FUNG WAI LING AND ANOTHER v. CHEUK PUI YIN AVERIL AND ANOTHER

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JUDGMENT

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1. By an Agreement for Sale and Purchase dated 23^rd May 1997 ("Agreement"), the Defendants as Vendors agreed to sell to the Plaintiffs as Purchasers, Flat F on the 3^rd. Floor, Block 4 of Chestwood Court, Kingswood Villas, 8 Tin Shui Wai Road, Tin Shui Wai, Yuen Long, New Territories ("the Flat"). The Plaintiffs Purchasers raised requisitions and after considerable exchange of correspondence between the solicitors, the Plaintiffs Purchasers contended that the requisitions had not been properly answered. The principle obstacle was the exercise of a particular Power of Attorney on behalf of a previous mortgagee. Completion of the purchase did not take place on the day stipulated in the Agreement for completion, 23^rd June 1997. The Plaintiffs Purchasers contended by letter of that date that the requisitions had not been properly answered and said that the completion must be postponed until and unless all requisitions have been satisfied. There was then negotiation for the cancellation of the Agreement and the parties had practically agreed to the cancellation of the Agreement but unfortunately for the parties, the negotiation for cancellation broke down over a mere $10,000 which the Defendants Vendors wanted the Plaintiffs Purchasers to contribute towards the broker's commission. On the 8^th of July 1997, the Plaintiffs Purchasers rejected the cancellation proposal of the Defendants Vendors and rescinded the Agreement on the basis that the requisitions had not been satisfactorily answered. The Plaintiffs Purchasers sought the return of the $232,000 deposit ("Deposit") while the Defendants Vendors alleged that the Plaintiffs Purchasers had wrongfully repudiated the Agreement. When the matter first opened before me, a large number of disputes were outstanding between the parties. With the assistance of counsel, some encouragement from the Court and the appropriate concessions of the parties in the course of the hearing, by the time the hearing completed on the 9^th of January 1998, there were only two live issues between the parties, namely:-

The Statutory Declaration Point is an issue of statutory construction whereas the Disability Point is in essence a question of whether there had been any waiver by the Purchasers.

STATUTORY DECLARATION POINT

2. The requisition dispute arose as result of the somewhat complex evolution of the chain of title to the Flat. But in order to understand the Statutory Declaration Point it is necessary first to describe briefly the recent problematic title history of the Flat.

3. In February 1994, Mr. & Mrs. Chan ("1994 Owners") acquired the Flat and mortgaged the flat to Tin Shui Wai Development Ltd. ("1994 Mortgagee"). In September 1994, the 1994 Mortgagee transferred the mortgage of the 1994 Owners to Dragon MBS Ltd. ("1994 Mortgagee Transferee"). To complicate the matter, the 1994 Mortgagee Transferee in September 1994 assigned its rights under the mortgage and the transfer of mortgage to State Street Bank and Trust Company ("1994 Mortgagee Transferee Assignee"). In February 1995, Dragon MBS Ltd. and State Street Bank and Trust Company, namely the 1994 Mortgagee Transferee and 1994 Mortgagee Transferee Assignee executed in favour of Brilliant Oscar Ltd. ("The Attorney") a power of attorney ("1995 POA"). On 17^th October 1996, the Attorney executed in favour of the 1994 Owners (Mr. & Mrs. Chan) a Release which released the Flat from the 1994 Mortgagee ("the 1996 Release"). But on the 23^rd September 1996, or some 25 days before the 1996 Release, the 1994 Owners executed pursuant to section 5(4)(b) of the Power of Attorney Ordinance a statutory declaration ("1996 Statutory Declaration") in the following terms:-

"We hereby declare pursuant to the provisions of Section 5(4)(b) of the Powers of Attorney Ordinance that we did not at any material time have notice or knowledge of any fact which would have cancelled or revoked the said Deed."

The Deed in question is the 1995 POA. This 1996 Statutory Declaration is the subject of the requisition dispute in this case.

4. After the Flat was purportedly released in 1996 from the mortgage, in April 1997 the 1994 Owners (the Chans) sold the Flat to the Defendants. A month after the purchase from the Chans, the Defendants in turn agreed to sell the Flat to the Plaintiffs and that is how on 23^rd May 1997, the Agreement came to be signed between the Plaintiffs Purchasers and the Defendants Vendors.

5. It can be see from the above account of the title history that the valid release from the mortgage in 1996 by the Attorney to the Chans is vital. As the 1996 Release was executed by the Attorney pursuant to the power given by the 1995 POA, the non-revocation of that 1995 POA is essential for establishing that there was a valid 1996 Release by the proper exercise of the power under the 1995 POA. This is where the Power of Attorney Ordinance comes in. Section 5 of the Power of Attorney Ordinance ("the Ordinance") provides:-

The Vendors Defendants rely on Section 5(4)(b) of the Ordinance and this is because section 5(4)(a) of the Ordinance was not applicable as more than one year elapsed from the time of the creation of the Power of Attorney (23^rd February 1995) to the time the 1995 POA was exercised by the 1996 Release (17^th October 1996). Reliance therefore had to be placed on the presumption in favour of the purchaser that there was no knowledge at the material time of revocation of power by furnishing the requisite statutory declaration pursuant to section 5(4)(b) of the Ordinance.

6. The argument of Mr. Yee of the Plaintiffs Purchasers shorn of all complexities is this. For the purpose of construing section 5(4)(b) of the Ordinance as applied to the facts of this case:-

Translating the facts of this case into the section 5(4)(b) situation, Mr. Yee submits that section 5(4)(b) will then lead to the following ridiculous result:-

It is ridiculous because you cannot have a declaration of knowledge of future facts. Mr. Yee attacks the contents of the 1996 Statutory Declaration and thereby attacks the timing of that 1996 Statutory Declaration. The key sequence of events in this case is that the 1996 Statutory Declaration came before the 1996 Release. The Plaintiffs' case is that the sequence should be the other way round (release by attorney followed by declaration from releasee that to the releasee's knowledge that at the time of the release, the power of attorney had not been revoked and therefore the release was good). Mr. Yee submits that getting the sequence wrong is why the Defendants Vendors found themselves in the ridiculous situation of relying on a statutory declaration made before the transaction saying that the transaction to be made in future is good. No one can swear that a future transaction is good on the basis that at the time of the future transaction, the power of attorney to exercise that transaction has not been revoked. A declaration of knowledge can only be made based on present or past knowledge of non-revocation but cannot be made as to present knowledge of future non-revocation or even worse, future knowledge of future non-revocation. It is very powerfully submitted to the Court by Mr. Yee that the requisite section 5(4)(b) Statutory Declaration is missing and that therefore the Defendants Vendors must fail on the Statutory Declaration Point.

7. For me the submission of the Plaintiffs Purchasers is obviously right and incapable of being answered. And indeed tried as he did, Mr. Lam did not have any arguable response. It is unnecessary for me to try to elaborate the various responses of the Defendants. I will however merely mention two of the arguments advanced by the Defendants to demonstrate the total lack of merits of the Defendants on this Statutory Declaration Point.

8. Firstly it was argued by Mr. Lam that the "material time" in question under section 5(4)(b) is not the time of the transaction with that person but the time of the statutory declaration. I reject that argument. "Material time" appears twice in that subsection. The first time material time was mentioned, it could only refer either to the time of the purchase or to the time of the transaction as there was as yet nothing said about statutory declaration. The context of the provisions however made it quite clear that the material time must be a reference to the time of the transaction. The second reference to "material time' is in paragraph (b) of subsection (4) and prima facie the second "material time" must bear the same meaning as the first "material time" unless the court is driven to a different construction thereby resulting in having two different meanings of the same expression used in the same subsection of a statute. This Court is not so driven. The context of the provisions clearly shows that the same meaning is to be given to the same expression occurring in two places of subsection (4). I believe that Mr. Lam eventually concedes this "material time' argument.

9. The second point raised by Mr. Lam which has some significance is the Law Society Circular dated 28^th December 1987 which said in the relevant parts as follows:-

" The Council has received representations from members that quite often conveyancing documents such as discharges/releases are executed by financial institutions by their attorneys appointed more than 12 months prior to execution. By the time the solicitor concerned became aware of the situation, it may be too late to procure the person dealing with the attorney (e.g. the borrower/vendor) to make the necessary statutory declaration pursuant to section 5(4). The result is that the purchaser is left with a dubious title: see the obiter ditum of Godfrey J. in Xiamen International Finance Co. Ltd. v. Tsui Tai Yan and another (H.C.M.P. Action No.686/87) where the learned Judge had this to say:-

"For my part, I must indicate that at present I would not be prepared to declare that a good title has been shown to property where the title depends on an execution by an attorney, unless the original power of attorney (or satisfactory conveyancing evidence of its contents) has been produced and the vendor can satisfy the requirements of section 5(4) of the existing ordinance."

While this Law Society Circular might be of some relevance on the professional negligence or otherwise of a solicitor in relation to any transaction involving a possible section 5(4) statutory declaration, I cannot see (as I pointed out to Mr. Lam) how the contents of that Circular might affect this Court's interpretation of the crucial provisions of the Ordinance. In any event, the last 2 lines of the above quoted Circular (specially the last word "transaction") seem to me, less than perfect guidance.

10. In my judgment, the 1996 Statutory Declaration does not satisfy the requirement of section 5(4) of the Power of Attorney Ordinance and it follows therefore in my view that on the 23^rd June 1997, the requisition of title had not been properly answered and that the Plaintiffs Purchasers were entitled on the 23^rd June 1997 to refuse to complete the purchase and require the return of the Deposit.

THE DISABILITY POINT

11. The Disability Point is the Defendants' attempt to avoid the logical consequence of the Statutory Declaration Point. The question raised by this Disability Point is whether the events after the 23^rd June 1997 made any difference to the right of the Plaintiffs Purchasers to rescind the Agreement and ask for the return of the Deposit.

12. The relevant exchanges of the correspondence are as follows:-

The argument of Mr. Lam for the Vendors is that the Purchasers were disabled from terminating the Agreement on the 8^th of July 1997 and that they must give reasonable notice to the Vendors before doing so as time was no longer of the essence. Mr. Lam confuses the new time for completion not yet mentioned by the parties after the 23^rd June 1997 with the duty of the Vendors to answer the requisition of the Purchasers. That latter duty was breached by the Vendors as I had found on the 23^rd June 1997 and all that the Purchasers had done was to give further opportunity to the Vendors to make good the breach. But having regard to the attitude displayed by the Vendors Solicitors on the 1996 Statutory Declaration Point, it was unlikely that the Vendors would do more or come up with the appropriate document to satisfy the section 5(4) requirement. On the 8^th July 1997 having regard to the past correspondence, the Purchasers were entitled to act on the continuing breach of requisition not having been answered and terminate the Agreement. They had not waived any breach and they had not disabled themselves from relying on the breach and in my judgment, the Vendors were not entitled to be given any further notice. After all, a further notice would have made no difference as the Vendors had made their position on this requisition point quite clear and there was nothing further to be done by the parties. There is no merit in this Disability Point.

13. In the circumstances for reasons given above, judgment must be entered for the Plaintiffs. The Defendants must return the Deposit to the Plaintiffs together with interests thereon at 1% above prime from the date of the Writ. The Defendants are also to pay to the Plaintiffs the costs of this Action.