THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD. v. HO SIN YI

HCMP 5420/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5420 OF 2000

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J U D G M E N T

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1. This is a vendor and purchaser summons, taken out to establish whether or not the vendor has satisfactorily answered a requisition raised by the purchaser and thereby shown good title, and is entitled to call upon the purchaser to complete.

The Background

2. The plaintiff is the Hongkong and Shanghai Banking Corporation (HSBC). The defendant is Ho Sin Yi (Mr Ho). By agreement for sale and purchase dated 1 September 2000 HSBC agreed to sell and Mr Ho to purchase a flat and carpark in Louisa Tower, 79, Kung Lok Road, Kowloon. The purchase price as agreed was $1.7m. Pursuant to the agreement Mr Ho paid 10 per centum of that on the signing. Clause 11 gave him, as purchaser, the usual right to requisition concerning any matter going to the vendor's title. His solicitors, Messrs Ong & Chung (OC) raised several. All but one have been dealt with or are now resolved. One has not; that is the subject of this summons.

3. One of the documents in the chain of title sent to OC for perusal by HSBC's solicitors, Messrs Johnson Stokes and Master (JSM) was an assignment dated 15 February 1989. The vendor was a Hong Kong incorporated company called Wellsburg Industrial Limited (Wellsburg). The execution clause in the assignment was set out as follows:

"Sealed with the Common Seal of the Vendor and SIGNED by Chan Wai Man, its Director in the presence of:-	}	(Signed)	LS
(Signed) Tam Ka Lok Clerk to Messrs Sam Leung & Co., Solicitors, Hong Kong"

4. OC were sent or had access to Wellsburg's Articles of Association. Those relevant to the requisition raised, articles 19 and 20, read as follows:-

"19. The seal of the company shall be kept by the Directors and shall not be used except with their authority.

20. Unless otherwise determined by the Directors every document required to be sealed with the seal of the company shall be deemed to be properly executed if sealed with the seal of the company and signed by such person or persons as the Board of Directors shall from time to time appoint."

5. OC's requisition was to require JSM to produce Wellsburg's Board's resolution authorizing execution in the manner carried out or show some other proof that it was in accordance with the Articles. JSM responded that it was under no obligation to do so; the parties were entitled to rely on section 23 of the Conveyancing and Property Ordinance (CPO), which states:-

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

6. OC were not satisfied with this response. There was further correspondence but no resolution; the impasse led to this summons. The agreement remains on foot. The parties have agreed that completion or cancellation will depend upon the outcome of this application, with each party meeting his and its own costs regardless.

The Issue

7. Has HSBC, by production of the assignment executed in existing form, done enough to show good title?

Deeming or Mandatory, and is there a Difference?

8. OC's requisition, a complaint perpetuated by Mr Cheung, counsel for Mr Ho before me, is that the witness to the seal being one director and there being no words to indicate he signed with the Board's authority, there was no prima facie evidence that the Board had authorized its affixing in that manner. Sec 23 CPO thus could not be invoked, and proof of such authority was required to validate the execution. The difficulty with that approach is that it draws no distinction between the article which requires that the affixing of the seal must be in the manner set out in the article, such as nominating those who must witness the seal, and that of Wellsburg which states that execution shall be deemed to be proper if undertaken in a particular manner. The first might be described as a mandatory provision, the second a deeming provision.

9. Mr Cheung submits there is no difference or at least not a material one. But he did not say why. Given that interpretation is dependent on the adoption of the ordinary meaning of words I do not see how that can be.

10. The mandatory provision defines how a document is properly executed. Failure to comply would render the execution irregular. The deeming provision gives an example of what constitutes proper execution. Doubtless in practice it is what a prudent Board would invariably adopt. But it does not prohibit any other form of execution. Failure to comply with a deeming provision does not of itself invalidate the execution.

11. Yuen J drew this distinction in the case of Lo Wing Wah & Another v. Chung Kam Wah [2000] 1 HKLRD 227. In that case, on similar facts, the vendor in the assignment under the spotlight called Great Leader Properties Limited, purported to execute it by seal together with the signature of Wong Chung Chuen, described in the execution clause as one of the directors. Article 19 of the Company's articles of association provided that the seal of the Company shall be kept by the Board of Directors and shall not be used except with their authority. Article 20 provided that "every document required to be sealed with the seal of the Company shall be deemed to be properly executed if sealed with the seal of the Company and signed by the Chairman of the Board of Directors singly, or by any two directors jointly."

12. The purchaser's solicitors requisitioned as follows:-

"The extract of the articles of association of Great Leader Properties Ltd expressly stated that the common seal of the Company must be affixed and signed by the chairman or before two directors. Please clarify with us with written evidence whether the signatory to assignment Memorial No 3399347 Wong Chung Chuen was the Chairman of the Board of Directors at the material time."

13. Yuen J said at p 299:-

"Before I proceed to the answer provided, I should note that that requisition is not strictly accurate - the articles do not state that the common seal of the Company must be affixed and "signed by the Chairman or before two directors".

Some articles no doubt do expressly provide that the common seal shall not be affixed to any instrument except in the presence of say, two directors, or the secretary and a director. In those cases, even the act of affixing the seal would itself not be valid unless it was done in the presence of the required number of company officers.

In the present case however, art. 19 provides for the use of the seal with the authority of the directors, but that is all. Article 20 is a deeming provision which deems a deed to be properly executed if sealed with the seal of the company and signed by the Chairman singly, or by two directors jointly."

What is Proper Execution?

14. On the basis that Wellsburg was not constrained by article 20 as to how it could validly execute documents I turn to consider how a limited company may execute a document at Common Law.

15. Gore-Browne on Companies, 44th edition states at para 5-8:-

"... the mere affixing of the seal of a corporation is sufficient without witness, and, unless the articles provide that the directors shall attest, it is not necessary, although it is customary, for them to do so. Where the articles have such a provision, the signature of the directors is not an attestation in the ordinary sense, but is part of the execution of the deed, and it would seem to follow that, without such signatures, the execution is not complete; but there is no direct authority to this effect."

16. Halsbury's Laws of England, fourth edition, deals with the same point. In volume 9(2) at para. 1021:-

"1021. Presumption as to due sealing. Where the corporate seal is affixed by persons having the legal custody of it to a deed which the corporation has power to execute, there is, apart from statute, a presumption that the seal was set with due regard to the fulfilment of all preliminary proceedings required by the constitution of the corporation and, if no special formalities are prescribed by Act of Parliament or the constitution, with sufficient authority. Subject to certain statutory provisions applying to deeds executed after 31 December 1925, it is open to the corporation to show that the seal was set without the authority of the corporation, or without the requisite formalities having been gone through. A corporation seeking to set aside its own formal act, on the ground of irregularity in the proceedings preliminary to the setting of the corporate seal, may do so only on the clearest evidence.

In proving an instrument to which a corporate seal is affixed, it is usually unnecessary to produce a witness who saw it affixed."

17. Godfrey J (as he then was) dealt with the issue in Peking Fur Store Limited v. Bank of Communications [1993] 1 HKC 625, at p. 627:-

"The general rule is that a corporation is bound by an instrument under its seal, unless it can be shown that its execution was obtained by fraud, or there is some illegality in the transaction: see Agar v Athenaeum Life Assurance Society (1858) 3 CB(NS) 725, 756; 140 ER 927 per Willes J."

18. Yuen J in Lo Wing Wah expressly found that the execution of the assignment in question did not comply with the deeming provision for there was no evidence that Wong Chung Chuen, the sole signatory, was the Board's Chairman. Nevertheless she applied the principle enunciated above. Continuing her judgment at p. 229:-

" So I take the view that the sealing of the deed in this case is not, in any case, invalidated, even if the signature part of art. 20 is not complied with. The legal estate of the property passed by the sealing (see Peking Fur Store Ltd v Bank of Communications [1993] 1 HKC 625)."

19. I respectfully agree with Yuen J's approach and finding. It follows as I find that HSBC has done enough to show the assignment is validly executed and title has passed.

20. For the sake of completeness I should mention that there is a distinction between the facts of this case and those of Lo Wing Wah. Continuing Yuen J's judgment at p. 229:-

" I find that the signature of the assignment by Wong singly was not in compliance with art. 20. Unlike Tread East Ltd v. Hillier Development Ltd (unrep., HCA No 907 of 1991, [1992] HKLY 601), there was no saving provision in the articles providing that a deed could be signed in such manner as the directors determined.

There was no evidence provided by the plaintiffs to the effect, or from which it could be presumed, that Wong Chung Chuen was the Chairman of the Board of Directors. And since Wong was not described as Chairman on the assignment, s.23 of the Conveyancing and Property Ordinance (Cap. 219) does not help the plaintiffs - because the deed does not "appear" to be duly executed."

21. In this case there was what Yuen J referred to as a saving provision. It could not be said that the execution was not in accordance with that. There was the appearance of due execution. In my view even had the deeming provision of Wellsburg's article 20 been a mandatory one that would have been enough to invoke sec 23 CPO and proper execution would be presumed; see Hillier Development Ltd v Tread East Ltd [1993] 1 HKC 285.

Conclusion

22. HSBC is entitled to the declarations sought in paragraphs 1 to 4 of the originating summons and I make them accordingly.