AU WAI MING AND ANOTHER v. KAM TZE MING ALFRED AND ANOTHER

CACV 278/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.278 of 2008

(On Appeal from HCA No.738 of 2007)

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JUDGMENT

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Hon. Yuen JA:

1.  This is an appeal from a judgment of Deputy Judge Gill given on 15 July 2008 where he dismissed the claims of the Plaintiffs (“the Purchasers”) who refused to complete the purchase of a house in Sai Kung (“the Property”) due to the absence of a common seal in a title deed, a matter which the Defendants (“the Vendors”) refused to rectify until the day of completion.  The relevant facts are as follows. 

Mortgage

2.  In 1997 the Vendors purchased the Property with a mortgage from AIA by way of a legal charge.   

Transfers of Mortgage

3.  In 2000, AIA transferred the mortgage (amongst others) to AIG, and on the same day AIG transferred it (amongst others) to the Hong Kong Mortgage Company Ltd (“HKMC”). 

4.  It would appear that in 1998 the HKMC had appointed AIG as “servicer” (the timing of the arrangements are not relevant to this appeal) and a power of attorney was given by the HKMC to AIG in 2001 to provide the necessary authority to AIG to carry out its obligations thereunder.  In 2002, the HKMC gave a replacement Power of Attorney to AIG giving it authority (amongst other things) to execute discharges on its behalf.

Deed of Release

5.  It would appear that in 2003, the Vendors refinanced the loan and as part of this arrangement, a Deed of Release came into being. 

6.  First it was mentioned in the recitals that all principal interest and other monies due and owing to the HKMC and the servicer (as the case may be) on the security of the mortgage had been fully paid and satisfied.  (There was no reference in the Deed of Release to any acknowledgment of receipt in other documents).

7.  In the body of the Deed, it was stated that the HKMC discharged the Property from the mortgage and released and assigned it to the Vendors.  It also stated that the servicer AIG “(to the extent possible) ...  confirm[ed], assign[ed] and release[d]” the property to the Vendors. 

8.  The deed was expressed to be “executed and delivered as a deed by the HKMC and the Servicer”.  However the execution page appeared as follows:

(see following page)

	SEALED with the Common Seal of	)	(Signed)
	AIG FINANCE (HK)	)	Cyrus T.K. Lo
	LIMITED and SIGNED by Cyrus	)	Assistant Vice President
	T.L.[sic] Lo, Assistant Vice President	)
	and T.C. Leung, Alternate Director	)
		)
	its authorized signatory(ies)	)	(Signed)
	as the lawful attorney of THE HONG	)	T.C. Leung
	KONG MORTGAGE CORPORATION	)	Alternate Director
	LIMITED whose signature(s) is/are	)
	verified by:-
	(Signed)
	TAI SIU HUNG
	Solicitor, Hong Kong SAR
	AU YEUNG CHENG HO & TIN
	SEALED with the Common Seal of	)	(Signed)
	AIG FINANCE (HK)	)	Cyrus T.K. Lo
	LIMITED and SIGNED by Cyrus	)	Assistant Vice President
	T.K.Lo, Assistant Vice President	)
	and T.C. Leung, Alternate Director	)
		)	(Signed)
	its authorized signatory(ies)	)	T.C. Leung
	whose signature(s) is/are verified by:-	)	Alternate Director
	(Signed)
	TAI SIU HUNG
	Solicitor, Hong Kong SAR
	AU YEUNG CHENG HO & TIN

9.  I shall for convenience refer to the upper part of the page ending with the solicitor’s first signature as “the attorney execution” and the lower part, as “the servicer execution”.  The Common Seal of AIG appeared only once.  This led to the dispute in this case.

Sale and Purchase Agreement

10.  On 29 December 2006 the Vendors and the Purchasers signed a preliminary sale and purchase agreement for the sale of the Property at $9,898,000.  On 12 January 2007 the Formal Sale and Purchase Agreement was signed.  A deposit of $989,800 was duly paid.  Completion was scheduled for 10 April 2007.  The Formal Sale and Purchase Agreement contained the usual clauses for requisitions to be raised and for answers thereto within the stipulated time.

Requisition and events following

11.  On 3 February 2007 the Purchasers’ solicitors raised the requisition that AIG’s common seal was missing from the attorney execution.  The Vendors’ solicitors denied that that rendered the execution invalid.  This led to a spate of correspondence, involving also the Purchasers’ mortgagees’ solicitors (who shared the view of the Purchasers’ solicitors) as well as the solicitors who had attested the Deed of Release (who insisted that the execution was regular). 

12.  It is unfortunate for the clients (who I presume were genuinely interested in the completion of the transaction) that in the 2 months between the raising of the requisition and the completion date, the Vendors’ solicitors did not approach AIG to re-execute the Deed – a relatively simple task which would have put an end to the arguments once and for all.  And even if AIG failed to co-operate, I do not know why the parties did not approach the court by way of a Vendor and Purchaser summons which is provided for under s.12 Conveyancing and Property Ordinance Cap. 219, which would have settled the dispute before completion in a timely and less costly way.

13.  As events transpired, by 4 April 2007 (the last full working day before the Easter break and completion day), it was obvious that both parties were stubbornly standing their ground.

Vendors’ offer on day of completion and events following

14.  However at 3 pm on the day of completion, the Vendors’ solicitors faxed a letter to the Purchasers’ solicitors, first repeating their view that title was good and the requisition was of no substance and had been sufficiently answered, but then saying:

“Entirely without prejudice to the above, our clients are agreeable to arrange [AIG] to affix its Common Seal for the second time on the said Release on condition that your clients shall complete their purchase in accordance with the terms and conditions in the Agreement for Sale and Purchase dated 12^th January 2007".  (Emphasis added). 

15.  The Purchasers countered with the proposal that they would consider completing on 18 April 2007 subject to the Vendors’ solicitors’ undertaking to deliver within 17 days from the date of completion the Deed of Release with a second Common Seal affixed. 

16.  The Vendors refused this proposal and indicated that they would only accept completion on 12 April 2007 at noon, with time to be of the essence.

17.  This proposal was not accepted by the Purchasers who regarded the Vendors as being in repudiatory breach of contract.  The agreement for sale and purchase was terminated and legal proceedings followed.    

Issues

18.  The judge formulated the issues in this way:

Judgment at first instance

19.  In respect of issue (1), the judge held in favour of the Vendors.  On issue (2), he held that the defect in the execution was a matter of conveyance and that the Vendors “albeit at the 11^th hour” were willing to compel a re-execution by the HKMC, “giving notice which would have enabled the parties to complete on time”.  On issue (3), he held that the Purchasers’ failure to complete on the due date put them in breach, “even if it were ultimately found that the discharge was not properly executed”.    

Appeal

20.  The Purchasers appealed.  The Vendors filed a Respondent’s Notice seeking to affirm the judgment on other grounds.

Issue (1) - Was the attorney execution valid?

21.  The judge held that the Deed of Release had been validly executed for reasons which were not supported by the Respondents on appeal.  However I think in any event I should explain why with respect I disagree with the learned judge’s reasons. 

22.  The judge based his decision on s.6 of the Powers of Attorney Ordinance, the material part of which provides:

“6.  Execution of instruments, etc. by donee of power of attorney

(1)  The donee of a power of attorney may, if he thinks fit –

(a)  execute any instrument with his own signature and, where sealing is required, with his own seal; ...

by the authority of the donor of the power; and any document executed ... in that manner shall be as effective as if executed ... by the donee with the signature and seal ... of the donor of the power”

23.  The judge took the view that s.6 PAO enabled an attorney to “sign an instrument with or without reference to this having been performed as attorney of the donor” (para. 39).  On this basis the judge concluded that AIG had validly executed the discharge on behalf of the HKMC by way of thesecond of the two execution clauses on the Deed of Release (paras. 41-44).

24.  With respect to the judge, I do not agree that s.6 has the effect propounded by the judge.  The English equivalent (s.7(1) Powers of Attorney Act, 1971) was considered by Mr Francis Ferris QC (later Ferris J) in Clauss v Pir [1988] 1 Ch at 272F - 273A.  He held:

“... Apart from section 7, as I understand the law, the correct mode in  which a donee of a power of attorney should act is to express himself to be acting in the name of his principal and to sign, where signing is required, not the donee’s name but the principal’s name.

What section 7 does is to provide an alternative procedure for the attorney to act on behalf of the principal.  The procedure is as follows.  Where the act requires the execution of an instrument the attorney is empowered to use his own signature instead of his principal’s signature.  Where a seal is needed he may use his own seal not his principal’s seal. ... That, in my judgment, is all that section 7 does.  It does not enlarge the scope of the things which may be done by the donee of a power of attorney on behalf of his principal: it is merely procedural”.   (Emphasis added).

25.  So where previously at common law, an attorney (“A”) was to execute a deed on behalf of the donor (“P”), A was required to execute the deed signing “P”.  The effect of s.6 PAO was simply to provide an alternative way of execution, so that A could now execute the deed signing “A”.  Section 6 does not mean that the attorney can execute an instrument without reference to his capacity as attorney.  After discussing s. 7 PAA, the learned author of Aldridge on Powers of Attorney, 9^th ed. set out the forms of execution by an attorney as follows (p.66):

“The normal form of execution of a deed by an attorney is:

‘AB [donor]

by his attorney

CD [attorney]’.

An alternative is:

‘CD [attorney]

as attorney for and on behalf of

AB [donor]’”.

He went on to say that where there are joint attorneys, both should sign, but no particular wording was required, other than referring to “attorneys” in the plural.  And where more than one attorney was appointed to act jointly or severally, one or more of them could sign, but no reference to the position (i.e. joint or several) was needed on the face of the document.

26.  In my view it is clear from the above that s.6 does not have the effect ascribed to it by the judge, i.e. to enable an attorney to execute an instrument qua attorney but without referring to that capacity.  In any event, with respect to the judge, it is artificial to treat the servicer execution as having been done by AIG in its capacity as attorney, when the attorney execution expressly purported to be that very act.  Execution is a matter of intention, and it is clear that AIG intended to execute twice, first qua attorney and then qua servicer.

27.  Coming then to the Vendors’ argument on appeal, counsel argued only one point: that the Release had been validly executed as a deed by AIG.  He argued that “provided that AIG’s intention was clear, it was perfectly legitimate and proper for it to ‘kill 2 birds with 1 stone’ (i.e. causing its Common Seal to be affixed on the Release only once but to accomplish 2 tasks)”.

28.  I cannot accept that argument.  It is clear from the contents of the execution page that AIG intended to execute the deed twice, once as attorney and then separately as servicer, hence the attorney execution and the separate servicer execution.  That AIG intended to do two separate executions is clearly shown by the fact that its officers signed twice, once as part of each separate execution.  The solicitor also signed twice, his attestation appearing after each separate execution.  If the Vendors’ argument were correct, it would have been meaningless for AIG’s officers to sign twice.  There is no evidence that they made extra signatures by mistake. 

29.  Once it is accepted that AIG intended to do two separate executions of a deed, then it is clear that s.20 of the CPO does not assist the Vendors.  The purpose of that section is to set out the requirements of an act of execution by a company when the instrument is a deed and I do not read that section as providing for anything more.  Applying that section, the attorney execution in this case was invalid as the Common Seal had not been affixed.  From the position of the Common Seal on the execution page, in my view it is clear beyond doubt that it was affixed only as part of AIG’s servicer execution and not as part of the attorney execution.  It is common ground that a company can only execute a deed by way of a “composite signature” comprising its Common Seal and its officers’ signatures.  In the absence of the Common Seal, the attorney execution is invalid and it follows that the mortgagee the HKMC has not executed a valid deed of discharge. 

30.  Given the position taken by the Vendors’ counsel on appeal (see para. 27 above), that is the end of the matter and in my judgment the appeal must be allowed.  (I should add that the Vendors’ counsel also sought to rely on the position taken by the solicitors who had attested the Deed of Release, but it is obvious that their view on the law is simply their view and cannot affect the parties’ rights and obligations as a matter of law).

Issue (2) - was the defect a matter of conveyance and not of title?

31.  I will now deal with this issue as a matter of completeness and because I think it may be helpful to comment on the judge’s view.  The judge held that the defect in the Deed of Release was a matter of mere conveyance and that the Vendors’ offer on completion day would have enabled the parties to complete on time.  Before I discuss this view, it may be helpful to go back a little and consider certain relevant aspects of conveyancing law.

32.  A vendor generally is obliged to show good title before completion and to give (or make) good title on completion.  The first obligation is to show good title.  In England this is done by the vendor sending to the purchaser and verifying an abstract of title in which the vendor’s solicitors have summarized the documents and facts which make up the title.  In Hong Kong, an abstract is not sent but the relevant documents themselves are sent to the purchaser’s solicitors for perusal.  The agreement for sale and purchase generally stipulates a time limit for the purchaser’s solicitors to raise requisitions.  This is one instance when it is important to distinguish between a matter of title and a matter of conveyance. 

•  If the vendor cannot answer a requisition on title, he generally has a right under the agreement for sale and purchase to rescind (or as it is sometimes put, “annul”) the transaction before completion.  Alternatively the purchaser has the right to rescind on the ground that the vendor has failed to show a good title (as in Active Keen Ltd v Fok Chi Keong [1994] 1 HKLR 396). 

•  If the purchaser’s requisition raises a matter of conveyance, neither party can rescind before completion as the vendor has still shown a good title.  But it does not mean that the vendor can ignore the problem raised in the requisition.  He must still remove the defect in order to give (or make) a good title but he has until completion to do so (Smith v Butler [1900] 1 QB 694).   

33.  With the above in mind, we can see the difference between matters of conveyance and matters of title explained in Farrand on Contract and Conveyance, 4^th ed. at p.92:

“Anything which detracts from the vendor’s ownership according to the contract is strictly a defect in his title.  If, however, the defect is removable as of right by the vendor, then it is said to be a matter of conveyance rather than of title.  The point is that:

a vendor is considered to have shown an acceptable title if it appears from the abstract that on doing certain acts which he can perform immediately and independently of others’ consent, he will have the right to direct a conveyance of the whole estate contracted for.  But by his own showing he has no good title except he do such acts.  It is therefore a matter of course that he shall perform them; and it is unnecessary for the purchaser to address any requisition to this point.

(Williams on Vendor and Purchaser, 3^rd ed, p170 ...)”

(Emphasis added).     

34.  In the present case, the Vendors could have called upon the HKMC (or AIG as the HKMC’s attorney) to do a proper execution of the Deed of Release, so the judge was correct to hold that the requisition raised a matter of conveyance.  However where I have to part company with the judge is when he went on to hold that the Vendors’ offer on completion day would have enabled the parties to complete on time as I will discuss below. 

Issue (3) - were the Purchasers entitled to refuse to complete?

35.  It is clear from the letter received at 3 pm that all that the Vendors’ solicitors were saying was that they were “agreeable to arrange” AIG to affix the Common Seal.  The subsequent correspondence made it clear that (a) they were not giving an undertaking and (b) they would not offer any definite period of time within which the act would be done.  In my view, the Purchasers were perfectly entitled to refuse to part with their money in those circumstances.

36.  Much has been said about what has been perceived as the “minor” nature of the defect as it was thought unlikely that the HKMC (or AIG) would have an adverse claim against the Property.  Quite apart from the fact that if one ignores the invalid deed there was no other evidence of repayment of the loan by the Vendors, it is important not to lose sight of the fact that a legal charge is a legal estate (s.2 CPO) and a legal estate can be extinguished or disposed of only by deed (s.4 CPO).  In the absence of a valid deed of release, the HKMC still held that legal estate.  That was not what the Purchasers bargained for.  On the day of completion, instead of presenting the properly executed Deed of Release, the Vendors were demanding that the Purchasers pay the full consideration in exchange for only an offer (not an undertaking) to “arrange” for proper execution within an indefinite time.  In my judgment, the Purchasers were clearly entitled to refuse to complete. 

Order

37.  I would make the following orders:

(1)     the appeal is allowed;

(2)     the judgment of Deputy High Court Judge Gill is set aside;

(3)     pursuant to the order  for  split trial, judgment be entered in favour of the Purchasers on the issue of liability, with the issue of quantum to be remitted to a master;

(4)     the Defendants pay the Plaintiffs’ costs of the appeal and below.  

Hon. Hartmann JA:

38.  With one exception, I would gratefully adopt all the findings of Yuen JA. It is regrettable, however, that, as I see it, the one matter in which I am obliged to adopt a different approach is the one matter on which this appeal turns.

39.  I say that because this appeal, it seems to me, turns on one issue. On the face of it, it appears to be an issue of fact: was there an oversight in failing correctly to place a deed under seal?  On analysis, however, I believe the issue is really one of law.

40.  The crucial issue may be phrased in the following question. Was a Deed of Release, executed by a corporation in two separate capacities, once as attorney and once as servicer, duly executed when, although the authorised signatories and a witness signed twice, once in each capacity, the deed itself bore only one seal?

41.  The execution of the Deed of Release by the corporation, AIG, was contained on a single page. The first attestation, the one on the top half of the page, commenced with the wording: “ Sealed with the common seal of AIG… and signed by…” This attestation by AIG was in its capacity as an attorney.

42.  The second execution of the Deed of Release by the corporation, the one on the bottom half of the page, commenced with the same wording. This attestation by AIG was in its capacity as a servicer.

43.  Both executions, therefore, purported to be under the common seal of AIG and the authorised signatories of the corporation duly signed to that effect.

44.  Indeed, there was a seal on that single page. However, the seal appeared on the lower half of the page in line with the second attestation, being to the right of the two authorised signatures for that attestation. If perhaps the seal had been at the bottom of the page, beneath the two attestations, there may have been no dispute. But, in looking to the lay-out of the page, it is evident that the seal is set so close to the second attestation that, at face value, the immediate impression is that it is part of that second attestation and, by simple deduction, not part of the first.

45.  But that being said, I know of no requirement that, if a corporation executes a deed in two separate capacities, then two separate seals are demanded. S.20 (1) of the Conveyancing and Property Ordinance, Cap 219 provides only that—

“… 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 [the authorized signatories]”

46.  It is therefore the deed; that is, the document itself, which must bear the seal, not each separate set of signatures. The section does go on to provide that the seal is to be affixed in the presence of and attested by the authorised signatories but, on my reading, that means simply that the authorised signatories must formally certify that the deed does bear the seal of the corporation. If I may put it this way, the authorised signatures bear witness to the seal, the seal does not bear witness to the authorised signatures.

47.  In the present case, in both attestations, the authorised signatories have verified (i.e. attested) that the deed of release has been sealed with the common seal of AIG. The authority of the signatures has never been challenged nor has the authenticity of the single seal itself appearing on the same page as the two attestations. That being the case, in obedience to s.20 (1) of the statute, I believe that primacy must be given to the authorised signatures which speak to the deed itself being sealed rather than to a simple, unexplained view of the page and the unfortunate placing of the seal on that page.  

48.  On the basis of that analysis, notwithstanding that first appearances may suggest otherwise, I am satisfied that the Deed of Release was sealed in accordance with law and that the purchasers were not entitled to refuse to complete. I regret therefore that I must dissent from the judgment of Yuen JA.

49.  Before concluding, however, I am constrained to say that I am perplexed that the refusal to obtain a second seal, whether it was required in law or not, should have resulted in denying the vendors and purchasers their agreement and the instigation of the present litigation. During the course of the hearing, it was never suggested that the Deed of Release could not have been put into an order acceptable to the purchasers with the minimum of difficulty. The passing of title is a matter which demands caution, that I accept. But, when both parties seek the realisation of their agreement, it is also a cooperative venture. Regrettably, this appears to be yet another illustration of the stiff-necked, internecine strife all too often accepted as a way of life by the conveyancing profession in this jurisdiction.

Hon. Stone J:

50.  I have read in draft the judgment of Yuen JA, and gratefully acknowledge and adopt her recitation of the facts.

51.  I have also read in draft the judgment of Hartmann JA, and have considerable sympathy with the views therein expressed.

52.  This case seems to me to turn on the most arid technicality, and I confess that instinctively I was attracted to the view that this appeal should be dismissed; in purely practical terms it strikes me that there is little or no realistic chance of the Vendor’s title ever being impugned by reason of the absence of one AIG Finance seal in the Deed of Release, and for my part I can well understand why the learned judge below reached the view that he did.

53.  Having said that, and much as I might wish, as a matter of intrinsic merit, to hold to the contrary, nevertheless I am driven to agree with the cogent reasoning of Yuen JA.

54.  At bottom the salient question for decision in this appeal is whether it can be said that the Deed of Release contains the necessary signatures, executed in due form, of AIG Finance?

55.  I should like to hold that the existing single seal of AIG Finance (at page 4 of the Deed) suffices to verify the corporate signature of AIG Finance both qua servicer and qua attorney, and that at the end of the day, as Hartmann JA attractively has expressed the position, the existing authorized signatures bear witness to the existing single seal, wherever it be placed on the page.

56.  At the end of the day, however, I am constrained to agree with the argument that the imprint of but one seal will not suffice in a situation wherein, as Madam Justice Yuen succinctly has pointed out, AIG Finance clearly intended to effect two separate executions, and that, judging from the position of the Common Seal on the execution page, which is affixed immediately adjacent to the signature of AIG qua servicer, the attorney execution therefore pointedly does not contain the Common Seal as an integral part of this intended corporate signature.

57.  It remains a mystery why the Vendor’s solicitors chose, in effect, to dig their heels in when the Purchaser’s solicitors raised the relevant requisition, and thus did not take formal steps to rectify the perceived ‘defect’ until the eleventh hour, by which time clearly it was too late.

58.  Be that as it may.  In these circumstances it cannot be said that the Purchaser was not entitled to raise the requisition on title, and thus to question the apparent absence of the seal as part and parcel of the attorney execution; I bear in mind, also, that it is no part of the process of the conveyance of a legal estate to require a purchaser effectively to purchase the possibility of a lawsuit, however unlikely this may seem with the wisdom of hindsight and persuasive legal argument.

59.  In my view, therefore, and, as I have said, not without some hesitation, I agree that this appeal should be allowed, and that the Orders as suggested by Yuen JA should issue.

Hon. Yuen JA:

60.  Accordingly the orders set out in paragraph 37 are made.