CHAN SAI HUNG v. WELL DEVELOP LTD.

HCMP 916/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 916 OF 2000

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J U D G M E N T

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1. The Plaintiff claims that the title of the Defendant's property at Flat C, on the 26/F of Profit Mansion situated at No.23 Fei Fung Street Kowloon is defective and that the Defendant had failed to prove good title to the property. He also claims for the return of deposit in the sum of $210,000, estate agent's commission in the sum of $42,000 and all consequential loss suffered.

2. The Defendant purchased the aforesaid property from Full Country Development Ltd. According to the Plaintiff Cl.23(b) of the Articles of Association of Full Country Development Ltd provides:-

"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 or such person or persons as the Board may from time to time authorise for such purpose"

3. The execution clause by Full Country Development Ltd on the assignment is as follows:-

"SEALED with the Common Seal of the Vendor and SIGNED by Mr. Cheng Kwok Fai, one of its Directors whose signature(s) is/are verified by:- CHAN KWOK YIM Solicitor, Hong Kong."

4. The contention by the Plaintiff's counsel is that it was executed by one director only it was not executed in accordance with Article 23(b), due execution therefore cannot be presumed. There was an obligation on the part of Defendant to supply a copy of the resolution of Full Country Development Ltd to the Plaintiff to satisfy the Plaintiff that the mode of execution was in accordance with the article. Since no resolution was supplied Defendant has not passed a good title. Counsel relied on Wong Yuet Wah Mandy v. Lam Tsam Yee & Another [1999] 3 HKC 268.

5. Plaintiff's counsel went on to cite the following cases in support of his argument:-

(1) Whole Year Development Ltd v. Lung Chiu Yee Julia (MP 966/93).

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

(3) Perfectime Ltd v. Ko Ming Bor & Anor. [1994] 3 HKC 507.

(4) Peking Fur Store Ltd v. Bank of Communications [1993] 1 HKC 625.

(5) Li Ying Ching v. Air-Sprung (Hong Kong) Ltd [1996] 4 HKC 418.

(6) Ho So Yung v. Lei Chon Un [1998] 2 HKC 697.

(7) Woo Turhan & Anor. v. Taiwan Fuji Trading (HK) Ltd [1995] 2 HKC 481.

6. In Whole Year Development Ltd, the articles of association of Financial and Investment Services Far Asia Ltd provided that every instrument to which the seal was affixed should be signed by one person who should be a Director and countersigned by another person who should be either the Secretary or Secretary - Treasurer or another Director or some other person appointed by the Directors for the purpose.

7. In Qualihold Investments Ltd, the articles of association of Fullway provided that every document required to be sealed with the seal of Fullway should be deemed to be property executed if sealed with the seal of Fullway and signed by any 2 directors or the managing director.

8. In Perfectime Ltd, the articles of association of Chung Nam Land Investment Co. Ltd provided that all deeds or investments requiring the seal of the company shall be signed by 2 directors.

9. In Peking Fur Store Ltd, art.79 of H Ltd provided that "the seal of the company shall not be affixed to any instrument except by the authority of a resolution of the board of directors and in the presence of a director and secretary a such other person as the directors may appoint for the purpose and that the director or the secretary or other person as aforesaid shall sign every instrument to which the seal of the company is so affixed in their presence."

10. In Li Ying Ching's case of art.20 of the articles of association of God GivenCo Developments Co. Ltd provide: "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."

11. In Ho So Ying Tsang Foun Investment Co. Ltd, Cl.49(a) of the articles of association provided: "every document requiring the Seal of the company shall be deemed to be properly executed if sealed with the Seal of the company and signed by the managing director or any 2 directors or one director with such other person or persons as the directors shall from time to time appoint.

12. In Woo Turhan, "only one person signed on behalf of the 1st purchaser whose articles of association required signatures by one director and the secretary or such other person as appointed by the directors".

13. In those cases, the affixing of the seal would not be valid unless done by the Chairman or by the persons so prescribed in those articles.

14. The articles of association of Full Country Development Ltd however is different from the articles of association of the companies concerned in those cases cited.

15. Article 23 of Full Country Development Ltd is as follows:-

(a) The seal of the company shall be kept by the Board of Directors and shall not be used except with their authority.

(b) 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 or such person or persons as the Board may from time to time authorise for such purpose.

16. I am of the view that art.23(a) is independent of art.23(b). Art.23(a) is an operative provision which gives the Board of Directors unfettered power and discretion to use the seal. The seal cannot be used unless with their authority. Alternatively, by art.23(b) the Board of Directors can authorise the use of seal by requiring one or more signatures and the Board has complete discretion to decide who the signatories are.

17. In Lo Wing Wah & Anor. v. Chung Kam Wah [2000] 1 HKLRD 227, articles 19 and 20 of Great Leader Properties Ltd are similar to art.23(a) and 23(b) of Full Country Development Ltd. Yuen J at 229 said:

"In the present case however, art.19 provides for the use of the seal with the authority of the directors, but that is all. Art.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 2 directors jointly.

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."

18. The Plaintiff's former solicitors' requisition is as follows:-

""Article 23(b) of the Articles of Association of Full Country Development Limited provides that every document requires to be sealed shall be "sealed with the seal of the company and signed by:-

(1) Chairman of the Board, or

(2) such person or persons as the Board may from time to time authorise for such purpose".

We note that the Modification Letters and Assignment in question and the Deed of Mutual Covenant Memorial No.6994024 were executed by the said Company and signed by one director only. Such execution were not made in accordance with the said Article 23(b) and due execution cannot be presumed. In the circumstances, please let us have the relevant Board Resolutions of the said Company authorising the execution of each and every the said deeds and document. Please refer to the case of Wong Yuet Wah Mandy mentioned."

19. Defendant's reply is as follows:-

"As all the documents concerned were signed by one director of Full Country Development Limited, the documents "appear" to be duly executed and due execution is presumed under Section 23 of the CPO Cap.219. Please refer to paragraphs 13-15 of the opinion of Leolin Price dated 2 May 1990."

20. When commented by Plaintiff's then solicitors, the Defendant further replied as follows:

"We repeat what we state previously and would add that the sealing provision in the case of Wong Yuet Wah Mandy v. Lam Tsam Yee & other is clearly different from the sealing provision of Full Country Development Limited. Moreover, the sealing provision in the present case falls exactly on all fours with the one in the opinion of Leolin Price dated 2nd May 1990 and paragraphs 13-15 of the opinion of Leolin Price dated 2nd May 1990 covers exactly with the sealing provision of the present case."

21. This requisition is a challenge to the due execution of deeds and documents. It does not challenge the validity of the assignment on any other ground.

22. In Tread East Ltd v. Hillier Development Ltd [1991] No. A907 on the point of instruments requiring the seal of a company had to be signed by 2 of its directors or in such manner as the directors shall from time to time by resolution determine, Godrey J (as he then was) at p.9 of his judgment said:

"It was, therefore, within the powers of the Board of Directors of Oliver Paris to resolve that such a deed as the assignment of 12th September 1984 might be signed by one only of its directors. And it appeared on the face of the assignment that Chan Bing Fai had been authorised by the Board of Directors of Oliver Paris so to sign it. In my judgment, in these circumstances the presumption of due execution referred to in s.23 of the Conveyancing and Property Ordinance, Cap.219, applies, and the purchaser was not entitled to call for sight of a resolution authorising the assignment to be signed in this way. A purchaser is not entitled to enquire into matters of internal management of a limited company; it is enough for him to satisfy himself that the power to do what has been done did exist."

23. This case went on appeal Hillier Development Ltd v. Tread East Ltd [1993] 1 HKC 285 at 295 per Nazareth JA,

"With respect, in my view, the judge's conclusions on the execution part were entirely correct, for the reasons he gave:-

(a) in substance, that the directors of Oliver Paris had the power to effect the transaction, and the purchaser was not entitled to enquire into the internal management of Oliver Paris;

(b) that the vendor's reference to the Law Society's Circular provided a satisfactory answer to the requisition."

24. Per Sears J at 297:

"I agree with my Lord Penmington JA that s.23 of the Conveyancing and Property Land presumes that the assignment by Chan was due execution by Oliver Paris and it would follow that there was assumed a valid resolution of the board of Oliver Paris to sell the property for the consideration stated."

25. By reason of the authorities above, I am of the view that the Defendant has properly answered the Plaintiff's requisition and has passed a good title.

26. In any event even if the assignment were defectively executed, it still could pass the legal estate to its purchaser because a company in the absence of fraud is bound by it and cannot have it set aside. The title is therefore good. In Peking Fur Store Ltd v. Bank of Communications [1993] 1 HKC 625 it was held:

"1) ....

2) .... The general rule is that a corporation is bound by an instrument under its seal, unless it can be shown that it's execution was obtained by fraud or there is some illegality in the transaction. Agan v. Athenaeum Life Assurance Society (1858) 3 CB (NS) is; 140 ER 927 applied".

27. In the premises the Plaintiff's claims are dismissed. Order nisi that the Plaintiff do pay the Defendant the costs of this action to be taxed if not agreed.