STANFORD HOUSE PUBLICATIONS (HK) LTD v. WIN CAPITAL INDUSTRIES LTD

HCMP 2662/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2662 OF 2005

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J U D G M E N T

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1.  The plaintiff as purchaser and the defendant as vendor entered into an agreement dated 19 August 2005 (“the Agreement”) for the sale and purchase of property at Workshop 14, 8^th Floor, Worldwide Industrial Centre, (“ the Property”), for a price of $630,000.  The plaintiff paid $63,000 as deposit.  The sale fell through, because of a dispute over the title.

2.  The plaintiff now claims by Originating Summons that the defendant has failed to answer sufficiently or satisfactorily a requisition on the title of the property and claims for declaratory relief, repayment of the deposit and other consequential reliefs.  The defendant by a counter notice under Order 28 Rule 3(3) of the Rules of the High Court seeks declarations that the requisition has been sufficiently and satisfactorily answered and that it has shown or proved a good title or that the title is good, and for a declaration that it is entitled to forfeit the deposit and other consequential reliefs.

3.  The requisition relates to the execution of an assignment of the Property dated 15 February 2001 (“the Assignment”) by one Supreme Million Ltd as vendor to the defendant as purchaser.  At that time Supreme Million was being wound up by the Court.  The Assignment, which bore to be a deed by Supreme Million in favour of the defendant, was signed by one Wong Tak Man Stephen “acting as liquidator without personal liability for and on behalf of the Vendor”.  It was sealed with the liquidator’s own seal, in the form of an unmarked red adhesive disc.

The requisition

4.  This appears in a letter dated 16 September 2005, issued by the plaintiff’s solicitors, Messrs Rowland Chow, Chan & Co (“RC”) to the defendant’s solicitors, Messrs Y T Szeto & Co. (“YTS”) and reads:

“The Vendor has not executed the Assignment Memorial No. ST1213520 and affixed its Common Seal thereon.  Accordingly, title of the Property has not been validly vested in the Purchaser.  Kindly let us have a Confirmatory Assignment in this respect duly executed by the Vendor for our perusal (relevant copy enclosed).  We shall require the same to be registered in the Land Registry at your client’s costs and expenses.”

The subsequent correspondence and facts

5.  On 16 September 2004, YTS wrote :

“Assignment Memorial No. ST1213520 had been executed by the liquidator of the Vendor pursuant to a Winding Up Order Memorial No. ST1142828.  There is no legal requirement or authority to require the execution of the Liquidator in any documents to adopt the Common Seal.  Thus, we will not entertain your requisition unless the contrary has been shown.”

6.  On 17 September 2004, RC replied drawing attention to section 198 of the Companies Ordinance Cap. 23 and contended that the Property was not vested in the Liquidator unless a vesting order was made.  They also contended that it was crucial for Supreme Million to affix its Common Seal, in order to vest the Property in the defendant.

7.  YTS then approached Messrs Horvath & Giles (“HG”) who had acted for Supreme Million in the conveyance to the defendant.  HG contended that the liquidator had the power of sale which he had properly exercised.  On 4 October 2005, YTS passed HG’s letter on to RC who replied that the liquidator could only sell in the company’s name and on its behalf by using the common seal; he had no authority to sell the property in his own name or execute the Assignment by himself.  Reference was made to section 199(2)(a) and (b) of the Companies Ordinance, Cap. 32.

8.  YTS replied on 6 October 2005 that they would write to request HG to “rectify the error”.  This they did.  At the same time they proposed to RC that the date of completion be postponed to 30 October 2005.  RC replied the next day, agreeing to postpone completion until Monday 31 October 2005.

9.  HG on 12 October replied to YTS, denying that the Assignment had been improperly executed.  They questioned whether there was any risk of challenge by the shareholders and directors of Supreme Million, given that that company was in liquidation at the time.  They also said that the liquidator had been released in August 2004 and had no capacity to enter into any agreement or confirmatory assignment, and they drew YTS notice to the fact that they, YTS, had prepared the Assignment and approved its execution.

10.  YTS passed on HG’s letter to RC on 24 October 2005.  They denied that the Assignment was improperly executed, citing a decided case in support of their view.  They suggested that there was no risk of challenge because the company had been wound up, and said that because the liquidator had been released, it would be unrealistic to produce a confirmatory assignment before completion.  They said that even without a confirmatory assignment, the risk of successful challenge to the title was so remote that it could be discounted.

11.  RC would have none of this.  On 26 October, they denied that the cited case applied, and pointed to the fact that the company had not yet been dissolved, and referring to section 226A of the Companies Ordinance.  They insisted that no title had been assigned to the vendor and that YTS had not shown or proved a good title.

12.  On 31 October, the postponed date of completion, YTS wrote to RC, stating that they would seek co-operation from the former liquidator to execute a confirmatory assignment, but this would take time, and they requested further postponement.  The following day, 1 November 2005, RC replied that the plaintiff would not postpone further.  They demanded the return of the deposit of $63,000 and reserved the right to claim damages.  YTS replied denying breach of the Agreement, and stating that the defendant was in repudiation, which the defendant could accept, but nevertheless asking for more time.  On 2 November, RC replied denying breach of the Agreement, noting that the plaintiff had been able and willing to complete at all times, and stating that the defendant had failed to prove a good title as at 31 October 2005, and demanding return of the deposit, failing which legal proceedings would follow.

Issues

13.  The issues raised are these :

(1)	Is the defendant’s title to the Property defective?
(2)	If there is a defect in the title, is there a real risk of litigation?

Is the title defective?

14.  By section 4 of the Conveyancing and Property Ordinance, Cap. 219, a legal estate may be created, extinguished or disposed of only by deed.  At common law, a deed has always been required to be sealed.

15.  Section 19 of the Ordinance provides for the execution of a deed by an individual, and it reads :

“	(1)	A deed by an individual shall be signed by him.
	(2)	A document shall be presumed to have been sealed by an individual if the document signed by him-
		(a)	describes itself as a deed; or
		(b)	states that it has been sealed; or
		(c)	bears any mark, impression or addition intended to be or to represent a seal or the position of a seal.
	(3)	Subsection (1) applies only to documents executed after the commencement of this section.
	(4)	Subsection (2) applies to a document executed before or after the commencement of this section.
	(5)	This section does not affect any other law by which an individual may authorize another person to sign a deed on his behalf.”

16.  So far as the individual is concerned, the seal, which seems to have originated in the distant past as a deterrent against forgery but has also taken on a kind of ritualistic aspect, has long since become largely a formality, and subsection (2), which was enacted in 1988, recognises this.  Nevertheless, no doubt because of the common law’s fondness for maintaining archaic practices, a deed still requires to be sealed.

17.  The position of a company is somewhat different from that of an individual.  By section 93 of the Companies Ordinance, Cap 32, every company is required to have as its common seal a metallic seal on which it shall have its name engraved in legible characters, so there is an element of identification involved.  The presence of the common seal goes to prove the due execution of a company’s deed by the directors or other officers authorised to affix it.  Section 20 (1) of the same Ordinance provides :

“In favour of a person dealing with a corporation aggregate in good faith, his successors in title and persons deriving title under or through him or them, a deed shall be deemed to have been duly executed by the corporation if the deed purports to bear the seal of the corporation affixed in the presence of and attested by its secretary or other permanent officer of the corporation and a member of the corporation’s board of directors or other governing body or by 2 members of that board or body.”

18.  Thus the learned authors of Hong Kong Conveyancing Law and Practice, Sihombing and Wilkinson, tell us at Vol. 1, section VI-153

“…where the corporation is required to execute a deed, it must affix its seal to any deed executed in its name”.

19.  I do not think this is authority for the proposition that a company’s deed must always be affixed with the common seal, or it cannot be valid.  Where some person other than the secretary and a director executes the deed on the company’s behalf, the seal may not be necessary.  Section 20(2) of the Conveyancing and Property Ordinance provides :

“Where a person is empowered to execute a deed by a corporation, he may execute the deed as agent by signing the name of the corporation or his own name and by affixing his own seal.”

20.  In this case the company was being wound up by the court.  By section 198 of the Companies Ordinance, in a winding-up by the court, the court may vest the company’s property in the liquidator, but no such order was made here.  The position of a liquidator generally, in a winding-up by the court is regulated by section 199 (2) of the Ordinance, which gives the liquidator power :

“	(a)	to sell the real and personal property and things in action of the company by public auction or private contract, with power to transfer the whole thereof to any person or company, or to sell the same in parcels;
	(b)	to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts, and other documents, and for that purpose to use, when necessary, the company’s seal.”

21.  The plaintiff’s argument is that because a company must affix its own seal when it executes a deed, it was necessary, for the purposes of sub-paragraph (b) above for the liquidator to use the company’s seal when executing the assignment.  Since the liquidator executed the Assignment as his own deed, and the estate in the Property was not vested in him, the deed was ineffective to vest the Property in the defendant.  Reference is made to the case of Re Ebsworth & Tidy’s Contract (1889) 42 Ch D 23.

22.  In that case there were various issues before the court, but the one referred to by counsel related to the conveyance by two of six official liquidators of property vested jointly in all of them.  Notwithstanding an order giving any two of the liquidators power to do any act which the six might do, Cotton and Fry LJJ held, Lord Esher MR dissenting, that (per Cotton LJ) :

“it would be wrong to give to the order which says that the two may do any act which the six could do, the effect of enabling these two to transfer not only such legal estate as is vested in them, but also the legal estate which is vested in the other four.”

Counsel relies on dicta by Cotton LJ at page 49 and Fry LJ at page 52.  Cotton LJ said :

“Where there is a conveyance under Part IV of the Act of land which is vested in the company, then under the authority of Parliament the liquidators, or, if a declaration to that effect has been made under sect. 92, any one or more of them may affix the seal of the company, and so transfer by the conveyance of the company the legal estate which is vested in the company and not in the liquidators.”

Fry LJ said :

“They [the liquidators], no doubt, may sell it [the estate] in the name and on behalf of the company, and when they do so and apply the seal of the company to a deed made in the name of the company then the company is deemed to have conveyed the legal estate.”

23.  These dicta are obiter to the ratio decidendi of the issue, and in any event they do not assist.  Of course the liquidator or liquidators could have validly conveyed the estate by applying the company’s seal, as indeed the liquidator could under the relevant Hong Kong legislation, but that does not necessarily mean that this is the only valid way to convey it.

24.  Reference is also made to the case of On Hong Trading Co. Ltd v Bank of Communications, HCMP 3099 of 1999.  In that case a mortgage signed by directors of a company, and bearing to be “sealed with the Common Seal” was actually sealed with a rubber chop.  Mr Recorder Kotewall, SC held that where a deed has to be executed by a Hong Kong company, it could only do so validly if it used its common seal, which had by section 93 of the Ordinance to be a metallic seal.  Again, this does not assist in the instant case.  The issue is quite different.

25.  Counsel for the defendant says that the liquidator should be regarded as being a kind of statutory attorney for the company and therefore in the same position as an agent, who by section 20(2) may sign on behalf of the company and affix his own seal.  He refers to Man Kou Tan & Anor v Timewin Development Ltd, HCMP 1786 of 1997.

26.  In that case, receivers were appointed by a bank under a debenture supporting a floating charge on a company.  Under the debenture the receivers were given power to sell the company’s property and deemed to be its agents.  The receivers wanted to sell the property.  They could not find the common seal of the company.  They applied for a declaration, which Godfrey J granted, that they might convey in the name of the company, and affix their own seals.  His Lordship held that the conveyance must be in the name of the company, because it was in the company that the property was vested, but that the receivers were agents, and an agency necessarily implies the power to do what is necessary to give effect to the agency.  It would be inconsistent with principles of the law of agency and the express provisions of the debenture to hold that the sale by the receivers must be frustrated unless they could affix the company’s seal.

27.  Unfortunately this case is not of direct assistance in that it deals with the position of an agent, or one deemed to be an agent, rather than a liquidator.  It does not help on the question of whether a liquidator can be regarded as being, for the purpose of section 199(2), in the position of an agent who could under section 20(2) of the Conveyancing and Property Ordinance affix his own seal.  But it does confirm that where an agency is created, the agent must necessarily have the powers to carry it out, and if the liquidator is not an agent, his position under section 199(1) is very like to the position of an agent or an attorney.

28.  The whole question of whether the liquidator had to put his own seal or that of the company on the deed, in order to make it valid, seems to me to smack of a magical or ritualistic approach to the law; the ritual must be performed exactly, or else the magic will not work.  No doubt that kind of thinking was common in the middle ages but it was abandoned even by the 19^th century in favour of the concept of the deed as the expression (and hence evidence) of the intention of the person executing it.  See, for instance, the following dictum :

“The mere affixing the seal does not render the document a deed; but as soon as there are acts or words sufficient to show that it is intended by the party to be executed as his deed presently binding on him, it is sufficient.  The most apt and expressive mode of indicating such an intention is to hand it over, saying, ‘I deliver this as my deed’; but any other words, or acts, that sufficient show that it was intended to be finally executed will do as well” (per Blackburn J, Xenos v Wickham, L.R. 2 H.L. 312).

29.  More recently, we see another indication that intention and not ritual is what matters :

“Meticulous persons when executing a deed may still place their finger on the wax seal or wafer on the document, but it appears to me that, at the present day, if a party signs a document bearing wax or wafer or other indication of a seal, with the intention of executing the document as a deed, that is sufficient adoption or recognition of the seal to amount to due execution as a deed” (per Danckwerts J, in Stromdale and Ball v Burden [1952] Ch 223).

30.  Further, the terms of section 20(1) of the Conveyancing and Property Ordinance themselves support the idea of the deed as evidence.  If it bears the corporation’s seal, and the appropriate signatures, it is deemed to be the deed of the corporation.  But what is proved by a deeming provision can always be proved by some other means.

31.  There can be no doubt, and there is no dispute, that the liquidator had the power conferred on him by statute to convey the Property.  That the Property was not vested in him is irrelevant.  He executed the Assignment “acting as liquidator without personal liability for and on behalf of the Vendor”.  What he exercised was his power of sale under statute, not the company’s power of sale as owner.  The company’s power, and its intention to exercise it which might have been expressed by the affixing of the common seal, does not come into the picture.  The document is clear evidence, on the face of it, of the liquidator’s intentional exercise of his statutory power and his use of the common seal was not necessary.  But if some kind of ritual magic is needed to validate the liquidator’s exercise of his statutory power, it is present, in the shape of his own red sticky paper seal.

32.  I therefore find that the Assignment was validly executed by the liquidator and that the defendant had a good title to the Property.  It follows that the plaintiff’s requisition was sufficiently and satisfactorily answered, and the defendant showed and proved a good title by the date of completion.

Risk of Litigation

33.  If the title is not defective there is no risk.  In case I am wrong, I will consider this point.

34.  The plaintiff’s case is that because Supreme Million is not yet dissolved, there is always the risk that the Assignment could still be challenged by the creditors or contributories or by a claim by the Secretary for Justice for bona vacantia.

35.  HG’s letter of 12 October 2005 asserts that they understand that the liquidator was released in August 2004.  YTS produced no direct evidence of this.  However, there is a Certificate of Release which was registered on 21 February 2005, showing release on 25 August 2004.

36.  By section 226A of the Companies Ordinance, on the expiration of 2 years from the date of registration the company will be dissolved, though application could be made to defer dissolution.  Under section 290, for a period of two years after the dissolution, the court could still, on the application of the liquidator or of an interested party, declare the dissolution void.

37.  The plaintiff says, as purchasers always do in this sort of situation, that if it were forced to take the title (assuming it to be defective) it would be forced to buy a lawsuit.

38.  On the question of risk it is for the vendor to satisfy the court that the possibility of impeachment of the title is remote and fanciful.  In the words of Lord Russell of Killowen in MEPC Ltd v Christian-Edwards[1981] AC 205 :

“In my opinion, if the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance, the court should declare in favour of a good title.”

39.  More recently the courts have stressed a robust, common-sense approach to be applied in this kind of case.  In Mexon Holdings Ltd v Silver Bay International Ltd [2000] 2HKC 1, at page 8G-H Litton PJ held :

“	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.”

40.  Further, as Liu JA said in Jumbo Gold Investment Ltd v Yuen Cheong Leung and Another [1999] 3 HKLRD 825 at 833F-G :

“In a vendor and purchaser summons under s.12 of the Conveyancing and Property Ordinance (Cap.219), the court would be considered best guided by the commercial reality as to whether there is any real risk of problems in title.  It is not to be troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in matters requisitioned.  Conveyancing practice must be geared to uphold bargains.”

41.  The Assignment was executed in 2001.  The liquidator was released three and a half years later, and so is hardly likely to apply to the court either to defer dissolution, once that is done, declare it void.  Realistically, one would have thought that if there was any real likelihood of some claimant appearing to take some action independently of the liquidator, that would have happened before the date of completion.  It seems to me that even if the title is defective, there was no real risk of litigation and the title was not sufficiently doubtful to justify the plaintiff in not proceeding to completion.

The defendant’s alternative case

42.  The defendant argued an alternative case, and for the sake of completeness I mention it here.  The case is that the defendant could in any event have passed a good title, because it was in a position to compel Supreme Million to complete.  Perfection of the title, and payment of the balance of price are to be performed simultaneously.  The plaintiff did not tender the balance therefore there was not yet any duty on the defendant to perfect the title.

43.  I do not think there is anything in this, because there was a fixed, if postponed date for completion and time was of the essence.  If there was a need to compel Supreme Million to complete, the defendant could not have done that in time in any event, and I do not think that fact that the plaintiff did not actually tender the money can be regarded as significant.

Result

44.  The plaintiff’s claims are dismissed with costs to the plaintiff to be taxed if not agreed.  There will be judgment for the defendant in terms of its counter notice, with costs to be taxed if not agreed.  Since the

judgment is to be handed down, the costs orders are nisi.