NGAI HING CYCLE (ELECTRICAL) LTD. v. CHINA HARMONIOUS LTD.

1993, No. MP4343

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

(MISCELLANEOUS PROCEEDINGS)

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J U D G M E N T

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1. This is a vendor and purchaser summons issued under s. 12 of the Conveyancing and Property Ordinance, Cap.219.

2. By an agreement dated 11th September 1993, the plaintiff agreed to purchase and the defendant agreed to sell the property known as Flats A and B, 2nd floor, Nos.2 to 6, Nam Kok Road, Kowloon City, Hong Kong (the property) at $4,100,000.00. The history of the title is as follows.

3. By an agreement dated 8th July 1972, one Chung Neng Trading Company Limited agreed to sell the property at $1,060,000 to four persons, namely Heng Djie Khin, Lee Chai Ping, Lee Yan Fat and Chan Kung Mook, who were stated to be "acting for and on behalf of Yuet Doh Restaurant (Kowloon City) Ltd., a private company in the course of incorporation under the Companies Ordinance of Hong Kong (hereinafter called 'the purchaser')". This agreement was signed by these four named persons as the purchaser. There was also a receipt clause at the end of the agreement acknowledging that the vendor had received $250,000 from the purchaser. This sale was to be completed within three months from the date of signing of the agreement. On 17th November 1972, a company was incorporated but not in the name of Yuet Doh Restaurant (Kowloon City) Limited but as Kowloon City Yuet Doh Restaurant Limited, a slightly different but very similar name. By an assignment dated 15th December 1972, Chung Neng Trading Company Limited as vendor, assigned the property to Kowloon City Yuet Doh Restaurant Limited as purchaser. The same four persons executed the assignment as four of the directors of the Kowloon City Yuet Doh Restaurant Limited. In the recital of that assignment, there was a reference to "the vendor who has agreed with the purchaser for the sale (of the property) to the purchaser for the price of $1,060,000". The assignment stated that "in pursuance of the said agreement and in consideration of the sum of $1,060,000 to the vendor paid by the purchaser on or before the execution of these presents, the vendor doth hereby assigned unto the purchaser" the property. At the end of the assignment, there was also a receipt clause for the purchase price acknowledged by the vendor "being the consideration money above expressed to be paid by the purchaser to the vendor". By an assignment dated 3rd March 1989, the Kowloon City Yuet Doh Restaurant Limited assigned the property to the defendant. This assignment was executed by only one director of that company, who was, however, not one of the four persons who had previously signed the 1972 agreement and assignment. The defendant has now agreed to sell the property to the plaintiff.

4. Counsel for the plaintiff submitted that the defendant had not shown good title to the property. It was submitted that although the property in question was assigned in 1972 to the Kowloon City Yuet Doh Restaurant Limited, the sale and purchase agreement relating thereto was into by four persons who were only some of the shareholders and directors of that company. Furthermore, according to the terms of the 1972 sale and purchase agreement, the deposit and part-payment in the sum of $250,000 Apparently came from these four persons. It was argued that a presumption of resulting trust therefore arose in favour of these persons when the property was assigned to the company. There was no nomination for the assignment by these four persons in its favour. There was also no conveyancing evidence to rebut the presumption. When the Yuet Doh Restaurant subsequently assigned the property to the defendant, the assignment was executed by a Mr Wong on behalf of the company and none of these four persons was involved. There was no evidence that these persons had any knowledge of or consented to the sale to the defendant. It was submitted that if there had been a fraudulent breach of trust, time did not start to run against these four persons until they were aware of it and the limitation period might not have expired. It was argued that subsequent purchasers would be at a risk of a successful assertion of an incumbrance on the property by any one of these four persons. Counsel also submitted that there was no evidence that these four persons had relinquished their interests in the property arising from the sale and purchase agreement and there was no clear evidence as to the source of the fund. He argued that these four persons could never act for a company which was not in existence.

5. Counsel for the defendant submitted that this was not a case of nomination. The four persons who signed the sale and purchase agreement also signed the assignment. The question was whether any of them could now come up and claim an interest in the land. Counsel submitted that they were now estopped by virtue of the clear terms of the sale and purchase agreement and the assignment which they had signed. Counsel further relied upon s.13(4) of the Conveyancing and Property Ordinance to the effect that any statement in the recital of an old document would be taken as correct until there was contrary proof. He also submitted that since the four persons were not strangers to the company, and in view of the circumstances, the presumption of resulting trust, if it ever arose, could be regarded as having been rebutted.

6. I agree that the only persons who can now possibly lay a claim on the property in question would be the four persons who had signed the 1972 sale and purchase agreement. But when they signed the agreement, they had expressly stated that they were acting for and on behalf of a company which was in the course of incorporation. That was a clear indication by them that they were not entering into the sale and purchase for themselves but as agents for a company which was to come into existence soon. It is true that at that time, there was no principal in existence yet. However, they were doing the act, that is, to enter into the sale and purchase agreement, for a particular purpose which was to enable the company, after its incorporation, to own the property. By making such a declaration in the sale and purchase agreement, they had clearly evinced an intention not to benefit themselves. They went on to achieve that purpose by arranging that the property be conveyed to the company after it had been formed. They executed the assignment as directors and representatives of the company. So whether they had acquired any interest in the property after the sale and purchase agreement, they had, by executing the agreement as agent for and on behalf of the company, clearly intended that the company after its incorporation was to take over the property and be the beneficial owner thereof.

7. The intention of these four persons that the property was to be purchased by the company and for the benefit of the company was made even clearer in the assignment. There was a reference in the assignment to the vendor (that is Chung Neng Trading Company Limited) having "agreed with the purchaser for the sale" of the property to the purchaser. "Purchaser" in the assignment referred to the company. It is therefore clear that the four persons by executing this assignment acknowledged that the agreement entered into earlier by them on behalf of a company yet to be formed was meant to be an agreement by the company. The assignment also stated that the purchase price of $1.060,000 was paid by the company as the purchaser. This was mentioned in the assignment itself as well as in the receipt clause. Whoever was the person providing the funds, this is clearly an acknowledgement by these four persons that the purchase price was not funded by themselves. On the contrary, it suggested that it was the company which had paid the price. Moreover, by executing the assignment as its directors, they were accepting the conveyance on behalf of the company.

8. It is therefore clear beyond doubt that the four persons had indicated from the very beginning that they were not to derive or acquire any benefit from the transaction. It is also clear that they had accepted that the purchase price was paid by the company. In these circumstances, I am quite satisfied that these four persons even if they should come up at this stage, would have absolutely no claim at all to any interest in the property.

9. That being the case, I take the view that there is no risk of any successful claim on the property by any person. This is the only requisition outstanding between the parties. There is nothing showing that there could be any doubt on the title to the property. I declare that the defendant had shown a good title thereto. The parties had indicated to me that whatever the result, they agreed that there would be no order as to costs.