TREAD EAST LTD v. HILLIER DEVELOPMENT LTD

1991, No.A907

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This action concerns the deposits paid by the purchaser in connection with an agreement dated 27th April 1990 ("the agreement") under which the vendor agreed to sell and the purchaser agreed to purchase Unit 10 on the Ground Floor of Carson Mansion, 113-123 King's Road, Hong Kong at a price of HK$2.9 million. On 12th April 1990, the purchaser paid to the vendor an initial deposit of HK$150,000; and on 27th April 1990, the purchaser paid to the vendor's solicitors a further deposit of HK$140,000 to be held by those solicitors as stakeholders.

2. Completion was due to take place on 31st July 1990; but on 30th July 1990 the purchaser called off the contract, claiming that the vendor had failed satisfactorily to answer a requisition on title raised by the purchaser. The vendor says that it had satisfactorily answered this requisition and says that anyway the purchaser had already accepted the title before it purported to call off the contract.

3. If the purchaser is.right, it is entitled to an order that the vendor do repay to the purchaser the initial deposit of HK$150,000 and to a declaration that the purchaser is entitled to give a good receipt to the vendor's solicitors for the further deposit of HK$140,000.

4. If the vendor is right, it is entitled to a declaration that the vendor is entitled to keep the initial deposit and to a declaration that it is the vendor which is entitled to give a good receipt to the vendor's solicitors for the further deposit of HK$140,000.

5. The dispute arises in this way.

6. The property the subject of the agreement was comprised in an assignment dated 12th September 1984 and made between (1) Oliver Paris (Hong Kong) Limited ("Oliver Paris") and (2) Chan Bing Fai ("Chan"). The assignment recited an agreement for the sale of the premises by Oliver Paris to Chan at a price of $125,000. It was sealed by Oliver Paris and signed by Chan, described as "one of.its. Directors as directed and authorised by the Board of Directors to sign". The assignment was endorsed with the receipt for the purchase money, signed by Chan. In the circumstances, the only signature appearing on the assignment (apart from that of the attesting witness) was the signature of Chan, signing both for Oliver Paris as vendor and for himself as purchaser. It is on this assignment, which forms part of the title offered by the vendor, that the requisitions to which I have referred were raised.

7. As to requisitions, the agreement provided (by Clause 11) as follows :

"11. Any requisition or objection in respect of the title shall be delivered to the vendor's solicitors within 5 days after the delivery of sufficient title deeds to the purchaser's solicitors ... The purchaser should be deemed to have accepted the vendor's title if requisition or objection on title is not so delivered to the vendor's solicitors within the time hereinbefore stipulated ...

8. The agreement further provided (by Clause 7) that time should in every respect be of the essence of the agreement.

9. A number of title deeds were in fact delivered by the vendor's solicitors to the purchaser's solicitors on 24th April 1990, before the date of the agreement. On 25th April 1990, still before the date of the agreement, the purchaser's solicitors noted that certain title documents remained to be delivered and so informed the vendor's solicitors.

10. On 8th May 1990, after the agreement was made, the purchaser's solicitors raised three requisitions of which No.2 is material. Requisition No.2 reads as follows:

                "Assignment Memorial No.2652561

It is noted that the Vendor, Oliver Paris (Hong Kong) Limited, executed the said Assignment only signed by Chan Bing Fai, one of its Directors. However, according to our company search of the said Company, it notes that all deeds or instruments requiring the seal of the Company shall be signed by two Directors or in such manner as the Directors shall from time to time by resolution determine. In this circumstance, we shall be much obliged if you can kindly send us a certified true copy Board Resolution of the said Company showing such authority. Copies of the said company search. and the said Assignment are enclosed for your reference."

11. This requisition is a challenge to the due execution of the assignment of 12th September 1984. It does not challenge the validity of that assignment on any other ground.

12. On 30th May 1990, the vendor's solicitors answered this requisition as follows:

"As regards your requisitions raised in paragraph 2 of your letter.dated 8th May 1990, we would like to refer you to the Law Society Circular No.105/90 where upon we are of the view that the Assignment Memorial No.2652561 is deemed to have been properly executed and that our client is not required to produce any evidence of authorisation by the board of Directors of Oliver Paris (Hong Kong) Limited."

13. On 6th June 1990, and on 5th July 1990, the . vendor's solicitors delivered to the purchaser's solicitors further title deeds and documents relating to the property.

14. On 23rd July 1990, solicitors acting for proposed mortgagees of the purchaser wrote to the purchaser's solicitors a lefter, which they sent by facsimile at 6.14 pm, raised a number of matters including the following:

"In the course of perusing the title deeds and documents relating to the above property ('the Property'), we have noted the following :-

1. We find the assignment of, inter alia, the Property in Assignment Memorial No.2652561 rather unusual for the following reasons:

(1) The Property was, together with other units in the same building constituting 678/2689th undivided parts or shares of. the building, purchased by Oliver Paris (HK) Ltd ('Oliver Paris') on 8/9/79 under Assignment Memorial No.1786033 which was executed by Oliver Paris under its Common Seal and endorsed by two of its directors Wu Ceng Chi and Chow Chi Ki. The purchase price was HK$36,000,000.00.

(2) On 12/9/84, Oliver Paris purportedly sold the Property, together with some other units in the same building constituting 34/2689th undivided parts or shares of the building to one Chan Bing Fai, for the consideration of HK$125,000.00 under Assignment Memorial No.265261.

We find this Assignment unusual in that firstly, the consideration was extraordinarily low and secondly, the Assignment was purportedly executed under Oliver Paris's Common Seal and signed by only one of its directors, namely Chan Bing Fai who was also the purchaser to the Assignment Memorial No.2652561. Such execution was purportedly "as directed and authorised by the Board of Directors".

(3) On 19/10/84, slightly over one month after the sale in Assignment Memorial No.2652561, the Property which constitutes 8/2689th undivided shares of the building was sold by the said Chan Bing Fai to one Chang Sie Ying for the consideration of HK$450,000.00.

    2.    In view of the circumstances as related above, we following queries :

(a) was affixure of the Common Seal by and signature of one director in line with the provisions governing the use of the Common Seal of-Oliver Paris in its Articles of Association?

(b) is the resolution of the Directors' Board approving the sale of the units to the said Chan Bing Fai and authroising the said Chan Bing Fai to execute the Assignment and affix the Company's Common Seal available for our inspection?

(c) Chan Bing Fai being interested in the transaction, was there proper disclosure of his interest to the Directors' Board and/or the shareholders?"

15. On 24th July 1990, the purchaser's solicitors wrote to the vendor's solicitors enclosing a draft assignment for approval on behalf of the vendor.

16. Also on 24th July 1990, but not until 7.24 pm, the purchaser's solicitors sent a facsimile of the proposed mortgagee's solicitors' letter of 23rd July 1990 to the vendor's solicitors, asking for an urgent reply.

17. The purchaser's solicitors attempted to persuade the proposed mortgatee's solicitors that there was nothing in the points they.had raised concerning the assignment of 12th September 1984, although, it will be recalled, they had themselves taken a point as to its due execution by their own letter of 8th May 1990 to the vendor's solicitors. But they had not expressed themselves dissatisfied with the answer given in the vendor's solicitors' letter of 6th June 1990, and had delivered to the vendor's solicitors a draft assignment for their approval.

18. The purchaser's solicitors were unable to allay the concern. of the proposed mortgagee's solicitors. The purchaser's solicitors accordingly insisted on an answer to requisitions raised by the proposed mortgagee's solicitors.

19. On 26th July 1990, they elicited a response from the vendor's solicitors in the following terms :

"As regards your fax dated 24th July 1990 and your letter dated 25th July 1990, queries (a) mentioned in the letter of Messrs. W.I. Cheung & Co has already been dealt with by our letter to you dated 6th June 1990.

As regards queries (b) and (c) mentioned in the letter of Messrs. W.I. Cheung & Co, we wish to point out that the time for raising requisition had already expired. In the circumstances, we are not prepared to give any comment on those queries raised by Messrs. W.I. Cheung & Co."

20. On 27th July 1990, the purchaser's solicitors wrote to the vendor's solicitors stating that they required a shareholders' resolution sanctioning or ratifying the execution of the assignment of 12th September 1984. In the absence of such-shareholder's resolution, they said, the purchaser would reject the vendor's title to the property.

21. On the same day, 27th July 1990, the vendor's solicitors replied pointing out that the assignment of 12th September 1990 had been sent to the purchaser's solicitors for perusal on 26th April 1990 and asserting that the time for requisitions had expired a long time ago. They claimed that sufficient title deeds relating exclusively to the property were sent to the purchaser's solicitors on 24th April. 1990 and 5th July 1990. They said that query (a) mentioned in the purchaser's proposed mortgagee's solicitors letter of 23rd July 1990 had been dealt with in their own letter of 6th June 1990. They added this

"As you are aware (your letter dated 8th May 1990 refers), all deeds or instruments requiring the seal of Oliver Paris (Hong Kong) Limited ("Oliver Paris") shall be signed by two Directors or in such manner as the Directors shall from time to time by resolution determine. The attestation clause of Oliver Paris on page 5 of Assignment Memorial No.2652561 expressly stated that the said Assignment was sealed with the Common Seal of Oliver Paris and signed by Chan Bing Fai one-of its Directors 'as directed and authorised by the Board of Directors to sign'. There is no question that Turquand's rule applies. An outsider is entitled to assume that the internal procedures of Oliver Paris have been complied with. It is therefore not necessary for the Vendor to produce a copy of the relevant board resolution.

Further, as regards your request for the Shareholders' resolution as stated in your letter dated 27th July 1990, we wish to stress that the requisition period had already expired and we are not prepared to entertain your request."

22. On 30th July 1990, the purchaser's solicitors, being dissatisfied with this, called the contract off. They submitted a bill to the purchaser for fees and disbursements amounting to HK$26,910.

23. On these facts, I am satisfied that the purchaser's solicitors were entitled to raise the requisition they did raise by forwarding to the vendor's solicitors on 24th July 1990 the letter they had themselves received from the proposed mortgagee's solicitors. The nature of the requisition was such that it went to the root of the title offered by the vendor; if the assignment of 19th September 1984, made less than 6 years before the date fixed for completion of the agreement, was -liable to be set aside at the instance of Oliver Paris, the title offered by the vendor would clearly be defective. For this reason, I do not think that anything turns on the question whether the requisitions were or were not raised within the stipulated period of 5 days after "sufficient" title deeds (whatever that means) had been delivered by the vendor's solicitors to the purchaser's solicitors. Nor, looking at the matter as a whole, am I prepared to conclude that the purchaser must be taken to have accepted the title before 24th July 1990, although it is fair to say that by failing to express any dissatisfaction with the reply they received, on 6th June 1990, to their own requisition raised on 8th May 1990, and by forwarding for approval of the vendor's solicitors a draft assignment on 24th July 1990, the purchaser's solicitors did come very close to accepting the title on behalf of the purchaser.

24. The point left in the case is the point of substance; that is to say, whether the vendor's solicitors ever did satisfactorily answer the requisition concerning the assignment of 12th September 1984 raised by the proposed mortgagee's solicitors and passed on by the purchaser's solicitors to the vendor's solicitors on 24th July 1990.

25. In my judgment, the vendor's solicitors failed satisfactorily to answer that requisition and the purchaser is accordingly entitled to relief as indicated earlier in this judgment.

26. As to the due execution point, (the subject of the first and second parts of the requisition) I am of the opinion (a) that there never was anything in it; (b) that it had been taken on 8th May 1990 and satisfactorily answered on 6th June 1990; and (c) that the purchaser, not having challenged the answer until 23rd July 1990, must be. taken to have waived its objection.

27. As to (a), the facts are that, under the relevant provision of its Acticles (Article 22) all deeds and instruments requiring the seal of Oliver Paris had to be "signed by two of its directors or [emphasis added] in such manner as the directors shall from time to time by resolution determine." 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.

28. As to (b), the letter of 6th June 1990 answered the requisition by reference to the Law Society Circular No.105/90 of 29th May 1990. This circular expressly refers to the provisions of s.23 and so (albeit indirectly) the vendor did in this way provide a satisfactory answer to the requisition

29. As to (c), the purchaser had a reasonable time after 6th June 1990 to assert, if it wanted to do so, that the answer given by the vendor was unsatisfactory. By not doing so until 23th July 1990, in my judgment, it exceeded this reasonable time and must therefore be taken as having waived the objection.

30. But the other point on the assignment of 12th September 1984 is, in my judgment, a good one. A vendor who offers to the purchaser title depending on an assignment by a limited company to one of its directors, signed by no other director, and being at what may be an undervalue, must, in my judgment, be prepared if asked to do so to satisfy the purchaser that the assignment is not liable to be set aside at the suit of the company. This is what, in effect, the requisition. of 23rd July 1990 required the vendor to do. But the vendor refused to do it. In these circumstances, I hold that the purchaser was justified in calling off the contract, with the consequences I have already indicated.

31. I will therefore order that the vendor do repay to the purchaser the initial deposit of $150,000, and I will declare that the purchaser is entitled to give a good receipt to the vendor's solicitors for the further deposit of $140,000. I propose to order that the costs of the purchaser (the plaintiff in the action) be taxed if not agreed and paid by the vendor (the defendant in the action) to the purchaser; but I will restore the case to the list for further argument if the parties wish to invite me to make some further or other order.