executing is a company the formality of the affixing of the seal is a pre-requisite; see, for instance, Trump Wall International Limited v Siu Fung Knitting Factory Co. Limited unreported HCMP 2408/1998; Ko Lan v Hoo Man Kwan unreported HCMP 4416/1998; On Hong Trading Company Limited v Bank of Communications unreported HCMP 3099/1999.

33.  I do not take issue with this principal or the correctness of those authorities.  But the proposition before me is to deal with issues of fact as well as law, and in this case I have two purported attestations, one said to be complete and proper and the other incomplete and improper entered into by the same corporate entity.

34.  The deed of discharge did not, in my view, require the participation by AIG in its personal capacity.  It is referred to therein as servicer, in that it was engaged to undertake the mechanics of the release, and confirmer, presumably with reference to its previous albeit momentary role as mortgagee, but the sole party required to execute was the existing mortgagee.

35.  Mr Lee representing the defendants agreed with that.  Then he reminded me that Hong Kong’s conveyancers are notoriously cautious in their approach to their duties, and the draftsman of the deed of discharge probably out of an abundance of that caution chose to include AIG as a signatory.

36.  I accept that may well have been so; certainly that does not offend the status of the document.

37.  The deed amounts to a complete and absolute discharge as I have already demonstrated.  But has the mortgagee properly signed it?

38.  Section 6 of the Powers of Attorney Ordinance Cap.31, deals with the manner of execution of documents by those empowered by a power of attorney.  That reads:

“6.     Execution of instruments, etc. by donee of power of attorney

(1)     The donee of a power of attorney may, if he thinks fit —

(a)   execute any instrument with his own signature and, where sealing is required, with his own seal; and

(b)   do any other thing in his own name,

by the authority of the donor of the power; and any document executed or thing done in that manner shall be as effective as if executed or done by the donee with the signature and seal, or, as the case may be, in the name, of the donor of the power.

(2)   For the avoidance of doubt it is hereby declared that an instrument may be executed on behalf of a person by a donee of a power of attorney either as provided in this section or as provided in any other Ordinance.

(3)   This section is without prejudice to a provision in any other Ordinance requiring an instrument to be executed by a person specified therein.

(4)   This section applies to powers of attorney whenever created.”

39.  This makes it quite clear that a donee, in this case AIG, can sign an instrument with or without reference to this having been performed as attorney of the donor.

40.  Thus the wording in the first of the two attestations on page 4 need not have included reference to the power of attorney given by HKMC, though the fact that it was included cannot be faulted.

41.  Nevertheless, by virtue of section 6 Cap.31, AIG was entitled to sign the discharge on behalf of HKMC using an attestation with wording identical to that used in the second of the two attestations.

42.  In that situation there would have been no need for AIG, wearing two hats in the deed, to execute it twice.

43.  The second of the two attestations is execution of the document without fault, binding AIG to the deed it has executed.  Were there to have been a line through the first attestation, or were it not to have been included at all, it becomes apparent that no one could have found fault with the discharge as a complete, executed instrument, binding HKMC as well.  That an incomplete attestation has been permitted to remain in the deed does not alter the validity of the execution.  All that has achieved is to raise the spectre of an incomplete execution.

44.  But as I have analysed that is a red herring.  In reliance on the second recorded attestation there was proper execution.  The defendants were all along able to show a good title and on completion would have been able to make a good title.

45.  By failing to recognize this and attend on due date to complete the plaintiffs were in breach.  The defendants were entitled to treat that as a repudiation and to accept that, and to treat the deposit as forfeited.

46.  For the sake of completeness I turn to consider what would be the situation if the execution of the discharge was, after all, improper and required rectification.

47.  Was this a requisition on title, to be remedied before completion, or was it a matter of conveyancing, to be made good on or by the date of completion?

48.  The differences were dealt with in Sihombing & Wilkinson’s Hong Kong Conveyancing 1(A) at V 161-165:

“Matters of mere conveyance

[161]-[165]

The duty to give a good title does not, however, extend to matters of mere conveyance.  What this means is that good title is not adversely affected by a defect which the vendor can remove independently of the concurrence of a third person.  The most common example of a matter of mere conveyance would be the discharge of a mortgage over the property by the vendor: Re Jackson and Oakshott (1880) 14 Ch D 851.

         In Chan Pak Ho v Standard Chartered Asia Ltd [1988] 1 HKLR 216, a vendor agreed to sell property to a purchaser.  A predecessor-in-title to the vendor had previously assigned the property to a bank by way of mortgage and the property had been reassigned under a power of attorney.  The court held that the attorney had no authority under the power of attorney to reassign the property and the title, therefore, remained vested in the bank, although the mortgagor had the beneficial interest in the property.  This defect, however, was a mere matter of conveyance, since the vendor could compel the bank to reassign the mortgage.”

49.  Litton JA made the same point in Active Keen Industries Limited v Fok Chi Keung [1994] 1 HKLR 396 when, at page 409, he quoted from Barnsley’s Conveyancing Law & Practice, 3^rd edition at p.246:

“The word ‘title’ is an ambiguous word, meaning different things in different contexts. Conveyancers used the word in two main senses – (1) to mean ownership, the vendor’s right to the property; (2) the evidence supporting the claim to ownership, i.e. the proof of title in the first sense.  In the expression ‘good title’, the word is used as equivalent to ownership; a vendor must show a title as will enable the purchaser to hold the property against any person who may probably challenge his right to it.  This obligation to make a good title requires the vendor to show that he alone, or with the concurrence of some person or persons whose concurrence he can compel, can convey the whole legal estate and equitable interest in the land sold, free from encumbrances except for those disclosed by the contract.”

50.  The example referred to in Hong Kong Conveyancing is of course a common enough occurrence where the vendor is reliant upon some or all of the purchase price to pay off his mortgage and thus pass clear title.  He could not reasonably show clear title until completion.

51.  Mr Lau sought to make a distinction between a mortgage securing an advance still outstanding and one, as here, where the moneys secured had all been paid back long before the advent of the current transaction, but where the mortgage has not been discharged, at least not properly so.  That is, he submitted, past history, and reveals a flaw that goes to title.

52.  But in that case scenario the mortgage, though no longer securing an outstanding advance, would remain an existing encumbrance, capable of being cleared by the vendor independently of the concurrence of a third person.  In this case the defendants would have been able to present the discharge, with its recital of payment in full, to HKMC or its attorney and compel a re-execution, or rather a proper execution.

53.  This is in fact what YTS, albeit at the 11^th hour, said the defendants were willing to do, giving notice which would have enabled the parties to complete on time.

54.  The defect as I have now demonstrated was a matter of conveyance.  That the plaintiffs failed to present themselves at the offices of YTS to complete on the due date put them in breach, even if it were ultimately found that the discharge was not properly executed. 

55.  For these reasons the plaintiffs have failed to prove liability; their claim is dismissed.

56.  Costs nisi follow the event and are to the defendants.

57.  I need to make one further point. 

58.  In Mexon Holdings Limited v Silver Bay International Limited [2000] 2 HKC 1, Litton PJ said at p.8:

“First principles

A good title does not mean a perfect title, free from every possible blemish.  Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”

In Active Keen the same judge had said this at p.414:

“In conclusion, I would echo the words of the judge [below] who is highly experienced in these matters, when he said:

‘… if those instructed to act for purchasers could be brought to realise that they would serve their clients better by exercising their common sense rather than by exhibiting their zealousness, matters would be … improved.  The time has come for Hong Kong conveyancers to put an end to the practice of magnifying difficulties which are really non-existent, a practice which frequently operates to keep apart a vendor and a purchaser themselves eager to conclude their bargain …”

These sentiments are as apposite in this case as they were in Mexon Holdings and Active Keen.