LO TAI YAM v. HU MU SIMON AND ANOTHER

M.P. 1996 No. 1556

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 an application by the Plaintiff by Originating Summons dated 13th May 1996 issued pursuant to section 12 of the Conveyancing and Property Ordinance, Cap. 219.

2. The facts, in outline, are in short compass. The Defendants were the vendors and the Plaintiff was the purchaser of a property known as Flat A, Ground Floor, Phase IV, The Blossom, No. 25 Keng Hau Road, Shatin, erected upon Lot 544 in DD187 ("the Property"). A Sale and Purchase Agreement dated 19th March 1996 was signed by the parties, under which the completion date was to be 18th April 1996. By correspondence commencing with a letter dated 26th March 1996, the solicitor acting for the Plaintiff raised a number of requisitions, which attracted answers from the solicitors for the Defendants up to 18th April 1996. The Plaintiff took the view that three outstanding requisitions had not been satisfactorily answered by the Defendants, and that accordingly title to the Property had not been proved. As a result, on the date fixed for completion, 18th April 1996, the Plaintiff rescinded the contract and demanded the return of its deposits. Such monies have now been forfeited by the Defendants, and the Plaintiff's application by Originating Summons asks for declaratory relief in terms that the requisitions raised have not been satisfactorily answered and that good title to the Property had not been shown in accordance with the Sale and Purchase Agreement; and further for an Order that the Defendants to pay the sum of HK$326,580, which sum consists of HK$251,000, being deposits paid by the Plaintiff to the Defendants, and various lesser sums in terms of stamp duty, registration fees and commission, all of which are itemised on the face of the summons.

3. I have been considerably assisted in this application by Counsel for the Plaintiff, Mr. Anderson Chow, and by Mr. Y.C. Mok, Counsel for the Defendants, each of whom have endeavoured to educate me in the niceties of Hong Kong conveyancing. If I am not necessarily wiser as a result of their efforts, I am certainly better informed.

4. The battle lines in this case were drawn at the outset. The argument revolved solely upon Mr. Chow's submission with regard to the three outstanding requisitions; to use the terminology adopted, the relevant issues, as both Counsel agreed, were first, the authority point, second, the signature point, and third, the Schedule A point. Of these , I think it fair to say that Mr. Chow pressed only the first two with any degree of enthusiasm, and it is with regard to these twin matters that this judgment is primarily concerned. Before considering the arguments in detail, however, I should perhaps sketch out rather more of the background, at least insofar as the principal factual landmarks are concerned.

5. The story begins on 21st December 1955, when the Government executed a New Grant of Lot 544 in DD187 in favour of a lady named Frances Maria Gardner. This New Grant was the primary root of title, and its existence as such attracts no dispute between the parties. I do not know how old Mrs. Gardner was in 1955, although I suspect she was a young or youngish woman at that time. Be that as it may. The next significant occurrence, and the key to this case, took place on 24th July 1979 when Mrs. Gardner executed a General Power of Attorney in favour of her husband, one Francis David Gardner, in accordance with section 7 of the Powers of Attorney Ordinance.

6. What happened next was this. Pursuant to this Power of Attorney Mr. Gardner, the donee, executed a Mortgage of the same date, that is 24th July 1979, which was duly registered in the Land Office by Memorial No. 189077. The parties to this Mortgage were Mrs. Gardner, as Mortgagor, the Wing On Bank Ltd., as Mortgagee, and a company named Hong Kong Tractor Ltd. as Principal, whereunder the land received by Mrs. Gardner pursuant to the New Grant in 1955, namely Lot No. 544 in DD187, was mortgaged to the bank as security for the grant of general banking facilities to the borrower, Hong Kong Tractor, in an amount not exceeding HK$1.5 million. I note in passing that the address of Hong Kong Tractor is the like address at that time of Mr. and Mrs. Gardner, namely, 8th Floor, 128 Argyle Street, Kowloon, and that Mr. Gardner signed this mortgage on his wife's behalf as her attorney, and also on his own behalf, with the common seal of Hong Kong Tractor Ltd. affixed to the documents.

7. There is then an hiatus in the chronology until 14th March 1989, whereon Wing On Bank exercised its power of sale, qua mortgagee, and registered a Memorandum of Sale of this land by public auction. Thereafter, on 13th April 1989 the land was assigned by the bank to a company which, I understand, was the nominee of a developer. The site was duly developed into apartments, and I am told that the Property the subject of this case had one intermediate owner, who onsold to the present Defendants, who in turn had purported to sell to the present Plaintiff until the latter asserted that the existing Defendants had failed to show good title, and as a consequence pulled out of the purchase.

8. So much for the broad background. I now turn to the specific arguments raised in this case.

The Authority Point

9. Mr. Chow, for the Plaintiff, focuses his attack under this head on the Power of Attorney executed by Mrs. Gardner in favour of her husband on 24th July 1979. His argument is simply put, and, if correct, is stark in its effect. He says that Mr. Gardner, the attorney, had no power under the Power of Attorney to do what he did, namely, to execute a mortgage on behalf of his wife. This was because Mr. Gardner was a director and shareholder of Hong Kong Tractor, the borrower under the mortgage, and that by reason thereof he was doing an act of benefit to himself; ergo he had no authority so to act under the Power of Attorney granted to him by his wife, and, it therefore followed, said Mr. Chow, that both the act of execution of the mortgage and all acts flowing therefrom were void and of no effect. In the premises, the Defendants cannot make good title, since an intermediate root thereof, the Mortgage, is irretrievably besmirched.

10. As a matter of first blush, this seemed to me, and still seems, an extreme and somewhat startling submission. The proposition that an act by a fiduciary in excess of a power may be voidable at the instance of the donor, whether against the erring fiduciary or against a third party with notice, is unexceptional, but I have considerable difficulty in persuading myself that all that flows from the act in question should be inexorably vitiated, as Mr. Chow contends, thereby enabling a remote third party to make such an assertion in the context of a subsequent dispute as to title. I think it fair to say that during argument that Mr. Chow encountered a certain amount of judicial resistance to the sweeping nature of his submission, but he was undaunted. In this regard I was referred to two relatively recent authorities, namely Li Ming-on v. Lucky Apple Ltd. and Another [1994] 2 HKLR 115 and Very Cheer Development Ltd. v. Bring All Ltd. [1994] 1 HKC 796. In my view, however, neither case provides the analytical assistance that Mr. Chow seeks.

11. In Very Cheer Development, op. cit., a decision of Deputy Judge Kenneth Kwok Q.C., one of the issues arising on a Vendor and Purchaser Summons was a declaration sought by the purchasers that a requisition in relation to a power of attorney had not been satisfactorily answered by the vendor, and accordingly that good title had not been shown. On this point the learned Judge held, with regard to the power of attorney there in question, that on the face of the power there was no clear or express power for the donee to make any present or otherwise to benefit himself, whether directly or through a company in which he was interested as a shareholder and director; accordingly, as the donee had no power under the power of attorney to execute the assignment to the company in question, no interest of the donor, whether legal or beneficial, could pass under the assignment. Therefore, good title to the property had not been shown and the purchasers in that case were entitled to refund of their deposits. As Mr. Mok points out, however, in that case it was common ground between counsel then appearing that, in the absence of authority, no interest of the donor, whether legal or beneficial, would pass under the assignment; as a result, the learned Judge did not decide this specific point, but instead proceeded, and rendered his decision upon, such agreed basis. With respect, therefore, I do not think that the case stands as a considered authority for the proposition sought.

12. As for Li Ming-on, op. cit., a decision of Godfrey J. (as he then was) I do not think that the learned Judge was there finding that a disposition by a donee in excess of his authority necessarily should be considered to be void. In that case a particular question concerned the validity of a disposition under a power of attorney wherein the donee assigned the property in question at an undervalue to a company with which he was associated. The learned Judge refused to construe the power of attorney in question as permitting this, and concluded as follows:

"There is evidence that this property was sold at an undervalue, having regard to the sale which the donee made very shortly after being given the power to make it. I think this is a justifiable cause of concern for the plaintiff.

It is true that the solicitors for the defendants have said that the donor of the power has had no objection to the way it was exercised. But that is not, in my opinion, sufficient conveyancing evidence to satisfy a purchaser. If a statutory declaration could be provided, made by some responsible officer of the donor of the power, to the effect that the donor had no objection to what had happened, that would be another matter altogether. The point would then (I think) cease to have any substance. But that is not the present position. ..."

13. It is clear that this was a case where, effectively, the sale at an undervalue to a company with which the donee was associated constituted notice to any subsequent purchaser, who could not thereby fall into the category of a bona fide purchaser for value without notice. But that is a far cry from saying that the initial disposition was necessarily void per se; to the contrary, the comment by the learned Judge that a statutory declaration from the donor would (probably) correct the problem provides cogent indication that the learned Judge must have regarded the disposition as voidable at the instance of the donor.

14. The true situation, it seems to me, is simply a variant of the normal rule which applies to trustees and other fiduciaries: in the same way as the purchase of trust property by a trustee is voidable at the instance of any beneficiary, so also other fiduciaries who are not trustees must refund profits made from their position, unless such profits are made with the knowledge and approval of the person to whom the duty is owed. However, as the learned editors of Snell point out, any agreement under which any such profits are made is voidable only, not void: see Snell's Equity 26th Ed., at pp. 249, 251.

15. I do not, therefore, consider that Mr. Chow is right in his bold assertion that, notwithstanding the chain of events that has occurred since 1979, the legal estate in the land has remained vested in Mrs. Gardner or in her estate. In my judgment, at its highest, and assuming Mr. Chow is correct that in executing the mortgage Mr. Gardner was benefiting himself (a contention with which Mr. Mok also takes issue), the initial disposition via the mortgage would have been voidable only at the instance of the donor, and not void. On the basis that his premise as to benefit is correct, therefore, does there remain a point here which is open to be validly taken by a subsequent third party purchaser down the chain?

16. Mr. Mok says no. In his reply on this aspect of the case, he makes, I think, three main points.

17. First, he asserts that the matrix of facts in this case makes it abundantly clear that in the circumstances there is and can be no title problem. He points out that the Plaintiff raised the problem solely because on its face the Mortgage contained a statement that Mr. Gardner was at the time a director of the Borrower, Hong Kong Tractor Limited. However, says Mr. Mok, the Plaintiff ignored the other statements in the Mortgage and all other available facts which clearly indicated that there was not and could not be any problem in this regard. He itemised a number of such facts: that the Mortgage stated that both husband and wife were directors of the Borrower and that the husband, wife and Borrower shared the same address; the Mortgage also stated clearly that the Borrower had applied for the banking facilities through the wife and that the Mortgagee had agreed to do so upon the wife furnishing security. He also noted that the Mortgage and the Power of Attorney were prepared by Messrs. T.S. Tong & Co. and dated the same date (that is 24th July 1979) and that the address given for the wife in the Mortgage and the Power of Attorney are the same. And it is a matter of history that the Power of Attorney and the Mortgage had been executed for over 18 years, and that the sale under the Mortgage took place in April 1989 with no challenge thereto until this application; it was also noted that the Defendants (vendors) were able to produce the title documents in proper custody, in which context Mr. Mok referred to Williams on Title (at pp. 657 to 659).

18. Mr. Mok also points out that the subsequent company search which was relied upon by the Plaintiff predated the Mortgage and therefore is not contrary evidence against statements contained in the Mortgage, nor did the search show that on the date of the Mortgage the husband was a shareholder of the Borrower; in any event there was no evidence that the Mortgagee or its assignees knew of this fact.

19. In these particular circumstances, submitted Mr. Mok, the Mortgagee, the purchaser therefrom and subsequent assignees could have had no actual knowledge that the husband was benefiting himself from that authority or that the husband was acting in conflict of interest or that the Mortgage was not a proper mortgage involving inadequate consideration; nor could there have been any question of constructive knowledge: see for example dicta in Bailey v. Barnes [1894] 1 Ch. 25. Mr. Mok also relied upon the provisions of section 52 of the Conveyancing and Property Ordinance, Cap. 219. Indeed, it seems to me that this point is very strong in itself, in that section 52 provides specific statutory protection for the purchaser when a sale is made under a mortgage, viz.:

"52. Protection of purchaser

Where a sale is made under a mortgage, the title of the purchaser shall not be affected by the fact that no case had arisen to authorize the sale or that due notice was not given or that the power was otherwise improperly or irregularly exercised; but any person who suffers loss through an unauthorized, improper or irregular exercise of the power of sale shall have a remedy in damages against the person exercising the power."

20. In this connection I further note that I do not agree with Mr. Chow's contention that section 52 has no application by reason of the fact that the Mortgage was itself invalid and void; as I have already indicated, in my view it clearly was not.

21. Second, Mr. Mok drew my attention to the provisions of section 13(4) and section 13(4A) of the Conveyancing and Property Ordinance, Cap. 219. Section 13(4) provides that a recital, statement, and description of any fact contained in any mortgage relating to any land made not less than 15 years before the contract of sale of that land shall, for the purposes of any question as to proof of title concerning the parties of that contract, and unless the contrary is proved, be sufficient evidence of the truth of that recital, statement and description; Mr. Mok here relies on the recitals in the Mortgage.

22. Moreover, he says, section 13(4A) is even more strongly in his favour:

"(4A) Where any document is or has been produced by a vendor as proof of title to any land and that document purports to have been executed, not less than 15 years before the contract of sale of that land, under a power of attorney, it shall for the purposes of any question as to the title to that land be conclusively presumed -

(a) as between the parties to that contract; and

(b) in favour of the purchaser under that contract as against any other person,

that the power of attorney -

(i) was validly executed;

(ii) was in force at the time of the execution of that document; and

(iii) validly authorized the execution of that document. (Added 31 of 1988 s. 6)"

23. This section, by reason of section 13(5), affects the rights and obligations of parties to a contract for the sale of land entered into after the commencement of this section (which was a date in 1988), so that the conclusive presumption therein is relevant to this particular case, although I note in passing that this provision was not specifically referred to in any of the responses to the requisitions.

24. Third, Mr. Mok refers me to the case of Farrar v. Farrars, Ltd. [1888] 40 Ch. D. 395, which he cited for the proposition that a sale by a person to a corporation of which he is a member is not, either in form or in substance, a sale by a person to himself, Lindley L.J. observing (at 409-410):

"To hold that it is [such a sale], would be to ignore the principle which lies at the root of the legal idea of a corporate body, and that idea is that the corporate body is distinct from the persons composing it. A sale by a member of a corporation to the corporation itself is in every sense a sale valid in equity as well as at law. There is no authority for saying that such a sale is not warranted by an ordinary power of sale, and in our opinion, such a sale is warranted by such a power, and does not fall within the rule to which we have at present referred. But although this is true, it is obvious that a sale by a person to an incorporated company of which he is a member may be invalid upon various grounds, although it may not be reached by the rule which prevents a man from selling to himself or to a trustee for himself. Such a sale may, for example, be fraudulent and at an undervalue or it may be made under circumstances which throw upon the purchasing company the burden of proving the validity of the transaction, and the company may be unable to prove it. ... "

It was on this basis, therefore, that Mr. Mok took issue with Mr. Chow's contention that in effecting the Mortgage pursuant to the Power of Attorney in this case that Mr. Gardner, the attorney, was benefiting himself in providing for the borrowing by a company, namely Hong Kong Tractor Limited, of which he was a shareholder.

25. Looking at this aspect in the round, in my judgment Mr. Chow's submissions with regard to the authority issue do not succeed as a matter of legal analysis. The arguments assembled by Mr. Mok in opposition are formidable; I accept them, and I do not consider that the point now raised as to authority afford the purchasers valid reason to dispute title. I turn, therefore, to consider the remaining two aspects of the case which have been argued.

The signature point

26. This is a short point. Mr. Chow says that objection is taken on the basis that there are discrepancies in the signatures of Mrs. Gardner in the Memorandum of Agreement and in the Power of Attorney. In particular he says that in the Memorandum, the signature of Maria Gardner is written as three separate parts, whereas in the Power of Attorney, the signature of Maria Gardner is written as one word. Mr. Chow goes on to argue, on the basis of Lam Kin I v. Tsui Ming Yee [1989-91] CPR 561, that where on the face of the title document there are material differences or discrepancies between the two signatures, the purchaser is entitled to "proper conveyancing evidence", such as a statutory declaration that the signatures in question are those of the same person.

27. Mr. Mok's position, on behalf of the Defendants, is essentially that the two signatures are sufficiently similar given the passage of time.

28. As Mr. Chow asserts, this is not a matter which is capable of a great deal of elaboration; the Court has to examine the signatures and come to its own conclusion.

29. I confess that I am not greatly taken with this point. There are indeed differences in the signatures, that much is patent, and if I was a handwriting expert (which clearly I am not) I would have been inclined to say that the first signature represented the rather halting script of a young and inexperienced person, and that the signature of some 24 years later was the flowing script of a mature woman. For my own part, I am inclined to the view that the two signatures are sufficiently similar given the very considerable lapse of time between their making. However, if I am wrong in that, and I accept that it is clearly a matter of subjective evaluation, it seems to me in any event that there is an abundance of proper conveyancing evidence in the papers which should put to rest any concerns which may genuinely have been suffered by the Plaintiff or his solicitors. Mr. Mok prays in aid the background facts, and in particular draws my attention to the fact that in the Power of Attorney the wife was said to be identified, a statement which, by virtue of section 13(4) of Cap. 219, is presumed to be true. He also emphasises that title documents were produced from proper custody: see Lee Yeung-chun v. Ng [1990] 1 HKLR 468, and also relies, should such be necessary, upon the presumption as to due execution in section 23 of the Ordinance.

30. At the end of the day, there is little more that can be said on this point. In summary I do not think there is anything in the signatures to raise any real doubt about the due execution of the instruments concerned; and that if I am wrong and the signatures are indeed materially different, the matter is more than overcome by the abundance of collateral corroborative "conveyancing evidence" which puts the matter to bed beyond all reasonable doubt -- see here, for example, the observations of Woo J. on this aspect in Many Wise Investment Ltd. v. Tech Profit Development Ltd. [1993] 2 HKC 517.

The Schedule A Point

31. Mr. Chow was disinclined to press this point, and indeed I had to look very hard to make sure that I understood it. It comes down (I think) to this: that the Memorandum of Agreement which was produced in this case provided that the grantee agreed to become the Lessee of the Land under and subject to the General and Special Conditions in Government Notification No. 364 of 1934 and its amendments. General Condition 8 made reference, inter alia, to a Schedule A, which I understand was the designated form for the Crown Lease. However, the Memorandum of Agreement did not contain the aforementioned Schedule A, and, absent its production, it is alleged that good title could not be made out.

32. I confess that I have difficulty in seeing any validity in this submission. Mr. Mok pointed out that there was no dispute that the root of title in this case was the Memorandum of Agreement in favour of Mrs. Gardner, the Crown Lease being deemed to have been issued pursuant to sections 14(1) and 14(2) of Cap. 219. This Memorandum expressly incorporated G.N. No. 364 of 1934; G.N. No. 364 is a public document, and was actually attached to the Memorandum. However, it did not have Schedule A attached to it, ergo, the root title did not have a Schedule A although clause 8 of the General Conditions referred to a Schedule A. Precisely the same situation pertained to the Crown's copy. This was not therefore a case, said Mr. Mok, of a lost Crown Lease or part of a Crown Lease; to the contrary, it is a case where the document requisitioned is physically non-existent. The Defendants' solicitors had informed the Plaintiff's solicitors that Schedule A was not used in the said Memorandum, although the Plaintiff's solicitors insisted upon the production of a certified copy of such non-existent Schedule A. Mr. Mok further said, reasonably enough, that the Defendants had no duty to produce a non-existent document which was not part of the title document; further such a non-existent document (the pro forma of which was in the Government Gazette) does not affect title. Accordingly, there is no title problem in this regard either.

33. I agree. In my view the point is a non point, and its taking tends to fuel the suspicion I have entertained (although Mr. Mok pointedly declined to address me on this basis) that the reality of this case was that the Plaintiff was seeking to find fault in title in order to have an excuse not to complete. Whether or not this is an accurate surmise perhaps does not greatly matter, given my findings on the specific points raised before me, although I do have in mind here the observations of Godfrey J. (as he then was) in Active Keen Industries Ltd. v. Fok Chi Keong [1992] M.P. No. 3761 of 1992:

"... if those instructed to act for purchasers could be brought to realise that they would serve their clients better by exercising their common sense rather than by exhibiting their zealousness, matters would be ... improved. The time has come for Hong Kong conveyancers to put an end to the practice of magnifying difficulties which are really non-existent, a practice which frequently operates to keep apart a vendor and purchaser themselves eager to conclude their bargain."

34. At the end of the day the benchmark for the Court in this type of case, as indeed Mr. Chow accepts, is that adopted by the Court of Appeal in Kan Wing-yau and Another v. Hong Kong Housing Society, [1988] 2 HKLR 187 at 194 (per Clough J.A.):

"In the M.E.P.C. case the House of Lords, having accepted that the court should not shrink from determining the rights of the parties on a vendor and purchaser summons where the question, whether a sufficiently good title had been shown, depended on a conclusion or inference as to fact, went on to lay down a stringent test which they held the vendors in that case had satisfied when making title. The test was expressed in the opinion of Lord Russell of Killowen at p. 220 C-D in the following terms:

"In my opinion if the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance, the court should declare in favour of a good title shown.""

35. In light of the facts and circumstances of the case before me I do not consider this Plaintiff, or indeed any purchaser, to have been or to be at risk, and I dare say that had a Vendor and Purchaser summons been taken out (a procedure which was not adopted) a like conclusion would have emerged in rather shorter order. I have also specifically considered the response to the requisitions, and agree with Mr. Mok that whilst they may not perhaps have been model responses, they were sufficient. Nor in this connection do I consider that the absence of specific reference to section 13(4A) is a matter which should impact upon the result of this application; the Ordinance is there to be read, and in any event Mr. Chow did not accept that it provided any answer given his primary contention (which I have rejected) that the transaction entered into pursuant to the Power of Attorney is void.

36. It follows from the foregoing that the Plaintiff's application for relief in terms of its Summons dated 13th May 1996 must be dismissed, and I so order.

37. As to costs, in the present circumstances I find it difficult to see room for any order other than costs are to follow the event and that the Defendants are to have the costs of and occasioned by this action, such costs to be taxed if not agreed. Accordingly, I make an Order nisi in these terms, to become absolute within 14 days of the date hereof, and if and in so far as Counsel wish to make alternative representations, such can no doubt be accommodated on a date to be fixed.