TSEUNG SIK YIN AND ANOTHER v. SONICA TRADING LTD.

HCMP 2170/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2170 OF 2001

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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 to establish whether or not the vendor has satisfactorily answered a requisition raised by the purchaser and thereby shown good title and is entitled to call upon the purchaser to complete.

The Background

2. The property in question is a flat whose address is 4th floor, Block B and parking space 21, Ventris Terrace, 25 - 27 Ventris Road, Hong Kong.

3. By agreement for sale and purchase dated 8 January 2001 the defendant agreed to sell and the plaintiffs to purchase the property for $4.45 million. Pursuant to the agreement the plaintiffs paid a deposit of 10 per centum of the purchase price on signing. Clause 9 gave them, as purchasers, the usual right to requisition concerning any matter going to the vendor's title. Their solicitors, Messrs Li Wong & Lam (LWL), raised several. All but one have been dealt with or are now resolved. The one that has not is the subject of this summons.

4. One of the documents in the chain of title sent to LWL for perusal by the defendant's solicitors Messrs Chan & Cheng (CC) was indenture dated 30 November 1968. The document recited the three parties to it - the vendors therein named and described, the confirmor, called Winsome Trading Company Limited (Winsome) and the purchaser. The preamble went on to recite an agreement for the sale and purchase of the property from the vendors to the confirmor for $130,000 and a subsequent sale and purchase from the confirmor to the purchaser for $110,000. Then there followed assignment of the property by the vendors to the purchaser, at the request and direction of the confirmor and in consideration of sums totalling $130,000 received by the vendors from the confirmor and the purchaser. For its part the confirmor assigned its interest in the property to the purchaser and covenanted with the purchaser that it had complied with the terms and conditions of the Deed of Mutual Covenant (DMC) which deed in the usual way governs the rights and duties of the owners for the time being of the individual units in Ventris Terrace.

5. It is the manner of execution of the indenture by the confirmor, Winsome, which excited the attention of LWL. The common seal was affixed and signed by 'C P Ng, Managing Director.' LWL sought proof of due execution. CC responded by forwarding a copy of the article in Winsome's Articles of Association dealing with the seal and execution of documents. That states: -

"Seal

129. (a) The Directors shall provide for the safe custody of the Common Seal of the Company. The seal shall never be used except by the authority of the Directors or a committee of the Directors or the Managing Director, and every instrument to which the Seal Shall be affixed shall be signed by a Director and shall be countersigned by the Secretary or by a second Director or by some other person appointed by the Directors or the Managing Director for the purpose and such Director and such Secretary or such other person shall sign every instrument to which the seal of the Company is so affixed in his presence.

(b) ..............."

6. LWL complained that the execution by only one director was not in compliance with article 129(a) and sought further proof of due execution.

7. There then followed correspondence between the solicitors in which CC claimed execution was in compliance with article 129(a) and regular, but if not that the affixing of the common seal of Winsome was sufficient to bind it to the document. LWL however continued to hold the view that execution was irregular and that the requisition remained unanswered.

8. With the issue unresolved this summons resulted. The agreement remains on foot. The parties have agreed that completion or cancellation will depend upon the outcome of this application, with each party liable for their and its costs regardless.

The Issues

9. (1) Was execution by Winsome of the assignment of 30 November 1968 defective?

(2) If so, does that defective execution adversely affect title to the property?

(3) Depending on the answer to (2), has the defendant failed to show and prove good title?

The Determination

10. The first question is easily answered; it is 'Yes'. Mr Ma for the defendant conceded that the execution by Winsome was not in compliance with article 129(a) of its Articles and was thereby defective.

11. There remains, then, the issue of whether this affects title and, in particular, whether it prevents the defendant from showing and proving good title.

12. At this point it is appropriate to record articles 98 and 100 of Winsome's Articles as follows:-

"Managing Directors

98. (a) Subject to Article 82 the Directors may from time to time appoint one or more of their body or any other person or persons to be a Managing Director or Managing Directors of the business of the Company for such period and upon terms including his or their remuneration as they think fit, and may from time to time subject to contractual obligations remove him or them from office and appoint another or others in his or their place or places.

(b) Mr. Ng Cheong Pui shall be the first Managing Director of the Company.

Powers of Managing Directors

100. The Managing Director or Directors shall have the management of the ordinary business of the Company and may do and execute all such contracts acts deeds matters and things as may be considered by him or them requisite or expedient in connection therewith but subject to any directions that may from time to time be given by the Directors provided that no directions shall invalidate any prior act of the Managing Director or Directors which would have been valid if such directions had not been given."

13. By these articles Winsome empowered the managing director for the time being, C P Ng, to commit Winsome by execution to 'all such contracts acts deeds matters and things.......'

14. With this in mind I turn to the indenture in which Winsome purported to perform the following:-

(a) request and direct the vendors to assign the property to the purchaser upon receipt by them of the purchase price;

(b) assign to the purchaser such interest it had in the property, and covenant with the purchaser that it had complied with the terms and conditions in the DMC.

15. In the first instance it is necessary to determine whether the irregular execution by Winsome has rendered these acts ineffective.

(a) The Request and Direction

16. The editors of the fourth edition of Williams' Law Relating to Vendors and Purchasers of Real Estate and Chattels Real at page 642 wrote:-

"If the purchaser before completion resells the land to another, it is to the sub-purchaser's interest to obtain a conveyance direct from the vendor, no notice being taken of the original contract, as this would prevent the raising in the future of any question whether the original purchaser incumbered his interest before the resale and the sub-purchaser had notice thereof. Where there is no increase of price on the resale, the vendor may well agree to this if the original purchaser signs a memorandum authorizing him to convey the land direct to and to receive payment of the price from the sub-purchaser:"

17. It follows that a memorandum rather than a deed was sufficient to bind Winsome to the request and direction that the vendors assign to the purchaser direct. As C P Ng was authorised by article 100 to commit Winsome in this way, the request and direction was effective.

(b) The Assignment and Covenant

18. Halsbury's Laws of England 4th edition reissue, volume 42 para 279 states:-

"279. Sub-purchaser. When the purchaser has disposed of the land before the completion of the contract, it is usual, for the purpose of saving the expense of the second transfer and double stamp duty, to make the assurance direct to the second purchaser. The disposition may be either by assignment of the contract or resale of the land. Upon an assignment of the contract the original purchaser is not usually a necessary party to the transfer, nor is he a necessary party where there is a resale without increase of price."

19. In my view the confirmor having sold the property for less than the price it paid had, having requested and directed the vendor to transfer legal title direct to the purchaser, thereby disposed of its interest in the property and had nothing further to assign. At best it had confirmed that assignment and , for what it was worth, that it had complied with the DMC. There being no assignment as such, execution by C P Ng was sufficient to be effective.

20. If, contrary to my view, Winsome did have an interest to assign, the fact that it did so by irregular execution of the indenture is saved by virtue of that assignment pre-dating the coming into force of the Conveyancing and Property Ordinance Cap 219 in 1984, by which clause 4 it became mandatory then (but not before) for dispositions of land to be legally effected only by deed; see The Annotated Ordinances of Hong Kong, Cap.219, para 4.02.

21. The answer to the second question is thus 'No'; it follows that the answer to the third is 'No' also.

The Outcome

22. One of the declarations asked for by this summons is a declaration that the defendant can give good title to the property in favour of the 1st and 2nd plaintiffs as purchasers. The defendant having established that it can give good title, there will be a declaration to that effect, with no order as to costs.