WONG YUET WAH MANDY v. LAM TSAM YEE AND ANOTHER

1998, No. M.P. 4998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4998 OF 1998

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REASONS FOR JUDGMENT

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Introduction

1. This action arose out of a sale and purchase agreement dated 18 August, 1998 regarding a flat in Austin Road, Kowloon. The Plaintiff was the purchaser and the Defendants were the vendors thereunder.

2. Requisitions on title were raised by the Plaintiff's solicitors. Being dissatisfied with some of the answers given, they issued these proceedings. At the commencement of this action, the Plaintiff regarded two of the requisitions as not having been satisfactorily answered. At the hearing on 15 April, 1999, Mr. Li for the Plaintiff indicated that he would not pursue one of the two requisitions. Arguments were therefore only advanced in relation to one requisition.

3. At the end of that hearing, I granted the relief asked for by the Plaintiff (with amendments made at the Plaintiff's request). I indicated that reasons for doing so would be given later. These are the reasons.

The Requisition in Issue

4. The requisition raised at the commencement of these proceedings but not pursued by Mr. Li at the hearing was related to an alleged discrepancy between the Occupation Permit and the Deed of Mutual Covenant in the number of units on the ground floor (not the same floor as the suit property). Since this was no longer relied on by the Plaintiff, it is not necessary for me to decide on this aspect.

5. The requisition which needs to be considered and determined arose in the following manner.

6. On of the title documents was an assignment dated 18 October, 1976. The vendor of that assignment was a Polyson Realty & Enterprises Limited ("Polyson"). The assignment was executed for the vendor as follows: a chop placed on the signature space for the vendor reads "Lau Wai Ken its Director"; further, one signature was found at that space (probably signed by Mr. Lau).

7. Article 21 of the Articles of Association of Polyson reads:-

"All deeds share certificates or instruments requiring the seal of the Company shall be signed by two Directors or by one Director and countersigned by the secretary or in such manners as the Directors shall from time to time by resolution determine.".

It was not disputed by the parties that three modes of execution were provided for by this clause.

8. In a letter dated 24 August, 1998, the Plaintiff's solicitors raised the following requisition:-

"In [the above] Assignment, the Vendor executed by one director only, namely, Lau Wai Ken. Pursuant to Article 21 ... [the first two modes of execution were then set out]. Please clarify and prove due execution thereof.".

9. A line of correspondence then ensued between the respective solicitors regarding this matter. In short, the Defendants' solicitors relied on the third mode of execution and contended that the assignment was executed in accordance with that mode. On the other hand, the Plaintiff's solicitors argued that even so, they were entitled to have a copy of the resolution to satisfy themselves that such was the case. The Defendants' solicitors refused such request on the ground they could rely on s. 23 of the Conveyancing and Property Ordinance, Cap. 219. S. 23 of Cap. 219 reads:-

"An instrument appearing to be duly executed shall be presumed, until the contrary is proved, to have been duly executed.".

10. No point was taken by the Defendant as to whether the 1976 assignment was a relevant title document. Mr. Siu for the Defendant was contented to argue this point along the same argument advanced in the solicitors' letter, namely, the requisition was satisfactorily answered by reliance on the third mode of execution provided for in Article 21 as well as on s. 23 of Cap. 219.

11. Mr. Li relied on the following cases in his argument that this requisition had not been satisfactorily answered:-

(a) Qualihold Investments Ltd. v. Bylax Investments Ltd. [1991] 2 HKC 589;

(b) Tread East Ltd v. Hillier Development Ltd., HCA No. 907 of 1991;

(c) Hillier Development Ltd. v. Tread East Ltd. [1993] 1 HKC 285;

(d) Li Ying Ching v. Air-Sprung (Hong Kong) Ltd. [1996] 4 HKC 285;

(e) Ho So Yung v. Lei Chen Un [1998] 2 HKC 697;

(f) Lee Chat v. China Roll Industries Ltd. [1998] 1 HKC 269.

12. Based on these authorities, Mr. Li argued that the assignment had not been executed in accordance with the first two modes of execution stipulated under Article 21. It was therefore proper for the Plaintiff's solicitors to raise requisition on title regarding this.

The Defendants' Answer

13. The answer given by the Defendants' solicitors regarding the requisition was contained in a letter dated 15 September, 1998:-

"... we opine that the execution of the said deed by [Polyson] was in accordance with her articles of association "or in such manners as the Directors shall from time to time by resolution determine" and was a due execution. ... ".

14. This answer was not accepted by the Plaintiff's solicitors who stated in their letter dated 16 September, 1998:-

"... When you say [sic] that it was a due execution pursuant to the following words in the said Article 21 'or in such manners as the Directors shall from time to time by resolution determine', please then provide us with such Board resolution to show that the said Lau Wai Ken was properly authorized.

In these circumstances, we do not think that you have satisfactorily answered our requisition and look forward to receiving you further evidence of due execution ...

Lastly, we would refer you to the case of Qualihold Investments Ltd. v. Nylax [sic] Investment Ltd. [1991] 2 HKC 589 - Assignment executed by only one director when articles required execution by two directors ... , execution invalid.".

15. In a letter dated 18 September, 1998, the Defendants' solicitors stated that it was within the power of Polyson to authorize a director to sign and s. 23 of Cap. 219 could be relied upon. They referred to the Court of Appeal decision in the Hillier Development case and contended that a purchaser was not entitled to enquire into matters of internal management of a limited company. The Plaintiff was thus not entitled to look at the board resolution and they declined to produce a copy. They further argued that the Qualihold Investments case was inapplicable.

16. At the hearing, Mr. Siu adopted the same stance. He argued that the cases referred to by Mr. Li (except the Hillier Development case) were all distinguishable because the wordings of the Articles of Association were all different from that of Article 21 in the present case. Further, he argued the plastic chop "Lau Wai Ken its Director" has the same effect as the execution clause in the Hillier Development case in triggering the operation of s. 23 of Cap. 219.

17. Although Mr. Siu was correct in observing the articles in the authorities were differently worded, I do not agree that they can be distinguished purely on that basis. The underlying reasoning of the remarks made by the Judges in those authorities is of general application and relevant to the issue of whether there is a defect in title arising from execution of an assignment for limited companies.

18. In the Li Ying Ching case, Mr. Justice Cheung said:-

"Authorities such as [Qualihold Investments] ... clearly established that the execution was not valid by reason of the failure to comply with the articles in the execution of the document" (at p. 420A-B); and

"The difficulty that the defendant faces in this case is that Judy Hsu was not described as the chairman of the company. If she was so described, quite apart from satisfying the requirement of article 20, s. 23 of the Ordinance will preclude any demand of proof that she was properly appointed as a chairman. But in this case, she was described as a director. ... " (at p. 420 H).

19. In the Ho So Yung case, Mr. Justice Suffiad said:-

"the word 'appearing' in [s. 23] must surely indicate that on the face of the instrument it should be shown to be duly executed. In the present case, the description in the assignment of Mr. Tsang Foun merely as director, does not, in the light of cl. 49 of the articles of the company, make the assignment appear to be duly executed. If anything, it makes it appear that the assignment was not duly executed." (at p. 704 B-C).

20. In the Lee Chat case, Madam Justice Le Pichon said:-

"The present case is of course factually different from Hillier because here the purchaser's solicitors did not have a copy of the articles of association in their possession at the time of the requisition. In fact, they specifically asked to be provided with such a copy. This request was refused ...

In my judgment, the purchaser were entitled to ask to see a copy of the articles in order to verify whether it was within the powers of the company to authorize one director only to sign the agreement. ... Without them, there is no question of s. 23 being triggered. By refusing to supply a copy of the articles of association, the vendor failed to discharge its obligation and so disabled itself from being in a position to rely on any presumption that might otherwise have arguably arisen under s. 23 ... " (at p. 275).

21. Applying the reasoning of these remarks to the facts of this case, there was an obligation on the Defendants to supply a copy of the resolution to the Plaintiff to satisfy her that the mode of execution was within the terms of Article 21.

22. I also do not agree with Mr. Siu's further argument that the plastic chop has the same effect as the execution clause in the Hillier Development case. In that case, the wordings of the article are quite similar to that of Article 21 herein. The assignment there was also executed by one director. A clause above the signature of that director stated: "one of its directors as directed and authorized by the board of directors to sign" (see the Hillier Development case (Court of Appeal) at p. 287H). After referring to the above facts, Mr. Justice Godfrey said "... in these circumstances the presumption of due execution referred to in s. 23 of [Cap. 219] applies, and the purchaser was not entitled to call for sight of a resolution authorizing the assignment to be signed in this way ... " (p. 9 of the transcript of the first instance Judgment).

23. The plastic chop in this case did not state whether Mr. Lau had been authorized. It only described Mr. Lau's office as a director. The signatory's office is however immaterial as long as it can be proven that he has been duly authorized by the board to sign in that manner. The assignment was therefore not one which appeared to have been duly executed and the presumption under s. 23 of Cap. 219 cannot be invoked.

24. For the above reasons, I found that the requisition has not been satisfactorily answered and good title has not been shown.

The Adequacy of the Requisition

25. In the course of his submissions, Mr. Siu argued that the requisition raised in the letter dated 24 August, 1998 was too vague and wide. I do not agree and consider that the requisition was properly raised. There is nothing in this argument and I mention it to dispose of it.

Form of Relief

26. Mr. Li asked me to make certain amendments to the prayer for relief. I invited Mr. Siu to make submissions regarding the relief asked for in this action but he indicated that he did not wish to make any submissions on this aspect. I consider that the relief asked for (as amended) should be granted and made an order in terms.

Costs

27. Mr. Siu argued that the Plaintiff should only be entitled to half of the costs of the action because Mr. Li abandoned the part of the Plaintiff's case regarding the other requisition. Having heard his submissions, I refused to make any separate costs order regarding any particular issue but ordered that the Defendants are to pay the costs of the action to be taxed if not agreed.

28. Practically no time was spent at the hearing on the other requisition. This is because Mr. Li already indicated he only pursued one requisition in his written skeleton submissions which was filed before the hearing.

29. Mr. Siu said that he only received the written submissions on 14 April, 1999. However, having considered the materials relied upon by the parties, I do not find that this should materially affect costs. The other requisition was raised at the same time and in the same documents as the requisition which fell for consideration at the hearing. Any additional material would therefore be minimal. As a matter of law, it could sufficiently be answered by relying on the Court of Appeal Judgment of Active Keen Industries Ltd. v. Fok Chi Keong [1994] 2 HKC 67. Hence, only minimal additional costs would reasonably have been incurred for preparation.

30. For these reasons, I do not consider that I should exercise my discretion by making any separate costs order regarding this aspect of the action.