劉曉東 AND ANOTHER v. CHASE EAGLE DEVELOPMENT LTD AND OTHERS

HCMP1709/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1709 OF 2009

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J U D G M E N T

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1. This is a mortgagee action by the plaintiffs for payment of a debt with interest which are secured by a legal charge (“Legal Charge”) on pieces of land (“Properties”) in the New Territories, Hong Kong. Details of the Properties are set out in the plaintiffs’ Originating Summons filed on 2 September 2009 (“OS”). They are agricultural land situated in Sai Kung and, according to a valuation carried out in 2009, have a total value of just over HK$30 million. In default of payment, the plaintiffs seek possession of the Properties.

2. Let me say at the outset that there are no substantive merits in the defence to this action.  There is no suggestion that the debt is not due and payable or that any part of it has been paid.  However, with the benefit of the representation of Mr Fung SC appearing with Mr Kwok and Mr Au, the defendants have deployed a catalogue of technical arguments concerning the validity of the legal instruments relied upon by the plaintiffs.  It is of course necessary for the plaintiffs to prove their title under the Legal Charge.  Before I deal with the arguments, I shall set out the material facts which are largely uncontroversial.

Background facts

3. The material events started on 17 December 2002.  On that day, Industrial and Commercial Bank of China (“ICBC”), Foshan City Shi Wan Sub-Branch (“SW Branch”) came to a settlement with the defendants concerning the repayment of loans which were given by ICBC to the 3^rd defendant (“Molik”), a Mainland company.  The outstanding principal stood at RMB 415,070,000 (“Debt”). The Debt was made up of 18 separate loans granted to 9 entities.  As part of the settlement, Molik promised to repay the Debt with interest on or before 31 March 2003 and the 1^st and 2^nd defendants (“Chase Eagle” and “Champion Investment”), both Hong Kong companies, agreed to a charge over the Properties (the pieces of land were and are owned severally by Chase Eagle and Champion Investment) as security for Molik’s promise.  A Deed of Settlement and the Legal Charge, both dated 17 December 2002 and governed by Hong Kong law, were accordingly executed by the parties.  The Legal Charge was registered in the Land Registry (“LR”) on 21 December 2002.  Contrary to Molik’s promise, neither the Debt nor the interest thereon was paid. 

4. In 2005, in preparation of its public listing in Hong Kong, ICBC underwent a process whereby some of its non-performing loans were peeled off to other stated owned entities.  Part of that exercise involved off loading the Debt and the interest thereon which remained unpaid.  By an Assignment Agreement dated 27 May 2005 (“Huarong Assignment”), ICBC, Guangdong Branch^[1] (“GD Branch”) assigned to China Huarong Asset Management Corporation (“Huarong”) the outstanding interest in relation to a small part of the Debt (“Huarong Debt”).  It appears from a Joint Notice No.4 on Assignment of Rights and Collection of Debts published by GD Branch and Huarong on Nanfang Daily dated 12 June 2005 (“Huarong Notice”) that certain rights under contracts of guarantee attendant with the assigned debts were also transferred to Huarong.  There is controversy on what were the attendant rights which had been assigned to Huarong in conjunction with the Huarong Debt.  It is convenient to note at this juncture that the relevant part of the Haurong Notice referred to guarantees by Foshan City Zhangchai Investment Management Company. 

5. On 27 June 2005, ICBC entered into an Agreement on the Assignment of Credit Assets of Suspicious Class (“Cinda Master Agreement”) with China Cinda Asset Management Corporation (“Cinda”).  On 20 July 2005, by 9 Assignment Agreements (“9 Assignments”) between GD Branch and Cinda Shenzhen Branch Office (“Cinda SZ”) the Debt and interest accrued thereon were transferred to Cinda SZ.  The 9 Assignments were made pursuant to the Cinda Master Agreement. It expressly excluded the Huarong Debt.  In the Schedules to the 9 Assignments it was stated that the debts were guaranteed by various entities, but no mention was made to Chase Eagle or Champion Investment or the Legal Charge. Most probably, the debts were all guaranteed at inception by entities related to the borrowers and those guarantors were referred to in the Schedules.

6. By an agreement dated 3 November 2006 (“Ye Agreement”), Huarong Guangdong Office sold the Huarong Debt with interest to one Ye Huizhong (“Ye”).  I shall come back to this sale later.

7. On 25 June 2008, following an auction, an Indenture for Transfer of Debts (“the Indenture”) was signed by Cinda SZ and the plaintiffs whereby, inter alia, the Debt together with interest thereon were transferred to the latter.  From Appendix 1 thereto, one can see that altogether 20 loans, including the 18 which made up the Debt, were the subject matters of transfer. It was stated that those 18 loans were guaranteed by the Legal Charge.

8. By a writ issued on 7 March 2009, Ye sued both ICBC, Chase Eagle and Champion Investment alleging, inter alia, that by virtue of his acquisition of the rights over the Huarong Debt he had also acquired the rights under the Legal Charge.  I do not believe that it is necessary to go further into this action save to mention that by a Settlement Deed between Ye and the plaintiffs dated 17 November 2010, Ye had sold whatever rights he had over the Legal Charge to the latter and his action was terminated on that day. Unfortunately, this is not the end of the argument in connection with the Huarong’s Assignment and I will have to come back to this matter later.

9. In March 2009, two sets of documents were created with the aim of perfecting the plaintiffs’ titles over the Debt (with interest thereon) and the Legal Charge.  It is not admitted by the plaintiffs that there was any defect to their titles, but it is difficult to see why these documents were created if not for that purpose.  It is on these documents that this action is based. 

10. The first set of documents consisted of a Supplemental Agreement (“1^st SA”) and a Transfer of Mortgage (“1^st Transfer”) both dated 11 March 2009.  The 1^st SA was made between GD Branch, SW Branch and Cinda SZ to confirm the assignment of the Debt with interest and the Legal Charge to Cinda SZ.  By the 1st Transfer made between SW Branch and Cinda SZ, the former’s rights in the Legal Charge were assigned to the latter.  It was governed by Hong Kong law and was registered in the LR on 25 March 2009.

11. The second set of documents was made on 12 March 2009.  The first of which was a Supplemental Agreement (“2^nd SA”) whereby Cinda SZ assigned to the plaintiffs all its rights in the Debt with interest and the Legal Charge as well as its rights under the 1^st SA and the 1^st Transfer. There was also a Transfer of Mortgage (“2^nd Transfer”) by which Cinda SZ assigned all its rights under the Legal Charge to the plaintiffs. That document was also governed by Hong Kong law and registered with the LR on the same day as the 1^st Transfer.

12. There is no issue between the parties that proper notices of assignment had been given in these matters.  The OS was taken out on 2 September 2009.

13. On 6 May 2011, a Confirmatory Deed (“Cinda Deed”) was made by Cinda by which it confirmed the authority of Mr Wang Xiaojun, (“Wang”) who signed for Cinda SZ on the 4 documents made on 11 and 12 March 2009, and the effect of those documents. 

14. On 5 October 2012, an action was instituted by Mr Chan Man Kwong against the plaintiffs in respect of the Legal Charge.  It is alleged by Mr Chan that he has a right in the Legal Charge by virtue of an assignment by Ye of part of his rights therein to one Mr Tam in July 2010.  Subsequently, in July 2012 Tam sold his rights to him.

15. The delay in the prosecution of this action is lamentable.  Such delay appears to be attributable at least in part to the volume of evidence filed by the parties.  The hearing bundles (“HB”) consist of 11 box files which are made up of, inter alia, 22 affirmations and amongst the exhibits there are no less than 7 expert reports from Mainland qualified lawyers.  Ironically, according to Mr Chan SC who appeared with Ms Man for the plaintiffs, much of the evidence before this court is irrelevant.  It was submitted by Mr Chan that his case is clear cut and based on only a few essential documents. Regrettably, the plaintiffs had failed to stick to their guns in this regard by contributing to the generation of evidence.  Further, the defendants are able to take advantage of the situation by launching arguments on evidence produced by the plaintiffs, and such evidence is said to be irrelevant by Mr Chan. 

16. I now turn to the main contentions of the defendants.

Defendants’ main contentions

17. There are three main arguments to the defendants’ challenge on the plaintiffs’ title under the Legal Charge:

(i) The Legal Charge had been assigned to Huarong in conjunction with the Huarong Debt (see para 4 above);

(ii) Irregularities of the transactions prior to those of March 2009;

(iii) Irregularities of the March 2009 transactions (see paras 10 and 11 above).

Analysis

18. The plaintiffs have two answers in respect of the first challenge.  It is said that there is no factual basis to support the proposition that the Legal Charge had been assigned to Huarong.  Further, such assignment, if existed, has not been registered against the Properties and is void against the plaintiffs.

19. On the factual point, the defendants are relying on the Huarong Assignment, the Huarong Notice and a report from Professor Yang Lixin dated 6 December 2011 (“Yang’s Report”) to support their case.  As I understand from the skeletal provisions in the Huarong Assignment, the debts assigned were identified in schedule 1 thereto^[2]. However, the body of the Huarong Assignment did not refer to any attendant right to be transferred with the debts.  Instead, those matters were covered by a notice to be issued by GD Branch and Huarong pursuant to clause 4 of Huarong Assignment and schedule 2 thereto.  The notice was meant to inform the debtors and guarantors of their obligations to honour the debts in favour of Huarong. The Huarong Notice was one such notice.

20. As noted in para 4 above, according to the Huarong Notice the guarantor for the Huarong Debt was Foshan City Zhangchai Investment Management Company. I am unable therefore to see the connection with the Legal Charge.  The relevant part of Yang’s Report does not shed any light on the matter either. Apart from repeating the contents of the documents, no reason or analysis had been provided to support the contention that the Legal Charge had been assigned to Huarong.  In the premises, I must agree with Mr Chan that there is no factual basis for the defendants’ contention.

21. Mr Chan’s second answer (see para 18 above) is also a correct one. It is based upon the statutory regime under the Land Registration Ordinance, Cap 128.  In particular, I have been referred to section 3 of that Ordinance and the Privy Council authority Markfaith Investment Ltd v Chiap Hua Flashlights Ltd [1990] 2 HKLR 84.  The principles are trite.  In fairness to Mr Fung, he did not at the hearing try to resist this part of Mr Chan’s submissions.  I am satisfied therefore that there is no valid challenge to the plaintiffs’ title under the Legal Charge based on the Huarong Assignment. 

22. Before I move on to deal with the next argument, I should say that as a consequence of the rejection of the arguments based on the Huarong Assignment, a number of subsidiary arguments also fall away.  For instance, the action by Mr Chan Man Kwong (see para 14 above) is irrelevant given that he derived his interest (whatever it is) from Huarong Assignment. 

23. In respect of the alleged irregularities of the pre March 2009 transactions, Mr Chan has an equally simple answer and I also agree with him. Even if those prior transactions were defective by reason of irregularities, the March 2009 transactions were entered into, as I noted in para 9 above, with the aim to cure those irregularities.  In particular, the 1^st and 2^nd Transfers had been duly registered.  In these premises, I am unable to see that the irregularities of the prior transactions, taking the defendants’ case at the highest, are relevant for the determination of the plaintiffs’ title under the Legal Charge. 

24. The alleged irregularities of the 1^st and 2^nd Transfers were the focus of Mr Fung’s submissions at the hearing.  I begin by setting out the alleged irregularities as follows:

(i)   The 1^st Transfer was only signed by one person, Mr Chen Zhiguang (“Chen”), for SW Branch contrary to the provisions of section 20 of the Conveyancing and Properties Ordinance, Cap 219 (“CPO”);

(ii)  For the same reason, both the 1^st and 2^nd Transfers are irregular as they were only signed by one person for Cinda SZ, Wang;

(iii)  Both the 1^st and 2^nd Transfers are invalid by reason of the absence of any seal on the documents;

(iv)  Wang was not sufficiently empowered under a Power of Attorney granted by Cinda’s Legal Representative dated 22 September 2008 (“PA”) to execute either of the Transfers;

(v)  The PA itself is irregular because it also does not bear a seal.

25. It is not disputed that the validity of the 1^st and 2^nd Transfers is governed by Hong Kong law.  Further, there is no disagreement that the transfer of the interest under the Legal Charge must be by way of a deed by reason of the combined effect of sections 2 and 4(1) of CPO.

26. The technical arguments here involve three important statutory provisions, sections 20(1) and 23 of CPO as well as section 93(1)(b) of the Companies Ordinance, Cap 32 and they provide as follows:

“Section 20(1)

In favour of a person dealing with a corporation aggregate in good faith, his successors in title and persons deriving title under or through him or them, a deed shall be deemed to have been duly executed by the corporation if the deed purports to bear the seal of the corporation affixed in the presence of and attested by its secretary or other permanent officer of the corporation and a member of the corporation's board of directors or other governing body or by 2 members of that board or body.

Section 23

An instrument appearing to be duly executed shall be presumed, until the contrary is proved, to have been duly executed.

Section 93(1)(b)

(1) Every company-

…

(b)  shall have as its common seal a metallic seal on which it shall have its name engraven in legible characters;”

27. I can deal with the single signature point in respect of the 1^st and 2^nd Transfers collectively (see paras 24(i) and (ii) above).  The relevant part of the execution clauses of the 1^st and 2^nd Transfers are as follows:

1^st Transfer

“SEALED with the SEAL of )

Industrial and Commercial Bank of China Limited, )

Foshan Shi Wan Sub-branch (The Transferor) )

AND SIGNED BY [陈志广] )

the person(s) duly authorized by the governing body )

of the Transferor in the presence of:- )

SEALED with the SEAL of the Transferee )

AND SIGNED by [王晓军] )

the person(s) duly authorized by the governing body )

of the Transferee in the presence of:- )”

2^nd Transfer

“SEALED with The Transferor )

AND SIGNED and DELIVERED by )

[王晓军] )

the person(s) duly authorized by the governing body )

of the Transferor in the presence of:- )”

28. Both SW Branch and Cinda SZ were Mainland entities.  For a Hong Kong company, one can examine its Articles of Association to see the number of signatures required for the due execution of a deed by that company.  There is no evidence on the constitution of those Mainland entities.  Hence, Mr Fung submitted that the single signature found on the 1^st and 2^nd Transfers does not satisfy section 20(1) of the CPO and a written authorisation is required to show that the person signing the document was duly authorised to do so alone.  There is no such authorisation he says.

29. In answer, Mr Chan relies on section 23 of CPO and submitted that “if the execution was done by a person described on the face of the instrument by the magic phrase ‘duly authorized by the Board of Directors’, section 23 applies”^[3].  In dealing with a foreign corporation, “the equivalent magic phrase is ‘duly authorised by the governing body’”^[4]. In the alternative, Mr Chan relies upon two legal opinions from a Mainland law firm (“Hai Yi 1” and “Hai Yi 2”) [7/1645-1695 & 1701-1748] in support of the proposition that both Mr Chen and Mr Wang were legally empowered to sign the 1^st and 2^nd Transfers.  Hai Yi 2 dealt with the 1^st SA and the 1^st Transfer and Hai Yi 1 dealt with the 2^nd SA and 2^nd Transfer. 

30. In respect of Mr Chan’s first contention, he relies on two authorities – Grand Trade Development Ltd v Bonance International Ltd, CA, [2001] 2 HKLRD 759 and Tread East Ltd v Hillier Development Ltd, unrep, HCA 907/91.  I am unable to see that any one of these authorities supports Mr Chan’s “magic phrase” argument. 

31. In Grand Trade Development Ltd, the articles in question provided that every document required to be sealed with the company seal was deemed to be properly executed if sealed with the company seal and signed by the Chairman of the Board, or such other person(s) as the Board might authorise.  The disputed document had been sealed with the company seal but had only been signed by one director and there was no Board resolution relating to the document.  It was in that context that the Court of Appeal held that “Had the relevant signatory signed with the description such as ‘the person duly authorised by the Board of Directors’ rather than simply as one of its directors, s.23 would have been engaged”.  In other words, a “magic phrase” in that case would have served to resolve the question whether the signatory was properly authorised to sign the document in place of the Chairman in accordance with the articles. 

32. This authority does not suggest that the use of a “magic phrase” in conjunction with a single signature would generally constitute due execution.  Tread East Ltd does not take the matter any further.  In that case, the disputed document was signed by one director described as “one of [the vendor’s] Directors as directed and authorised by the Board of Directors to sign”.  It was held that section 23 of CPO was applicable despite the requirement in the articles that all deeds and instruments requiring the seal of the vendor had to be “signed by two of its directors or in such manner as the directors shall from time to time by resolution determine”. 

33. Properly understood, the ratio of these authorities is that where the articles allow the board of directors to appoint a person to sign an instrument on behalf of the company and it appears on the face of the instrument that the person who signed it had been so appointed, then anyone relying on the document is entitled to invoke the presumption of due execution provided under section 23 of CPO.

34. In the premises, I do not accept that without more a single signature together with a “magic phrase” would engage the presumption of due execution. 

35. In my view, the legal position is as follows.  Where the execution of a deed was attested by two directors or one director and an officer of the company, a person relying on the instrument may pray in aid the deeming provisions under section 20(1) of CPO.  However, where the deed was attested by a single director or other person authorised by the company, it is necessary to examine the articles (certainly in respect of a Hong Kong company) to confirm due compliance therewith – see Hong Kong Conveyancing and Property Law Handbook by Nield and Da Roza, 3^rd edn, p 163 and Hong Kong Conveyancing Law and Practice, vol 1(A), p VI 63P. 

36. I turn to Mr Chan’s second contention.  The issue is whether Hai Yi 1 and 2 adequately answer the defendants’ challenge that “written authorisation would be required to show that Chen [and Wang] was actually authorized to sign alone”^[5].

37. Mr Fung relies upon the authority of Li Yuen Ling v Tang Kwong Wai Thomas & Anr, CFI, [2010] 1 HKC 550 at 560E-G to tackle the relevance and evidential value of Hai Yi 1 and 2.  In that case, the legal opinion of Dutch law on the due execution of two Powers of Attorney was rejected as irrelevance because Hong Kong law applied in determining the formal validity of those documents.  Further, it was held that the opinion was of no weight because, firstly, there was no evidence that the author of the opinion was qualified in Dutch law.  Secondly, there was no reason or basis given for the opinion, nor did the author condescend to any particulars on the documents examined or the enquiries made prior to forming the opinion. 

38. First of all, there is no suggestion by Mr Fung that Hai Yi 1 and 2 are of no assistance because Mainland law is irrelevant.  Given that Chen and Wang were signing the 1^st and 2^nd Transfers for Mainland entities, it is appropriate that supporting evidence comes from a Mainland lawyer.  In this regard, Mr Chan has referred me to Dicey, Morris and Collins on The Conflict of Laws, 15^th edn, vol 2, para 30-024 and The Conflict of Laws in Hong Kong, 2^nd edn, para 7.054 for support. 

39. I do not believe that the criticisms made in Li Yuen Ling can be applied to Hai Yi 1 and 2.  In these opinions, the author had made it clear that he was a qualified Mainland lawyer and was applying Mainland law on the matters under consideration. 

40. As regards that the basis of the author’s opinion (Hai Yi 2) that Chen was legally empowered to sign the 1^st Transfer, it appears that he was primarily relying upon a Certification of Identity of the Responsible Person dated 11 March 2009 and issued by SW Branch.  I have no doubt that the opinion could have been more detailed with lengthy analysis on the applicable Mainland law.  On the other hand, one should not lose sight of the fact that, as stated in the opinion, the purpose of which was to express a view on the legitimacy of the contents of the 1^st SA and the 1^st Transfer and the execution thereof.  Undoubtedly, the opinion was procured because, inter alia, Chen was executing the 1^st Transfer for a Mainland entity and the plaintiffs wanted assurance of due compliance with Mainland law.  Such kind of opinion is not uncommon for conveyancing transactions in Hong Kong.  In such light, it is not unreasonable for the opinion to be relatively brief. 

41. Further, in examining an opinion of this kind, the court should not in my view apply an unnecessarily high standard.  To do so would not be conducive to speedy and economical conclusion of transactions.  The standard should resonate with the rationale behind sections 20(1) and 23 of CPO.  Those statutory provisions provide for presumptions to simplify transactions and to enhance certainty.

42. In respect of Wang’s entitlement to execute the 1^st and 2^nd Transfer, the issue was addressed in respectively Hai Yi 2 and Hai Yi 1.  The author relied primarily upon the PA.  There is a separate challenge based on the scope of the PA (see para 24(iv) above) and I shall deal with that below.  However, at this stage I proceed on the assumption that Wang was properly empowered under the PA. 

43. In my judgment (with the aforesaid assumption), Hai Yi 1 and 2 adequately answer the defendants’ challenge in respect of the authority on the part of Chen and Wang to execute the 1^st and 2^nd Transfers. Taken in conjunction with the execution clauses on those Transfers, the plaintiffs are in a position to show that those documents were properly executed.  Of course, if the assumption is unfunded, the plaintiffs cannot rely merely on the execution clauses to show that the 1^st and 2^nd Transfers were properly executed by Wang. 

44. For completeness, in the course of Mr Chan’s submissions, he has referred me to the evidence of Professor Ling Bing concerning, inter alia, the validity of Chen’s execution of the 1^st Transfer [8/1788-1790]. Such evidence is not disputed by Professor Yang [9/2330].  The aforesaid evidence fortifies my conclusion on the due execution of the 1^st Transfer by Chen. 

45. However, Mr Chan has gone further by pointing out that the defendants’ formal validity challenges are not supported by any of their expert evidence. I believe that Mr Chan is correct in this regard.  On the other hand, the absence of such evidence does not alleviate the burden on the plaintiffs to prove their case. 

46. I should now turn to the challenge based on the scope of the PA.  Although the plaintiffs have made no concession, there is no real dispute that the defendants are right that on the face of the document Wang had acted outside the power granted to him.  This is underscored by the fact that the authority of Wang has been put in issue in the defendants’ evidence (see opinion of Mr Zhu Shanwen at 9/2082-3) and there is an absence of response by Professor Ling in this regard. 

47. In short, section 2 of the PA provided for specific power to be granted to Wang of Cinda SZ.  The relevant clauses are as follows:

授权人在此授予深圳办事处王晓军主任依据本授权书行使下列权限:

2.1    业务权限

2.1.1   接收中国建设银行、国家开发银行、中国银行、交通银行、中国工商银行、上海银行、深圳商业银行、中国光大银行及其他金融机构所属地区分支机构剥离的不良资产。

… …

2.1.12   按户整体处置以及按户部分处置商业化收购资产时，资产收购成本在300万元人民币(含)—500万元人民币(不含)之间，且处置未达到盈亏平衡点、预计整户最终亏损金额小于100万元人民币(不含)的项目处置方案审批权;

48. It is tolerably clear from the above provisions that Wang’s power was confined to transactions within about RMB 5 million.  As pointed out by Mr Fung, the transactions in question involved sums far in excess of 5 million^[6], and prima facie Wang had acted outside the scope of the PA in executing the 1^st and 2^nd Transfers. 

49. Mr Chan has a number of submissions in answer to this challenge.  Firstly, he relies upon the Cinda Deed and says that it is a complete answer to the challenge.  Secondly, in the course of the hearing, one of the documents annexed to Hai Yi 1 – a written approval by Cinda to Cinda SZ dated 14 May 2008 on the auction of the Debt (“Approval”) – has assumed some prominence.  Relying on the Approval, Mr Chan says that Wang had the requisite authority at the material times.  Thirdly, it is said that the PA was irrelevant as Cinda SZ was signing the 1^st and 2^nd Transfer in its own right. Fourthly, the plaintiffs rely on the principle of ostensible authority should that be necessary. 

50. These arguments are intertwined and the analysis thereof can be rather cumbersome. To avoid confusion, one should bear in mind that the issue is whether the 1^st and 2^nd Transfers were duly executed.  Here one needs to focus on the execution of those documents by Cinda SZ under the hands of Wang. 

51. I should say a few things about the relationship between Cinda and Cinda SZ.  They were Mainland entities and their relationship has not been addressed in the evidence.  However, it appears from the PA that Cinda SZ needed specific authorisation in the acquisition of toxic assets from various enterprises, including ICBC (see clause 2.1.1 referred to in para 47 above).  Further, the fact that Cinda SZ had in its own name entered into various transactions suggests that it had the legal capacity to enter into contracts, even if it was not a separate legal entity from Cinda.  There is some indirect support for the foregoing proposition in Professor Ling’s first opinion when he dealt with the capacity to contract on the part of GD Branch and SW Branch.  Drawing upon such evidence [8/1783-86], Cinda SZ might be a branch established by Cinda, which was a legal person, in accordance with Mainland law and had obtained a business licence^[7].  In such circumstances, Cinda SZ would be regarded as “other organisation” under PRC Contract Law and had the capacity to enter into contract. 

52. In respect of the Cinda Deed (this document has not escaped the net of technical arguments cast by the defendants but those arguments can be put aside for the present purpose), I disagree that it answers the defect in question. The relevant provisions of the Cinda Deed are as follows:

現在公司聲明及確認

1.  王曉軍及深圳分公司有權代表本公司簽署該4份檔及在其上簽署及蓋章，並確認該4份檔的效力。

2.  本公司確認王曉軍簽署該4份檔的許可權及該4份檔的效力，確認從工商銀行廣東省分行及佛山支行收購在文件中提及的可疑或不良資產及土地押記，香港土地註冊署登記號 541126，及將該等可疑或不良資產及上述土地押記轉讓給劉曉東及阮國次均經我公司合法授權。

3.  本公司確認及轉讓上述地押記，香港土地註冊署登記號 541126及土地押記轉讓契據，香港土地註冊署編號09032502160108，給劉曉東及阮國次。

53. Firstly, it seems to have been overlooked that the 1^st and 2^nd Transfers were made in the name of Cinda SZ.  Neither Wang nor Cinda SZ purported to execute those documents on behalf of Cinda.  Paragraph 1 of the Cinda Deed does not therefore assist the plaintiffs. 

54. Secondly, paragraph 2 of the Cinda Deed is of no assistance either. Insofar as it sought to suggest that Wang was at the material times properly authorised by Cinda to execute the 1^st and 2^nd Transfers, it is inconsistent with the contemporaneous document, the PA.  Further, both Hai Yi 1 and 2 are relied upon by the plaintiffs to prove the due execution of the 1^st and 2^nd Transfers.  Those opinions in turn relied upon the PA to demonstrate the authority of Wang.  The plaintiffs are not entitled to blow hot and cold by suggesting that there was in fact some other authorisation given to Wang at the material times.  In the premises, I place no weight on any suggestion that Wang was properly authorised at the time of the execution of the 1^st and 2^nd Transfers. 

55. Insofar as paragraph 2 of the Cinda Deed sought to ratify the acts of Wang, it does not help the plaintiffs’ case because the ratification came after the issuance of the OS.  Mr Fung has taken the point that there was in the circumstances no validly constituted cause of action when the OS was taken out.  Mr Chan has no answer to that point. 

56. In respect of the Approval, on its face the document suggests that Cinda SZ was authorised to dispose of the Debt by way of auction.  It does not rescue the plaintiffs’ case.

57. I also disagree that the PA was irrelevant because Cinda SZ was signing in its own right.  I am dealing with the due execution of the 1^st and 2^nd Transfers.  I have concluded above that the plaintiffs must prove the authorisation of Wang to sign those documents.  The evidence relied upon by them suggests that Wang had derived his authorisation from Cinda’s Legal Representative under the PA.  It does not therefore avail the plaintiffs to argue that in fact Wang required no authorisation because Cinda SZ was executing the 1^st and 2^nd Transfers in its own right.  The position is entirely circuitous. 

58. Finally, I am unable to see how the principle of ostensible authority can assist the plaintiffs.  Firstly, Cinda SZ (acting by Wang) was signing the 1^st and 2^nd Transfers in its own right.  On the face of it, Cinda SZ had the power to enter into those transactions.  I cannot see how ostensible authority came into play. 

59. Secondly, it may be contended (the plaintiffs’ submissions on ostensible authority is not easy to understand) that although Wang acted outside the scope of the PA he nevertheless had the ostensible authority to act for Cinda. However, the plaintiffs were party to the 2^nd Transfer and they relied on Hai Yi 1 in respect of the authority of Wang to execute that document.  On examination of the PA attached to Hai Yi 1, it would have been revealed that Wang was acting outside the authority given to him.  I cannot therefore see how the plaintiffs can claim to be acting upon the ostensible authority of Wang in relation to the 2^nd Transfer.  In any case, there is no evidence from the plaintiffs to that effect.

60. For these reasons, I conclude that the 1^st and 2^nd Transfers are defective in respect of the execution by Cinda SZ.  Consequently, there is no valid assignment of the Legal Charge to the plaintiffs.  There is no need to deal with the remainder of the defendants’ technical arguments.

61. I have not overlooked the 2^nd SA.  Although it may support the plaintiffs’ claim for payment of the Debt with interest, it has not been the focus of the submissions made at the hearing.  Probably, there are two reasons for it.  Firstly, it is unlikely that any of the defendants is in a position to pay the Debt.  Secondly, the 2^nd SA was also executed by Wang on his own for Cinda SZ.  It is plain from Hai Yi 1 that Wang was exercising the same power granted to him under the PA in executing the 2^nd SA.  For the reasons elaborated above, Wang had acted outside such power and the 2^nd SA is accordingly defective as well.

62. In the premises, this application must be dismissed with costs to the defendants with a certificate for two counsel to be taxed if not agreed.