WELL BILLION DEVELOPMENT LTD v. MESSRS CHU & LAU (a firm)

HCA 1331/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1331 OF 2002

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J U D G M E N T

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1. By this action the plaintiff sues its former solicitors for damages because of their not having exercised reasonable care and skill whilst acting for the plaintiff in the purchase of property which resulted in financial loss. The plaintiff claims that the defendant firm failed to take proper steps to ensure that an assignment in the chain of title was properly executed, and to warn the plaintiff that to proceed could mean that a subsequent sale might be prejudiced by its not being able to show good title. And that is what happened. The plaintiff having completed and then some years later having entered into a sale, lost the sale and the fruits of its investment when the purchaser in that transaction rescinded on those very grounds. When the plaintiff resisted the purchaser's right to do so the purchaser sued in damages and won. The plaintiff has since sold the property, but for a lesser price. Now it seeks to recover the difference and expenditure incurred on the failed transaction. The defendant firm denies liability. Its defence is that they had done enough to establish that the assignment was properly executed and that the plaintiff client's chain of title was not at risk.

2. The property in question is a freestanding house situated in Fairview Park, Yuen Long. The plaintiff signed a preliminary agreement to buy it in October 1992 and then by its director Lam Yuen Ki (Mr Lam) retained the defendant firm to act for it in the purchase. The vendor was represented by a firm called Anthony Hann & Co. (AHC). The parties entered into a formal agreement for sale and purchase. The agreement contained the usual provision requiring the vendor to show and give good title, thus giving the purchaser the right to requisition for the removal of any defect in title and to rescind the contract if the vendor could not or, within reason, would not, make good the defect.

3. One of the defendant's partners called Eva Lau (Miss Lau) had conduct of the file with the assistance of a conveyancing clerk called Irene Yu. Of the various matters raised to clarify matters going to title, only one has any lasting significance and is the matter which gives rise to these proceedings. It concerned an assignment entered into in 1985 (the 1985 Assignment). There was three parties, being the then registered proprietor as vendor, a limited liability company called Guilar Investment Limited (Guilar) as confirmor and Guilar's sub-purchaser. The matter that troubled Miss Lau was the way in which Guilar had executed the document. The execution clause read:-

"Sealed with the common seal of the confirmor and signed by Li Wing Chow one of its director ..."

Alongside was the impression of Guilar's seal and the signature of Li Wing Chow of which there is no dispute. Miss Lau by preliminary observation in a letter to AHC of 9 November 1992 sought clarification. But before there was a response she had undertaken a search of Guilar's Articles. That dealing with execution under seal was Article 20 which stated:-

"20. Every document required to be sealed with the seal of the company shall be deemed to be properly executed if sealed with the seal of the company and signed by the Chairman of the Board of Directors singly, or by any two directors jointly."

Article 4 states in part, under the heading Chairman of Directors:-

"4. The directors may elect a chairman of their meeting, and determine the period for which he is to hold office and unless otherwise determined the chairman shall be elected annually ..."

4. Miss Lau wrote again to AHC by letter of 12 November 1992. Quoting from Article 20, she noted that there was no reference to Li's status as chairman in the execution clause of the 1985 Assignment and sought clarification. There was no immediate reply; she was obliged to send a hurry up note of 26 November. Finally there was a response by letter of 28 November. AHC wrote on the point:-

"2. The subject company's articles permit signing by one signatory and thus recourse may be had to section 23 of the Conveyancing and Property Ordinance Cap. 219. In any event it is our opinion that any invalid execution of the subject Assignment by the subject company does not affect title as good title as it is not necessary for the subject company to execute under seal as it is not creating, extinguishing or disposing of any legal estate. The subject company joined in the subject Assignment on a contractual basis to acknowledge receipt of money due to it and to direct the vendor as to whom the legal estate should be vested."

5. Miss Lau was apparently not satisfied by this answer. She responded on 28 November:-

"... As regards the execution by Guilar Investment Limited of [the 1985 Assignment] please also request Messrs T L Ip & Co. to confirm that the director, Li Wing Chow, is the chairman of the Board of Directors."

6. She was later to explain in evidence why she made this request. She had noted that in the 1985 Assignment the signatures thereon of all parties concerned had been witnessed by the principal of that firm, Mr T L Ip (Mr Ip); in particular, that he was the solicitor representing Guilar in the transaction. AHC took her at her literal word because two days later it forwarded to the defendant for the attention of Miss Lau a letter it had received from Mr Ip, dated 30 November 1992, which stated simply:

"... Li Wing Chow was the chairman of the Board of Directors at the time of the execution of [the 1985 Assignment]."

There was nothing to say why he was able to state this; there was no resolution of appointment enclosed or anything else to verify this bald statement. And none was subsequently asked for. Miss Lau was later to say in evidence that she was satisfied that by this response Guilar's execution was proper and complete; that what she was looking for was that there was nothing to upset the presumption of execution afforded by section 23 of the Conveyancing and Property Ordinance.

7. The purchase was then completed uneventfully in December 1992. Whether by this conduct Miss Lau on behalf of the defendant had exhibited the appropriate care and skills of a conveyancing solicitor is the issue which I am bound to deal with.

8. In March 2000 the plaintiff decided to sell the Fairview Park property. A purchaser was found and an agreement signed. The price was $3,240,000. This time the plaintiff engaged a firm called Fan v Fan (FF) to act for it. The purchaser chose Kenneth C C Man & Co. (KMC). As usual the purchaser had the right to requisition on matters going to title. Amongst other issues raised only one is relevant; that of proof of due execution by Guilar of the 1985 Assignment. It is, I think, not unfair to say that FF fudged its responses to KMC notwithstanding that they were continually asked to provide what was asked for. One response dated 15 May 2000 stated:-

"... we note that the signatory of the confirmor was described as the authorized signatory in the Assignment and coupled with the operation of the indoor management rule, the signatory is obviously the chairman of the board in accordance with clause 22 (sic) of its articles of association."

9. This effort, not surprisingly, cut no ice with KMC. Repeating the terms of clause 20, they wrote:-

"Given the fact that the Assignment was executed by the company by affixing its common seal thereto and signed by one of its directors Li Wing Chow this mode of execution is obviously not in compliance with the sealing provision of the company and due execution of the Assignment cannot be proven accordingly. ... In the circumstance, please advise us what steps you would be taking to rectify such defect in title."

10. There followed a flurry of correspondence. A copy of Mr Ip's letter of 30 November 1992 was paraded, and Mr Ip was asked to provide further assistance. The request to Mr Ip said in part:-

"Requisition has been raised by Messrs Kenneth C C Man & Co. to us that the said Assignment was executed by the director, Li Wing Chow, the only one signatory of the confirmor and thus presumption of due execution under the Conveyancing and Property Ordinance does not apply and not in operation with clause 22 (sic) of its articles of association. You are kindly requested to search your office file and provide us with a certified copy of the board resolution of the Confirmor to prove its due execution. Copy of the said Assignment and the requisition letter are enclosed herewith for your easy reference.

Please treat this as a matter of urgency and your attention and assistance will be highly appreciated."

This resulted in a letter from Mr Ip to FF of 18 May 2000 which stated on the point:-

"... In view of the length of time that has elapsed since the date of [the 1985 Assignment], we regret to inform you that we are unable to locate the relevant file to clarify the matter with you. However, we note that at the time of execution of the said Assignment, Li Wing Chow was the Director of Guilar Investment Limited and accordingly he was also the Chairman of the Board of Directors. Therefore, we consider that the said Assignment was duly executed by the said company."

11. One only has to read this to note that it made no sense and was hardly becoming of a solicitor experienced in conveyancing practice in Hong Kong. KMC abandoned its chase. Notice of rescission followed. But the plaintiff did not accept the purchaser's right to rescind and refused to return the deposit. The purchaser sued to recover that and reimbursement of expenses. The validity of Guilar's execution of the 1985 Assignment became an issue for determination by a Master in an Order 14A RHC summons. In a considered judgment she recited the circumstances giving rise to the execution and then wrote:-

"8. What is being placed before me in the form of evidence in the present case was the execution of a Mr Li Wing-chow who endorsed a signature and named himself as a director of Guilar. The only evidence that the vendor was able to produce was two letters from T L Ip & Co., the solicitors then acting on behalf of the transaction in the year 1985, which contended and said that Li Wing-chow was a chairman of the board of directors. [These are Mr Ip's letters of 30 November 1992 and 18 May 2000.] If there was evidence before me to show why Mr T L Ip made such a statement, whether he had actually examined the company's record, or whether he was privy to the decision of the board at the time, then I possibly would have no reservation to accept that the letter from T L Ip would be sufficient and good evidence for the purpose of satisfying the requirement that Mr Li must be a chairman of the board.

12. Without such corroboration she went on to rule that the assignment was not executed in accordance with Guilar's Articles. The result was that the plaintiff lost the sale at $3,240,000 and was ordered to refund the deposit of $324,000, meet the purchaser's conveyancing costs and pay its costs of the suit.

13. To complete the picture the plaintiff entered into a subsequent agreement to sell in December 2001. But the market had dropped; the price was $2,110,000. However, due to the efflux of time the 1985 Assignment was no longer a core document, and the execution of it no longer an issue; the transaction completed without incident.

14. Now it is by these proceedings the plaintiff seeks recompense for the purchase price it was denied when the May 2000 sale fell over and the attendant costs associated with that and the failed defence. Its pleaded case is that the defendant through Miss Lau was in breach of an implied term of the retainer to exercise care and skill that a client is entitled to from its solicitors engaged to represent it; further or alternatively that it failed to exercise the appropriate duty of care in tort. The pleaded defence is that the defendant firm did take adequate and appropriate steps to safeguard its client's interests in the purchase by it of the property in 1992; in particular that it had made proper and sufficient enquiry concerning the execution of the 1985 Assignment and was entitled to find that the chain of title the plaintiff was to acquire was complete. Alternatively is that the plaintiff's claim in contract is time-barred. And the defendant made no admission on the quantified loss.

15. That being in some detail the background to the case I come now to consider the evidence, with a view to determining first whether or not the plaintiff has established liability.

16. Miss Lau said she was admitted as a solicitor in 1985 and between 1990 and 2001 was a salaried partner of the defendant firm. She no longer practises law. She said that her queries to AH concerning the issue of execution by Guilar of the 1985 Assignment were prompted by her reading of Guilar's Articles as to the circumstances by which the seal could be affixed with the addition of one signature only. She said that her concern was to establish the status of the signatory. She wrote asking for confirmation from Mr Ip, as solicitor for Guilar, that he was the chairman without further independent proof because had the words 'Chairman of the Board of Directors' been expressly stated that would have been sufficient. Having got his unequivocal confirmation she professed herself to be satisfied in the absence of anything that was contrary. She also stated:-

"It was the customary practice of many conveyancing practitioners to accept information provided by other solicitors' firms acting for previous parties in the conveyancing transactions as valid information and good conveyancing evidence."

She said in the circumstances she was entitled to accept that Mr Ip had conducted the necessary due diligence to ascertain that Mr Li was chairman of Guilar when he signed to witness the common seal. She said that she was entitled to rely on the rule in Turquand's case, legal opinions of Leolin Price QC as obtained and circulated by the Law Society and the presumption of due execution under section 23 of the Conveyancing and Property Ordinance (CPO) and find execution properly established. I shall return to that reasoning in due course.

17. Also called to give evidence on the issue of liability was Mr Ip. He was admitted to the Hong Kong roll as a solicitor in 1966 and was and remains the founder partner of T L Ip & Co. He has practised solely as a conveyancer throughout his career. Between 1984 and 1986 he acted for Guilar. During this period Guilar purchased about ten properties at Fairview Park including the subject property and he had conduct of the conveyancing on each occasion. Shown the request from AHC for information concerning the execution by Guilar of the 1985 Assignment he was reminded that the file in question had been archived and a search he arranged did not bring it to light. But he was able to answer the direct question posed: was Li Wing Chow Guilar's chairman at the time, with the response that he was; hence the letter of 30 November 1992. He said as much because although the file was missing he remembered a Board resolution was prepared and completed to validate his role. He did not elaborate because he had been asked the question and answered it. He also indicated that he did not feel the need to put himself out; he was no longer involved in the property and had completed his obligation following his client's sale of it. Taken them to the letter from FF and his response of 18 May 2000 he conceded that it could have been better worded; what he wanted to convey was that Li Wing Chow was the chairman at the time. He made no mention of the existence of the Board resolution although this was the second opportunity to share his memory of this vital information. He said once again that it was not his duty or obligation and besides it had not been asked for.

18. Of course he was wrong about that. Whilst in 1992 there had been no such request, the extract from FF's letter of May 2000 clearly indicates that there was on that occasion.

19. That is the evidence on liability.

20. For all his experience and seniority in the legal profession I have to say I was by no means impressed by Mr Ip on the issues that concerned him. Whilst by the time of the letter of AHC of November 1992 his obligations concerning the subject property were well passed one would have thought he would have justified his unequivocal statement that Li Wing Chow was a chairman by saying why; namely, because of the existence at the time of a Board resolution appointing him. Might it be possible that he gave no such explanation because his memory on the point was not as clear as he now says it was? Why did he not refer to it 8 years later, when the second request came in? Why write the nonsense that comprised the letter of 18 May 2000? This case is not about my having to decide whether or not there was a Board resolution which validated Li Wing Chow's role as sole signatory to the common seal. If it was I have to say I would be loath to rely on Mr Ip that there was.

21. Before moving on it is necessary, I believe, to identify the role of a skilled and careful practitioner engaged to protect the interests of a client who is purchasing property in Hong Kong. The burden is on the vendor to show and give good title. And it is a heavy one. In Qualihold Investments Limited v Bylax Investments Limited [1991] 2 HKC 589 Keith J reviewed a number of cases on the point. He quoted Clough JA in Kan Wing-yau & Another v Hong Kong Housing Authority [1988] 2 HKLR 187, at p. 193:-

"A good title is one which can at all times and in all circumstances be forced upon an unwilling purchaser in an action for specific performance but the court will not force a doubtful title on a purchaser. A doubtful title includes not only a title on which the court entertains doubts but also one, in respect of which, the court entertains a favourable opinion but may yet be reasonably and fairly questioned by other competent persons ... A purchaser will not, therefore, be forced to take a title which will expose him to risk or hazard."

22. One of the most common of the issues that a practitioner looking to protect his client from is the status of an assignment in the chain of title leading to the vendor's title executed (or not as the case may be) by a corporate entity where that execution is statutorily defined. If the execution on the face of it is or may be irregular the obvious risk is that legal title thereby may not have passed rendering a nullity the vendor's title. The prudent conveyancer representing a purchaser will requisition for proof of due execution. A common response is to trot out section 23 of the Conveyancing and Property Ordinance (CPO) which states:-

"23. Presumption as to due execution. An instrument appearing to be duly executed shall be presumed, until the contrary is proved, to have been duly executed."

But where, as here, the execution clause on its face does not describe the signatory as authorized (in this case as chairman) section 23 CPO cannot be invoked. In Li Ying Ching v Air-Sprung (Hong Kong) Limited [1996] 4 HKC 418, a document in the chain of title had been executed by the affixing of the common seal of the corporate signatory and the signing by an individual described as a director. By its articles the company was deemed to have properly executed the document if the seal of the company was accompanied by the signature of the chairman of the Board of Directors singly or by any two directors jointly. Cheung J (as he then was) found that execution was not valid because the company's articles were not complied with. And section 23 CPO could not be invoked to repair the deficiency, because the signatory was not on the face of the execution clause described as the chairman. He stated:-

"... in this case, she was described as a director. It would, in my view, stretch the ambit of s. 23 to an unacceptable width by saying that one is entitled to presume that she was qualified as a chairman and in fact was appointed as a chairman and that the plaintiff was not entitled to raise requisitions on her appointment. Even if she was so qualified, so were the other directors of the company. If the defendant said that she signed as a chairman, then it is for the defendant to show that she signed as the chairman even though such description did not appear at the execution clause."

23. Similar facts were the subject of a more recent Court of Appeal decision, in Grand Trade Development Limited v Bonance International Limited [2001] 3 HKC 137. At p. 149 Le Pichon JA wrote:-

"Section 23 of Cap. 219

This provides as follows:

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

This section only applies where, on its face, the instrument appears to be duly executed. It is common ground that the director who affixed his signature did not purport to sign as chairman. Had the relevant signatory signed with a description such as 'the person duly authorized by the board of directors' rather than simply as one of its directors, s. 23 would have been engaged. Failing such specific words appearing on the face of the assignment, s. 23 cannot apply. In Tread East Ltd v Hillier Development Ltd (HCA A907/1991, unreported), the assignment was sealed by the company and signed by Chan, described as 'one of its directors as directed and authorized by the board of directors to sign'. The relevant article provided that instruments requiring the seal of the company had to be 'signed by two of its directors or in such manner as the directors shall from time to time by resolution determine'. It was held by Godfrey J (and this point was not the subject matter for the appeal), the presumption of due execution in s. 23 applied. In the present case, the absence of the additional words indicating that the director was the person authorized by the board to sign distinguishes it from the facts in Tread East and, in my view, is fatal to the application of s. 23."

24. This case is not of course on appeal from the Master's decision when she found against the plaintiff on the purchaser's rescission of the March 2000 transaction. But it is appropriate for me to form a view on whether she was right. I believe she was. She applied the principles set out in the authorities I have referred to; significantly, the latter at Court of Appeal level.

25. What of course is incumbent upon me is to decide whether the defendant firm had done enough to protect the interests of its client; whether it should have pushed for proof of execution and, in the absence of that, advise the plaintiff to rescind, or at least alert it to the risks of proceeding.

26. Miss Lau, it is apparent, was alive to the deficiency of the execution clause and requisitioned accordingly. That was a proper function in her duty of care to the client. But she should have required to sight the resolution appointing Mr Li as chairman or a certified copy of that; in the absence of that, to have asked for some alternative proof such as from a reliable witness with direct knowledge, perhaps Mr Ip, that he was appointed chairman with reasons as to why that was known to be so. Mr Ip's bald statement to that effect was not enough, as the Master was in the fullest of time to find. The burden upon a vendor to show and give good title demands more than what she was satisfied with. In the circumstances I am satisfied that the plaintiff was not properly or adequately served by the defendant during the occasion of the firm's retainer when the plaintiff was committed to the purchase of the Fairview Park property.

27. In the normal course this would amount to a finding establishing liability in contract and tort. But it is conceded that the plaintiff may have difficulty in contract because of the passage of time. My finding then is that the defendant has failed to exercise proper and adequate duty of care in tort.

28. The plaintiff having thus succeeded on proving liability, I come now to the question of damages claimed. Without prejudice to their respective rights on liability the parties through both counsel were able to narrow the issues during the course of the trial. It was agreed that in respect of the March 2000 agreement the plaintiff suffered the following loss:-

The purchaser's estate agency fees	$22,680
The purchaser's conveyancing costs	$20,000
Its own solicitors conveyancing costs	$20,118
Its own solicitors costs in respect of the HC action	$39,600

net interest (in an amount to be assessed) which might have been earned on the sale proceeds to judgment.

29. It is also agreed that the worth of the property as at the date of the March 2000 agreement was the price agreed to be the consideration, namely $3.24 million.

30. What is disputed are the following:

(a) the value of the property as at the date of sale in October 2001;

(b) the plaintiff's payout to the March 2000 purchaser of $20,000 for interest. This came about because the Master having ordered the return of the deposit the purchaser had paid of $324,000, she further ordered interest at the judgment rate from the date of judgment to the date of payment. The plaintiff was slow to respond; when it did an additional $20,000 for interest had been incurred and paid. The challenge to this payment is that had the judgment debt been promptly settled there would have been no interest due;

(c) the March 2000 purchaser's costs incurred in the HC action ordered by the Master and fixed at $128,500. The complaint about this is that these were fixed by agreement between the parties and not by taxation. Furthermore there is no breakdown;

(d) the plaintiff's real estate agency fees in respect of the March 2000 transaction of $30,000. This is challenged because whilst the amount has been claimed and sued for and there is now a Small Claims Tribunal award for this amount, the plaintiff for whatever reason has not paid it.

31. I shall deal with the disputed issues in turn.

32. Both parties engaged chartered surveyors to undertake valuations of the subject property as at two dates in the past, namely as at the date of the March 2000 agreement and that of the October 2001 sale. In the event the value as at March 2000 became no longer an issue. In respect of the later date both arrived at a result based on comparables achieved at or about the time at Fairview Park and other data showing trends at or about the date in question. I have to say I was most impressed by the thoroughness and comprehensiveness of both reports and the manner in which they arrived at their respective conclusions could not be faulted. The difficulty about that is that the numbers they arrived at were significantly different; Mr Lam for the plaintiff said the property was worth 2.26 million and Ms Meikle for the defendant said $2.47 million. Who is right? I am unable to fault the methodology of either. But this case differs from others where a court is obliged to fix on the worth of realty because there was, on the date, a sale, and it is not disputed that it was at arm's length.

33. Mr Lam, the plaintiff's alter ego, gave evidence on how the sale price was arrived at. On advice he fixed the asking price at $2.4 million; having regard to prevailing conditions he went a bit higher than the market indicated. He listed the property with three real estate agencies with offices and thus experience in Fairview Park. Four or five interested parties were taken through. Most made offers and there were negotiations. One of those was made by a couple called Tsang and Cheung. Their final offer was the best and it was to them that the property was finally sold at $2.11 million.

34. In his closing submissions Mr Ng for the defendants submitted that this figure being some 17% below the assessment arrived at by Miss Meikle is indicative of Mr Lam not acting reasonably in that he failed to obtain the best price; what he did get was below market. I pay heed to that. But I also have regard to the fact that a number of agents were listed and I am satisfied that after a passage of time the offer that was accepted was the best achieved. Whilst as I have said I cannot fault the methodology and thoroughness of the reports of the valuers, the obvious fact remains that what a place is worth at a given time is what a buyer is prepared to pay for it. I see no reason to criticize Mr Lam for accepting the amount offered; without the advantage of hindsight he might have had to make do with less if he had held out for more.

35. On the evidence I am satisfied the Fairview Park property was worth in October 2001 what it fetched; namely, $2,110,000.

36. I come now to the remaining matters disputed. The plaintiff would not have suffered the $20,000 interest it had to pay the March 2000 purchaser had it been prompt in meeting the judgment debt. I do not find it can pass this on to the defendant. The claim under this head fails.

37. The plaintiff was ordered to pay the defendant's costs taxed if not agreed. They were in the event agreed. Taxed they may have been more, or less. There would also have been the costs of taxation. Given the level of the costs proposed I believe it not unreasonable that the plaintiff decided not to call for taxation. I am satisfied as to the amount sought under this head.

38. Finally there is the plaintiff's liability for its real estate commission. Though for some reason it has not paid this there is no question but that it is liable for the amount sought; this claim is properly made out also.

39. Accordingly I find in favour of the plaintiff in respect of the following amounts:-

Loss on sale ($3.24million - $2.11million)	$1,130,000
The purchaser's estate agency fees	$22,680
The purchaser's conveyancing costs	$20,000
The purchaser's costs of the HC action	$128,500
The plaintiff's estate agency fees	$30,000
The plaintiff's solicitors' conveyancing charges	$20,118
The plaintiff's solicitors' litigation charges	$39,600
	---------------
	1,390,898
	==========

together with interest at prime on $3.24 million from 30 May 2000 to 12 December 2001, and on $1.13 million from 13 December 2001 to the date of judgment herein. Thereafter interest at the judgment rate shall run on the sum of $1,390,898 until payment.

40. Costs, nisi at first instance, are to the plaintiff taxed if not agreed.