WANG ZHIDUN v. TSOI MING PUI

DCMP2707/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 2707 OF 2010

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BETWEEN

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J U D G M E N T

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1.  This is a vendor and purchaser summons taken out by the plaintiff purchaser on 8 October 2010 under section 12 of the Conveyancing and Property Ordinance, Cap. 219, seeking, inter alia, a declaration that the defendant vendor had failed to prove good title and satisfactorily answer the requisitions raised by the plaintiff’s solicitors in relation to a property known as Flat D, 15th Floor, Block 5, No. 6 Tak Hong Street, Whampoa Garden Site 11, Kowloon, Hong Kong (“the Property”). In the premises, the plaintiff therefore claims for the return of a deposit from the defendant in the sum of $520,000.

2.  Prior to the transaction in question, the Property had changed hands at least twice.  In 2006, a Fujian Province Fuhui Jewellery Company Limited (“FPFJ”) acquired the Property from a Fujian Jewellery Import and Export Company Limited (福建珠寶進出口有限公司) (“FJIE”), for a consideration of $3.2 million by an assignment dated 1 December 2006 (“2006 Assignment”).

3.  In early 2010, the property was sold by FPFJ to a Mr Tsoi Ming-pui, the defendant in these proceedings, for a sum of $4.1 million.  The assignment of this 2010 transaction took place on 14 January 2010 (“2010 Assignment”).

4.  On 29 April 2010, the plaintiff and the defendant entered into a Provisional Sale and Purchase Agreement (“the Agreement”) whereby the plaintiff agreed to purchase and the defendant agreed to sell the Property for a consideration of $5.2 million.  The Agreement stipulated, inter alia, for a completion date on 30 June 2010.  Pursuant to the Agreement, on the day of signing the plaintiff paid an initial deposit of $200,000 and on 13 May 2010 the plaintiff paid the defendant a further deposit of $320,000.

5.  By a letter dated 7 June 2010, the plaintiff’s solicitors, Messrs K. C. Ho & Fong, raised requisitions in relation to the Property with the defendant’s solicitors, Messrs Li, Chow & Co. 

6.  For the purpose of these proceedings and today’s hearing, the plaintiff only relies on 3 requisitions - namely, requisitions 4(a), 6(b) and 6(c), the contents of which are as follows. 

7.  Requisition 4, which relates to the 2006 Assignment:

“4(a). In the Assignment, the common seal of Fujian Jewellery Import and Export Company Limited (“FJIE”) is illegible. We return the Assignment for your rectification. Please let us have a confirmatory assignment executed by the said company with the legible common seal of the said company affixed thereon to confirm the execution of the Assignment. Your attention is drawn to the case of On Hong Trading Company Limited v Bank of Communications (HCMP3099/1999). The court held that if a company executed a deed by way of a metallic common seal but without its corporate name clearly engraved on that seal, execution will be defective.”

8.  Requisition 6, that relates to the 2010 Assignment:

“6(b). In the execution clause of the said Assignment only a rubber chop of Fujian Province Fuhui Jewellery Company Limited (“FPFJ”) was chopped thereon. In view of the cited case of On Hong Trading, the execution of FPFJ was defective because no common seal of FPFJ was affixed thereon. Please arrange FPFJ to execute a confirmatory assignment to rectify such defective execution.

6(c). FPFJ is a company incorporated in the People’s Republic of China (“PRC”). However, the legal opinion given by 福建中美律師事務所 in respect of FPFJ was made on 30 December 2009, i.e. before the execution of the said Assignment. Since FPFJ has not been registered in Hong Kong we cannot ascertain whether FPFJ is still validly existing and in good standing as at the date of the Assignment. As such, please let us have a certified copy of the Memorandum and Articles of Association of FPFJ and a fresh legal opinion given by a qualified and competent lawyer practising laws in PRC confirming due execution of the assignment by FPFJ and that FPFJ has due power to hold and sell land in Hong Kong in accordance with its Articles of Association and the laws of PRC for our perusal before completion.”

Requisition 4(a)

9.  Dealing firstly with requisition 4(a), in gist, the plaintiff relies on the decision of Mr Recorder Kotewall SC, in On Hong Trading Company Limited v Bank of Communications, HCMP3099/1999 (Judgment dated 29 February 2000), and submitted that if a company executes a deed by way of a metallic common seal but without its corporate name clearly engraved on that seal, execution will be defective.

10.  The plaintiff also relies on the summary of the On Hong Trading case in Sihombing and Wilkinson’s Hong Kong Conveyancing Vol. 1(A), para.VI [153].  The plaintiff’s submission was that the corporate name of FJIE as vendor in the 2006 Assignment being Fujian Jewellery Import and Export Company Limited (福建珠寶進出口有限公司) is totally illegible.

11.  The defendant’s position on the other hand is simply that the seal was clearly legible.  This is as stated in their letter to the plaintiff’s solicitors dated 25 June 2010, where the defendant’s solicitors stated that,

“With due respect, we do not have your observation. The seal showing the name of Fujian Jewellery Import and Export Company Limited affixed on the Assignment Memorial No. 06120800940019 is very clear and legible. This is not a matter of requisition on title, and rather a question of human optometry.”

12.  That position is repeated at the hearing today.  In the defendant’s skeleton submissions it is repeated that the imprint made by the common seal is legible.

13.  I have had the benefit of inspecting the 2006 Assignment in court.  I do not agree with the defendant that the imprint made by the seal is clearly legible.  From my observation, the entire English name is illegible.  Most of the Chinese characters are very difficult to decipher, in particular, the characters at the position where “建” and “進” should have been are not legible.

14.  In the circumstances, in the absence of a confirmatory assignment by FJIE and in view of the stance taken by the defendant’s solicitors maintaining that the name of FJIE on the common seal is clearly legible, I hold that this requisition has not been satisfactorily answered and thus the defendant has failed to prove good title in accordance with the agreement.

Requisition 6(b)

15.  The gist of requisition 6(b) is that in respect of the 2010 Assignment the vendor FPFJ only used a rubber chop (as opposed to a common seal) to execute the assignment and it is submitted by the plaintiff that that cannot be due and proper execution.

16.  The plaintiff submitted that requisition 6(b) was properly raised because On Hong Trading (supra) firmly held that,

(1) In the absence of proof to the contrary of foreign law, the foreign law is presumed to be the same as Hong Kong law (at paragraph 8);

(2) Under Hong Kong law, any assignment to dispose of legal estate in land must be by way of deed, and all Hong Kong companies could only validly execute a deed if it uses its common seal (at paragraphs 20 to 24);

(3) A common seal being a metallic seal with the company’s name engraven in legible characters (at paragraph 9).

17.  The plaintiff went on to submit that in light of the above, the plaintiff’s solicitors had acted reasonably by asking for:

(1) legal opinion from a PRC lawyer to clarify the common seal issue;

(2) evidence of what can constitute a common seal under PRC law; and

(3) legal authority to show that a deed can be executed without a common seal by a PRC company.

18.  The stance taken by the defendant’s solicitors prior to the scheduled date of completion merely stated that: (1) FPFJ is a PRC company and hence a metal seal is not mandatory, without providing any PRC legal opinion or evidence from a PRC practising lawyer (see: letter dated 17 June 2010); and (2) the execution clause of the 2010 Assignment reads that “the common seal of the Vendor was affixed” and thus, prima facie, the common seal was duly affixed unless the plaintiff can adduce evidence showing otherwise (see: letter dated 25 June 2010).

19.  The plaintiff submitted, and I agree, that the answers provided by the defendant’s solicitors could not be regarded as satisfactorily answering requisition 6(b) for the reasons that:

(1) throughout the entire requisition stage until the scheduled completion date, the defendant provided no concrete or supporting evidence to show that execution by a PRC company using a rubber chop is as valid and proper as a common seal;

(2) there is no PRC legal opinion in support of the contention that common seal is non-existent under Chinese laws; and

(3) there is no evidence of PRC law proving that execution by a company using a rubber chop is regarded as due execution in the PRC.

20.  At the hearing, the defendant relied on paragraph 4 of the legal opinion dated 30 December 2009, where it was stated that Madam Yeung could represent FPFJ to sell the property and sign and apply stamp to relevant documents.  The defendant’s counsel went on to submit that it was never mentioned that Madam Yeung should apply “common seal” or “metallic seal”. 

21.  In my judgment, the said portion of the legal opinion does not help the defendant. It only dealt with the authority of Madam Yeung to apply the seal and it did not deal with the manner in which the assignment was to be executed.

22.  The defendant’s counsel went on to invite this court to take judicial notice that it is not necessary for a PRC company to apply metallic or common seal as there is no such concept. 

23.  I am of the view that the court is not able to take judicial notice of such matters.  Only Chinese national laws applicable to Hong Kong are susceptible to judicial notice in Hong Kong courts by section 75 of the Interpretation and General Causes Ordinance, Cap.1.  The PRC Company Law is not an example of such laws so that it remains an issue of fact and must be proved by a suitably qualified expert.

24.  At this hearing the defendant also relied on an affirmation of Au Siu-kau Nathan, made on 15 February 2011. That affirmation essentially contained four paragraphs dealing with the following: 

(1) paragraph 1 states that Mr Au is a solicitor of Li, Chow & Co. in Hong Kong;

(2) paragraph 3 states that Mr Au did some research at the High Court Library and thereto exhibited the ‘PRC Company Law’ as “AUSKN-1”; and

(3) paragraph 4 states that Mr Au had read through the Mainland Company Law. Nowhere does it mention any metallic seal. This indeed confirms his general understanding that companies in mainland China do not have metallic seals.

25.  I do not feel able to rely on any part of this affirmation.  Mr Au is not a PRC lawyer.  In no way could he give expert opinion on PRC Company Law.  There is certainly no evidence that he is qualified to give any expert opinion on PRC law.

Requisition 6(c)

26.  Requisition 6(c) basically states that the legal opinion dated 30 December 2009 referred to above only confirmed that FPFJ, the vendor in the 2010 Assignment, is validly existing and in good standing as of 30 December 2009.  In particular, paragraph 3 of the legal opinion itself expressly provides that the opinion is only valid as at the date thereof, i.e., 30 December 2009.  As such, the said legal opinion cannot confirm and verify whether FPFJ (a PRC company) was still subsisting and in good standing as at the date of the 2010 Assignment, namely 14 January 2010.  Accordingly, the plaintiff’s solicitors asked for a fresh legal opinion from a PRC lawyer confirming that FPFJ was validly existing and has due power to execute the assignment dated 14 January 2010.

27.  The plaintiff went on to submit that it was simply common sense that a legal opinion dated 30 December 2009 which verifies the PRC company is existing only as at the date thereof, cannot be extrapolated to mean that, half a month later, on 14 January 2010, the PRC company remains in good standing and is validly existing to enter upon the 2010 Assignment dated 14 January 2010.

28.  I do not agree that requisition 6(c) was a requisition properly raised.  If the plaintiff were right, it would conflict with the duty on the vendor in the 2010 Assignment to show good title and answer requisitions in good time before completion.  I hold that the legal opinion dated 30 December 2009 was sufficient conveyancing evidence to show that FPFJ was still validly subsisting and in good standing as at the date of the 2010 Assignment.

29.  In conclusion, I hold that requisitions 4(a) and 6(b) have not been satisfactorily answered whereas requisition 6(c) has been. 

30.  In the circumstances, I hold that the defendant has failed to show good title pursuant to the sale and purchase agreement.

31.  I shall now hear parties on the appropriate order to make and on the question of costs.

(Discussion re orders and costs)

32.  An order that the defendant shall forthwith return to the plaintiff the deposit in the sum of $520,000 (comprising initial deposit of $200,000 and further deposit of $320,000) paid by the plaintiff to the defendant under the Agreement together with interest at savings rate from the date of issue of the Originating Summons to the date of judgment, and thereafter at judgment rate until payment.

(Further discussion re orders and costs)

33.  An order that the defendant shall pay to the plaintiff such loss and damage suffered or may have been suffered by the plaintiff as a result of the defendant’s failure to prove good title and/or to satisfactorily answer the requisitions raised on the title by the plaintiff, namely agent’s commission fees (if paid by the plaintiff) and conveyancing legal costs (including legal costs of investigating the title of the property); such damages to be assessed under Order 37 of the RDC.

34.  An order that the defendant shall pay the plaintiff’s costs of this application, to be taxed if not agreed, with certificate for counsel.

35.  The counterclaim by the defendant be dismissed with costs to the plaintiff.

36.  I shall make an order in terms of the draft order which is going to be kept in the court file.