JOIN WINNER INVESTMENT LTD. v. PO WAI CHING

HCA 10169/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10169 OF 1997

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J U D G M E N T

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1. In this action the Plaintiff as purchaser seeks rescission of an agreement for Sale and Purchase (ASP), dated 22nd May 1997, of a house property known as Sub-section 1 of Section L of Lot No. 4665 in Demarcation District No. 104 and as House 115, 5th Street, Section L, Fairview Park, Yuen Long, New Territories, which agreement was entered into with Defendant as vendor.

2. The Plaintiff also claims repayment of deposits made under the ASP totalling $538,000.00 and seeks damages for breach of the ASP to be assessed.

3. The ASP (Clause 8a) required Defendant as Vendor to give good title to the property in accordance with Section 13 of the Conveyancing and Property Ordinance, Cap. 219. (CPO)

4. Clause 10 of the ASP provided that requisitions on title were to be delivered in writing to the Vendor's solicitors within 7 working days after the Purchaser's solicitors had received the title deeds. If no further requisitions were raised within 3 days of a reply the Vendor's title would be deemed to have been accepted and satisfied.

5. By Clause 4, time was stated to be of the essence of the ASP.

6. The ASP was signed on 22.5.97 and 17.9.97 (or the next working day if 17.9.97 was a public holiday) was the proposed completion date. The title deeds were not sent to the Plaintiff's solicitors until 3.9.97.

7. On 5.9.97 the Plaintiff's solicitors raised a requisition for proof of the due execution of an Assignment Memorial dated 18.6.84, the Assignment being a title document.

8. In answer, on 8.9.97, the Defendant's solicitors sent a copy of the Articles of Association of the Assignor. Clause 20 provided that execution was properly deemed if a document was sealed and signed by the Chairman of the Board of Directors, or sealed and signed by any 2 directors.

9. As the Assignment was signed by one Wong Sheung Ching, whose capacity was stated as Director, the Plaintiff's solicitors, on 10.9.97, asked for proof that Wong was not only a director but also Chairman.

10. Defendant's solicitors on 11.9.97 did not answer the query directly, but stated their reliance on Section 23 of the CPO, instead. Correspondence between solicitors continued on 11.9.97 and 12.9.97 with Plaintiff's solicitors requesting proof that Wong was Chairman and Defendant's solicitors insisting they need not provide it because they could rely on S.23 CPO.

11. On 15.9.97 Plaintiff's solicitors requested production of the Board Minutes to clarify the execution provisions in the Articles, failing which they would take out a Vendor and Purchaser Summons. (VPS) Defendant's solicitors maintained reliance on s.23 CPO and replied that a VPS was unnecessary.

12. On 16.9.97 Plaintiff's solicitors faxed to Defendant's solicitors a copy of the decision in Li Ying-ching v. Air Sprung (Hong Kong) Ltd. [1996] 4 HKC 418, the facts of which were apposite and the decision in which appeared to demolish Defendant's reliance on s.23 CPO.

13. As 17.9.97 was a public holiday, completion was scheduled for 18.9.97. At 15:29 on 18.9.97 Defendant's solicitors capitulated and forwarded what purported to be a certified copy of the Board Minute showing that Wong Sheung Ching was elected as Chairman on 17.6.84. They requested completion of the sale at 5 p.m. as agreed.

14. Plaintiff's solicitors immediately raised 4 queries. Two were comparatively minor - the registered office appeared to be incorrect and the company name was misspelled. However 2 of the 3 directors present at the meeting were not listed as directors at the date of the meeting, which appeared to render the meeting invalid for lack of quorum. Further, the mode of signature was challenged as it appeared to be identical in style and positioning to that appearing on the Assignment Memorial. Plaintiff's solicitors therefore requested sight of the original Board Minute, reserved their client's rights and pointed out that Defendant's solicitors had not answered their requisition satisfactorily.

15. Defendant's solicitors then wrote advising how the settlement cheques should be split. By a separate letter they "answered" the further requisition by dismissing as unimportant the discrepancies in company name and registered office and suggesting, without showing documentary proof, that there may have been a change of directors between the execution of the Assignment and 31.12.84, the date of the Annual Return.

16. In respect of the challenged signature Defendant's solicitors claimed they had fulfilled their obligations by forwarding the certified copy of the Board Minute. They advised that unless the sale and purchase was completed pursuant to the ASP they would forfeit all deposits. Plaintiff's solicitor received this letter at 5 p.m. on 18.9.97.

17. Completion did not take place on 18.9.97 and Plaintiff, in light of Defendant's refusal to answer the requisitions, in particular the refusal to provide the original Board Minute, by a letter sent on the 18.9.97 after 5 p.m., demanded return of the deposits. On 22.9.97 Defendant without further reply forfeited Plaintiff's deposit for failing to complete. No reference was made to the requisition.

Defence Case

18. In the period prior to completion Defendant's contention was that s.23 CPO applied and that there was no obligation on them to produce the Minutes. That position appeared to have been abandoned when the Defendant's solicitors after noting the case of Li Ying-ching v. Air Sprung (Hong Kong) Ltd. (supra) produced the Board Minute.

19. The facts of that case were very similar to those in the instant case, albeit the court was there hearing a Vendor and Purchaser Summons. There an execution of an assignment by a company was held not to be valid, by failure to comply with provisions for execution in the company Memorandum and Articles. The defendant company relied on s.23 CPO, which provided that an instrument appearing to be duly executed should be presumed to have been duly executed until the contrary was proved.

20. In Li Ying-ching the document had been executed by a single director as signatory when the Articles required either 2 directors to sign, or a single signatory with the status of Chairman.

21. Mr. Justice Cheung held that it was stretching the ambit of s.23 to an unacceptable width to say that one was entitled to presume that the signatory was qualified as and appointed as Chairman and that the plaintiff was not entitled to raise requisitions on the appointment. If the defendant said the signatory signed as Chairman it was for defendant to show that the signatory signed as such and no admissible evidence had been adduced on that point. S.23 CPO was held not to apply and the execution of the assignment was held invalid because of the failure to comply with the execution provisions of the Memorandum and Articles.

22. Defendant argued that the requisitions raised by Plaintiff on 18.9.97 were either not properly raised, or were unreasonable. Alternatively they were said to be satisfactorily answered by the certified copy of the Board Minute. It was suggested that it was not open to the Plaintiff to go behind the Board Minute produced without breaching the rule against enquiring into the internal management of a company. Further it was argued that as the company resolution was a supporting document and not a title document the 7 days examination period did not apply.

23. The Defendant submitted that even if there had been a failure to execute the Assignment Memorial according to the Articles that the solicitors had paid too much attention to what was a negligible risk of litigation arising from the purported failure to prove title, given that the Assignment had occurred in 1984, some 13 years earlier.

24. Few of these arguments were raised at the time the dispute arose and most were irrelevant to the matters the court was required to decide.

25. The main question was whether the Defendant had shown good title to the property - implicit in consideration of that question was whether the Plaintiff's requisitions were proper and whether Defendant had answered them satisfactorily or at all. Certain of the defence arguments suggested that the court should be considering whether the requisitions could be answered satisfactorily now, rather than whether the requisitions had been answered satisfactorily at the relevant time i.e. prior to completion.

26. The Defendant's solicitors did not provide the title deeds until 3.9.97. Although Plaintiff's requisition was raised promptly the Defendant's solicitors refused at first to answer it, preferring, erroneously, to rely on s.23 CPO. When referred to the case of Li Ying Ching Defendant's solicitors appeared to accept their obligation to prove the due execution of the Assignment Memorial.

27. To do so they provided a certified copy of the Board Minute stating that the signatory was appointed Chairman. Unfortunately the Board Minute gave rise to more questions, two of which at least needed further explanation.

28. Although fraud was not pleaded or argued at trial, a handwriting expert's report produced in evidence indicated that Plaintiff's solicitors were justified in being wary, initially at least, of accepting at face value the certified copy of the Board Minute, without making further enquiry. In those circumstances it was not unreasonable for Plaintiff's solicitors to request sight of the original minute.

29. Plaintiff's letter of 15.9.97 clearly asserted its right to require that Defendant show good title and in fact suggested a VPS be pursued to clarify the matter. When Defendant thereafter not only refused to answer the requisition but also claimed a VPS was unnecessary, it was not surprising that Plaintiff indicated an intention to reclaim its deposits.

30. The matter was not resolved before the completion date and it was not until late afternoon on 18.9.97 that Defendant's solicitors sent a certified copy of the Board Minute. It appears that having done so the Defendant's solicitors felt they could force settlement, regardless of whether or not the document satisfied the requisition and regardless of whether or not additional matters raised by its production needed to be explored by Plaintiff's solicitors.

31. It may be argued now, as indeed defence counsel did, that the risk of litigation arising from an Assignment improperly executed, or possibly improperly executed, some 13 years previously, was so negligible as not to be a real risk at all. It is possible that if the Plaintiff's solicitors had sighted the original of the Board Minute on the day of completion, or shortly thereafter, their concerns about the Minute, and thus the execution of the Assignment, would have been allayed.

32. In the circumstances that pertained on 18.9.97 however, "it was reasonable to raise queries with the vendor's solicitors. It is just possible that those solicitors could have provided satisfactory answers. In these circumstances, the purchaser could not reasonably have remained silent. So they pointed out the discrepancy and asked for clarification. Instead of being frank and open with the purchaser's solicitors, the vendor's solicitors adopted a defensive and unhelpful attitude" [per Litton JA in Active Keen Industries Ltd. v. Fok Chi Keong [1994] 2 HKC 67 @ 85

33. In Active Keen @ p.87 Litton JA explained the extent of the vendor's contractual duty in relation to requisitions as follows "The contractual duly to answer requisitions properly is not an onerous one. All that is required of the vendor is candour and commonsense. The purchaser is not an adversary. The parties had already arrived at an agreement and, normally, it is as much in the purchaser's interest as it is in the vendor's that completion should take place. A good title, or a good marketable title, does not mean a perfect title. If there are, or might be, blemishes upon it, these should be faced squarely."

34. Quite clearly in the instant case the vendor failed to deal properly with the requisition which was reasonably raised, and thus failed in his contractual duty. Instead Defendant's solicitors endeavoured first to force settlement on 18.9.97 and then, despite the Plaintiff's right to 7 days grace in respect of the further requisition, (Clause 10) promptly, and wrongfully, forfeited the deposits.

35. It was not for Defendant to insist on completion at the date in the ASP, given the very late stage at which its solicitors purported to answer the requisition. Plaintiff relied on the case of Wong Bik Ching v. Yu Hon Chung and Tam Yeung Man Mandy MP2969 of 1996 where Mr. Recorder Edward Chan Q.C. considered the question of the timing of answers to requisitions, where title deeds were sent in sequence and, following Yeung Sau Chuen Sammy v. Chung Chun Ting and Cheung Sai Mui (MP4080 of 1998), agreed that the vendor could not compel the purchaser to complete before the expiration of 7 working days from the date when the last of the missing title deeds was sent.

36. Although defence counsel at trial argued that the Board Minute was not a title deed I reject that argument - clearly without the Board Minute any consideration of the primary title deed, the Assignment, was meaningless. The 7 working days would therefore run from 18.9.97.

37. Defendant was not entitled to claim that Plaintiff's failure to complete was a repudiation of the contract - by Defendant's own conduct in failing to answer Plaintiff's requisition, time had ceased to be of the essence of the contract, and Defendant had repudiated the contract by seeking to treat the failure of the Plaintiff to complete on 18.9.97 as itself repudiatory when it was not. It follows that Defendant was wrong to forfeit the deposit on 22.9.97.

Finding

38. I am satisfied that Defendant failed in its contractual duty to answer Plaintiff's requisition satisfactorily prior to 18.9.97 and that the last minute production of the Board Minute did not answer the requisition. Further, the Plaintiff was entitled to raise further requisitions on the Board Minute and Defendant was not entitled to refuse to answer them, or to force completion, without allowing Plaintiff the proper contractual period to consider the title deeds.

39. Accordingly I enter judgment for the Plaintiff. I order that Defendant return the deposits of $538,000 to the Plaintiff within 14 days from date of judgment herein, together with interest thereon at judgment rate from the dates of payment by the Plaintiff to the Defendant to the date of repayment to the Plaintiff.

40. I declare that the Plaintiff is entitled to a lien on the property for the deposits and interest thereon together with the costs recovered by the Plaintiff in this action.

41. I order that unless damages are agreed by the parties, that damages, for breach of the Agreement together with interest thereon, be assessed by a Master and that the costs of any such assessment be borne by the Defendant. There will be an order nisi for costs of this action to be borne by Defendant, to be taxed if not agreed.

42. Liberty to apply.