Chan Kam Hung v. Light Limited

HEADNOTE

VENDOR and PURCHASER - requisitions on title - capacity of foreign corporation to hold land in Hong Kong - acceptance of title by conduct - effect of no evidence of foreign law - Section 17 Companies Ordinance (Cap.32).

IN THE DISTRICT COURT OF HONG KONG

CIVIL JURISDICTION

ACTION NO. : 16919 OF 1992

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JUDGMENT

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1. On the 22nd June 1992 the defendant executed a written agreement to purchase from Digital Equipment International Ltd ("Digital") property in Kwai Chung consisting of Unit 9 on the seventh floor of the Wing Hang Industrial Building ("the property") for $845,650. The date fixed for completion was the 1st September 1992; but at some unknown time it appears to have been altered to the 1st July 1992. (See p.72 of the Agreed Bundle (AB)). In fact, that transaction was completed by an assignment of the property to the defendant dated the 4th July 1992. (See p.156 AB).

2. These proceedings concern a Sub-Sale Agreement dated the 27th June 1992 between the plaintiff and the defendant, whereby the plaintiff agreed to purchase the property for $950,000. The time fixed for completion was 1 p.m. on the 3rd July 1992. The plaintiff had paid a deposit of $95,000 by the 25th June 1992, presumably pursuant to a provisional agreement made on the 23rd June 1992. For reasons which will become apparent completion did not take place as intended and the defendant purported to forfeit the deposit. The present proceedings were commenced by the plaintiff by a writ issued on the 16th July 1992. The relief sought included various declarations regarding the Sub-Sale Agreement and the property, repayment of the deposit, and damages. The defendant counterclaimed for a similar array of relief. I entertained doubts regarding the District Court's jurisdiction to entertain most of the prayers for relief, some of which seemed more appropriate to the vendor and purchaser procedure provided by section 12 of the Conveyancing and Property Ordinance (Cap.219). I accept counsel's explanation of the reason why that useful machinery was not considered to be available to the parties in this case. But, I would like to draw attention to the fact that section 12 of Cap.219 enables the parties to confer jurisdiction on the District Court by agreement. If there is no objection to so enlarging the District Court's jurisdiction to determine disputes covered by section 12 of Cap.219, there must surely be a strong case for allowing the parties to consent to the District Court having jurisdiction over similar disputes regarding immovable property, even though some aspect of the dispute may be beyond the financial limits fixed by various sections of the District Court Ordinance (Cap.336). of. ss36,37 and 52. In the present case my doubts over jurisdiction were removed by counsel's sensible appreciation of the essential issues, and their abandonment of all claims to declarations and damages. As a result I am only concerned with deciding whether the plaintiff is entitled to repayment of the deposit of $95,000; or whether the defendant was entitled to forfeit the same.

3. Neither party called any evidence. I am left to decide the issues in this case on the basis of the Agreed Bundle of documents and admissions contained in the pleadings. Some of the former expressly refer to telephone conversations between the parties' legal advisors. Although these conversations might conceivably explain the steps or action taken at the material times, their content has not been placed before the Court. I must, therefore, assume that they are not material to the issues. One of the issues or questions in this case relates to the legal capacity of Digital, which is a stock company (societe anonyme) governed by the Swiss Code of Obligations. It is domiciled in Switzerland; but has apparently been registered in Hong Kong under Part XI of the Companies Ordinance since the 31st August 1984 (see p41 AB), although it appears to have established a place of business in Hong Kong in 1983 (See p42 AB). There is included in the agreed bundle a so-called "indenture" whereby the property was supposedly assigned to Digital by Return Plus Investment Limited on the 12th April 1983. No evidence of Swiss Law has been adduced by either party to the present proceedings. I will deal later with the consequences of that omission. At some stage there was a suggestion that completion should be deferred until the opinion of an expert in Swiss Law had been obtained. But that suggestion was not implemented. These omissions may not prevent the court from reaching a conclusion on the issues in this case; but I must confess that they have prolonged and complicated the judicial process.

4. The plaintiff bases its claim for repayment of the deposit on the defendant's failure to answer certain requisitions on title made by his solicitors. It is conceded by the defendant that the requisitions were made within the time stipulated in the Sub-Sale Agreement. The defendant resists the present claim on the basis that the requisitions in question were not raised until after the plaintiff had accepted title by conduct. In the alternative, the defendant contends that it had satisfactorily answered all legitimate. queries raised by the plaintiff before the extended time for completion had arrived.

5. It is not uncommon for conveyancing transactions to be completed very speedily. When there are no complications the entire process from contract to assignment can be completed in one day. Unlike many of their counterparts in England, Hong Kong practitioners are geared to the swift despatch of conveyancing transactions. In the present case, the Sub-Sale Agreement was signed by the parties on a Saturday. They expected it to be completed within the next four and a half working days. That relatively short period of time is not, in itself, remarkable. The parties had already commenced some of the steps or procedures before the 27th June 1992. A provisional agreement had been signed on the 23rd June 1992. The defendant's solicitors delivered most of the documents relating to title on the following day. The balance of the deposit was paid on the 25th June 1992, when the plaintiff's solicitors raised the first requisitions and expressly reserved their right to raise others. On the 27th June 1992 the plaintiff's solicitors also sent to the defendant's solicitors a draft assignment without prejudice to the requisitions they had raised two days earlier; and asked for instructions as to how the balance of the purchase price should be paid. All these steps are consistent with an intention to get on with the transaction with a view to being ready for a prompt and smooth completion, although title and other matters were still under investigation.

6. The defendant does not, and could not, contend that the plaintiff had accepted title by delivering the draft assignment. Quite apart from the fact that, even in the more leisurely conditions of conveyancing practices in England, such an act would not be conclusive (of Burroughs v. Oakley (1819) 3 Swanst 159), the defendant's solicitors did not answer the requisitions raised until the following week, i.e. by letter dated the 30th June 1992. (P90 AB). Furthermore, at that time some documents of title had still not been supplied by the defendant. But, the defendant does contend that when the plaintiff's solicitors submitted the engrossment of the Assignment, under cover of their letter of the 2nd July 1992 (pp 93-102 AB), the plaintiff accepted the title being offered, because he did not then insist upon further requisitions, after his earlier requisitions had been answered (see p.90 AB). Indeed, insofar as the plaintiff's solicitors had reserved their right to raise further requisitions "on the missing title deeds and documents" (see letter dated 25th June 1992 (pp 86-7 AB), they did not seek to do so in respect of the power of attorney in favour of Joseph Cosgrove (pp 46-49 AB) until 12.16 p.m. on the 3rd July 1992 (pp 109-112 AB). It is an agreed fact that this document was received by the plaintiff's solicitors at 5.40 p.m. on the 1st July 1992. The letter of the 2nd July 1992 was received at or about 11.54 a.m. on that day.

7. Given the speed with which conveyancing transactions are frequently carried out, and the fact that matters connected with completion are not "put on hold" while queries about title are being raised and answered, I venture to suggest that the court should be slow to find an implied acceptance of title from the conduct of the purchaser or the purchaser's solicitors; and should only do so where it is satisfied that the purchaser has clearly waived or exhausted all or the remaining requisitions. To do so in other circumstances might undermine the efficiency of the conveyancing system, by encouraging excessive caution and delay; as well as adding to costs by increasing the frequency and numbers of applications to the courts under section 12 of the Conveyancing and Property Ordinance (Cap.219). At the same time, the interests of vendors in prompt completion, especially in volatile market conditions, have to be considered. They should be able to act upon ostensible indications that their purchasers are satisfied with the title being offered, and willing to complete by the agreed time.

8. By the 27th June 1992, if not before that date, the plaintiff knew that the assignment would be executed by the defendant in the capacity of a Confirmor; that the Vendor would be Digital; and that Digital was a Swiss Corporation (see pp. 8, 60-76, 82-83 AB). The agreement dated the 22nd June 1992 between Digital and the defendant was apparently executed by Joseph Cosgrove on behalf of Digital. The power of attorney ostensibly authorising Mr. Cosgrove to do so was not supplied to the plaintiff's solicitors until 5.40 p.m. on the 1st July 1992. But, in my view, they must be taken to have been satisfied with Mr. Cosgrove's authority to execute an assignment of the property, because the engrossment, which they submitted to the defendant's solicitors on the following afternoon, described him as the lawful attorney of Digital and gave the number of his passport. Such information must have been obtained from their perusal of the Power of Attorney dated the 25th February 1992 (pp 46-49 AB). When the defendant's solicitors received the engrossment on the 2nd July 1992, they were, in my view, entitled to assume that the plaintiff or his solicitors accepted Mr. Cosgrove's authority to execute all documents whereby Digital was seeking to sell the property, which it had ostensibly purchased in 1983; and that Digital had the capacity to buy and sell land in Hong Kong. The covering letter of the 2nd July 1992 (p93 AB) contained no references to the earlier letters of the 25th and 27th June 1992 (pp 86-88 AB), nor any express reservations of a present or future desire to raise any further requisitions on title. The qualified reservation in the letter of the 27th June 1992 could not properly be regarded as continuing until the 3rd July 1992. In the circumstances of this case, I think that it ceased to have any force or effect on the 30th June 1992, when the requisitions were answered; or on the 2nd July 1992 when the engrossment was sent to the defendant's solicitors. (The fact that the conditions of grant for Kwai Chung Lot No.371 were not then available is immaterial to the issues in the present case).

9. In my view, it is abundantly clear that on the afternoon of the 2nd July 1992, both parties' solicitors regarded the transaction as in its final stage, and ready for completion on or before 1 p.m. on the following day. Although the time for making requisitions stipulated by the Sub-Sale Agreement had not expired, I am satisfied that the plaintiff had no more requisitions when the engrossment of the assignment was delivered on the 2nd July 1992. Accordingly, I find that there was an implied acceptance of title on that date. I am reinforced in that view by the clear evidence that the requisitions, which the plaintiff sought to raise on the 3rd July 1992 (pp. 109-112 AB) and which form the basis of the present claim, were not in the contemplation of his solicitors until after they received the letter from Messrs Kao, Lee & Yip dated the 3rd July 1992 (pp. 173-174 AB). In effect, the plaintiff's solicitors merely passed on, word-for-word, the doubts raised by the solicitors then acting for the potential mortgagee of the property. In the absence of any evidence to suggest that the defendant was aware that the plaintiff needed to obtain a mortgage in order to purchase the property, it cannot be contended that these requisitions, raised some 44 minutes before the time fixed for completion, were covered by the reservations of the 25th and 27th June 1992; or that these reservations were still in force when the engrossment of the assignment was sent to the defendant's solicitors.

10. I must confess that I have not found it easy to come to that conclusion on the material before me in this case, in spite of the excellent submissions of counsel. In deference to them and in case this matter goes elsewhere, I consider that I should express my view or findings on the other aspect of the case. The specific requisitions are set out in the letter dated the 3rd July 1992 (pp 109-110 AB) and paragraph 9 of the Particulars of Claim. The replies were faxed at various times during that day. (See pp 113-143 AB). In the end, this aspect of these proceedings can, in my view, be reduced to the question whether Digital had the capacity to buy, hold, and sell land in Hong Kong, because the other requisitions have been satisfactorily answered. Strictly speaking the question is not whether Digital had a good title, but whether the plaintiff's requisition was satisfactorily answered. Nevertheless, having regard to the answers given, I consider that it is necessary to come to a view on Digital's power to acquire and hold land in Hong Kong. In their first reply, the defendant's solicitors clearly did not know the real position. They merely indicated that they would be surprised if Digital could not buy or sell property; and could not see any possibility of the acquisition of the property being ultra vires the company (p113 AB). Some four hours later, after they had had an opportunity of seeing the Articles of Association they positively asserted that Digital had power to purchase and sell properties, and referred to Article 3.2 of the Articles of Association (p.138 AB). Almost two hours later they sought to rely on section 17 of the Companies Ordinance and contended that unless there was a contrary provision in the Articles or Swiss law (of which they were not aware), the law of Hong Kong should prevail (p.143 AB).

11. On the evidence before me I find that Digital is a company incorporated in Switzerland. It was registered as an overseas company under Part XI of the Companies Ordinance (Cap32) on the 31st August 1984 (p.41 AB). Apart from being registered as the owner of the property since 1983 (p171 AB), the only indication of its objects or powers is Article 3 of its Articles of Association (pp 20-32 AB). They are expressed in somewhat vague terms, extending over industrial, commercial, financial and scientific activities. There is no express object or power to hold land in Hong Kong, or elsewhere. Indeed, Article 3.3 provides that it may buy, sell, lease or service "materials, machines, installations or equipment and other objects ...", but does not mention land or premises. According to Dicey and Morris on The Conflict of Laws (11th ed. 1987 : Rule 174) a corporation's capacity to enter into any legal transaction is governed by the law of its place of incorporation, and that of the country which governs the transaction. The latter, however, cannot enlarge the scope of the powers given by its lex domicilii. In the present case, I consider that the defendant bore the burden of showing that Swiss Law enables Digital to buy, hold and sell land in Hong Kong.

12. In the absence of any evidence of Swiss law, Mr. Chui submitted that I had to apply the law of Hong Kong. He relied on a passage from Sera Ltd v. Excelling Profit Investments Ltd (Civ. App. No. 137 of 1992; 23rd December 1992) to the effect that there is a presumption that the unproved foreign law is the same as that of Hong Kong. He further contends that Article 3.2 of the Articles of Association, if construed according to principles followed in Hong Kong, gives Digital full power to buy and sell land. Failing that, he contends that such power can be derived from section 17(1) of the Companies Ordinance (Cap32) on the strength of the aforesaid presumption.

13. Approaching the problem as a question of construction, I am not persuaded that buying and selling land comes within Article 3.2, which empowers Digital :

"To participate in any industrial, commercial, financial or scientific undertaking and to finance these by means of loans or otherwise."

14. Indeed, according to the principles of construction followed in Hong Kong, Article 3.2 would fall to be construed in the light of Article 3.3. If that is construed according to the maxim expressio unius, exclusio alterius, the acquisition of land would be expressly excluded! In my view, the "construction" approach can only succeed if it could be shown that the transaction in question (i.e. the purchase of the property) was reasonably incidental to the attainment or pursuit of any of Digital's objects, as expressed in Article 3 of the Articles of Association. In the absence of any evidence of the business or other activities carried on at the property by Digital, or its reasons for acquiring or selling the same, the defendant has failed to show that its acquisition can be justified or upheld as being within the legal capacity of Digital.

15. Mr. Chui's secondary argument is to the effect that, in the absence of evidence of Swiss Law, the court should presume it contains a provision for corporations incorporated in Switzerland identical to the Law of Hong Kong governing corporations. In the case of a company incorporated in Hong Kong it is strictly not necessary for its Memorandum of Association to contain powers to buy, hold, or sell land, although many contain wide object clauses to that effect. Section 17(1) of the Companies Ordinance (Cap32) provides :-

"Every company incorporated under this Ordinance shall have power to acquire hold, and dispose of land."

16. However, this provision does not enable a foreign corporation, even though it may be registered under Part XI of the Ordinance, to hold land in Hong Kong. On the evidence before me, which is the same as that available to the plaintiff and his solicitors when this requisition was made, Digital did not have capacity to acquire the property according to the domestic law of Hong Kong. However, Mr. Chui contends that the rules applied in Hong Kong to problems involving conflicts of laws enable the defendant to assert in this case that Digital did have such capacity, because the contrary has not been shown by any evidence of Swiss law.

17. In Sera Ltd v. Excelling Profit Investments Ltd supra, the Court of Appeal dismissed the "utterly remote" possibility of the liquidator of a Bermudan corporation seeking equitable relief some four years after its liquidation, apparently on the basis that the law of Bermuda contained a time limit of two years, similar to section 290 of the Companies Ordinance (Cap 32). Although the judgment uses the terminology of presumption, and cites The Parchim [1918] AC 157 at 161, it is, in my respectful view, fairly clear that this passage of the judgment (at p10) did not form part of the ratio decidendi of the case. The fact that the judgment does not refer to other authorities, which may suggest a different juridical basis for applying the lex ford in the absence of evidence of foreign law, is, perhaps, an additional indication that this passage was not intended to be regarded as a final and binding declaration of the law.

18. The learned authors of Dicey and Morris on The Conflict of Laws (11th edition) refer (at p.228) to some of the authorities, and offer their comments on the practice of the English courts when no, or insufficient, evidence of foreign law is adduced. In The Parchim, supra, Lord Parker of Waddington, giving the opinion of the Privy Council on appeal from the Prize Court of England, certainly used the language of presumption. But, it is abundantly clear that he did so because of the assumptions which be expressed (at pp 160-161) in the following terms :-

"The municipal law of this country as to the transfer of property in chattels is a branch of our commercial law, and based on mercantile usages common in their general substance and operation to the merchants of all nations."

19. Because the Sale of Goods Act 1893 codified the law merchant as part of English Law there was no reason to doubt that the lex fori should be applied in the absence of any proof that the relevant foreign law was different.

20. In the present case, rigid adoption of the language of presumption and Mr. Chui's argument would lead to the consequence that the scope of section 17 of the Companies Ordinance could be extended to companies not incorporated under the Ordinance, simply by the parties to any litigation abstaining from adducing evidence of a foreign corporation's lex domicilii. I do not think that it can be the law that the clear words and the policy of domestic legislation can be altered by applying the principles for resolving disputes involving issues governed by some foreign system of law. In my view, such potentially bizarre consequences can be avoided if the practice of applying the lex fori, in the absence of evidence of foreign law, is seen as a pragmatic approach towards a rational solution of the dispute between the parties. By not raising the issue of foreign law by their pleading, the parties can be taken as implicitly admitting that the lex fori governs their relationship.

21. For the aforesaid reasons, I am satisfied that the defendant never gave satisfactory answers to the requisition relating to Digital's capacity to purchase the property. But for my conclusion that the plaintiff had accepted the title offered before raising this requisition, I would have found that the defendant was not entitled to treat the Sub-Sale Agreement as repudiated or to forfeit the deposit paid by the plaintiff. The latter's solicitors, albeit at the eleventh hour and only as a result of views expressed by solicitors acting for an intended mortgagee, had raised a real and reasonable doubt regarding Digital's capacity and title to the property. On the evidence before me, the defendant's solicitors did not deal with the requisition properly or satisfactorily, or take it seriously; possibly because they considered that the plaintiff had already accepted title, as I have already found. But, at the time the requisition was raised the defendant's solicitors should have taken other steps to remove this doubt. I do not think it would have taken much time or expense to obtain a reliable opinion on Swiss law. They could have sought an assurance from the solicitors then acting for Digital. That well-known firm had also acted for Digital in 1983 when it purchased the property. For the purposes of compliance with section 335 of the Companies Ordinance, the senior partner and other members of that firm were authorised to accept service on behalf of Digital. Yet, there is no evidence that any attempt was made to obtain confirmation of Digital's capacity under Swiss Law from that firm of solicitors.

22. On the evidence before me I can only conclude that the defendant's solicitors failed to do so, because they did not intend to do so. I appreciate that they may have been exasperated at receiving this late requisition. But, it was a timely requisition, and it should have received different treatment. All the evidence before me points to a willingness on the part of the plaintiff to purchase the property, subject to doubts over Digital's capacity being removed. Regrettably, the evidence leaves me with the clear impression that the defendant was unwilling to fulfil its obligation to prove a good title to the property and was putting unjustified pressure on the plaintiff to complete the transaction in question, despite the legitimate doubts which had arisen.