YIN YUJIE AND ZHAO LIMEI v. ONRUN INTERNATIONAL LTD

HCMP 1234/2024

[2025] HKCFI 3983

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1234 OF 2024

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JUDGMENT

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INTRODUCTION

1.  This is an application by the plaintiffs (“Ps”) for the return of the deposit and damages in relation to the purchase of an apartment in The Oakhill, No. 28 Wood Road, Hong Kong (“the Property”) due to the alleged failure by the defendant (“D”) to answer requisitions satisfactorily. D counterclaimed for a declaration that Ps breached the relevant agreement and the deposit was validly forfeited.

Background and Procedural History

2.  D is a BVI company registered in Hong Kong under Part XI of the Companies Ordinance, Cap 32. D became the registered owner of the Property on 31 August 2011.

3.  In around mid-April 2024, Ps and D discussed the potential sale of the Property to Ps through their respective estate agents. In the course of negotiation, the following documents were passed to Ps:

(a)  A copy of the Business Registration of D for the period between 6 February 2024 and 5 February 2025; and

(b)  A copy of the Certificate of Incumbency of D signed on 16 January 2018.

4.  On 17 April 2024, Ps and D entered into a preliminary sale and purchase agreement (“the PSPA”) for the sale of the Property. The PSPA was in standard terms and provided that the completion of the sale should take place on 15 July 2024 and the purchase price was HK$16.7 million.

5.  By a letter dated 10 May 2024, the solicitors acting for Ps Messrs Terry Yeung & Lai (“TYL”) requested the following from the solicitors acting for D Messrs H Y Leung & Co LLP (“HYL”):

(a)  Certified copy of the Memorandum and Articles of Association of D (“M&A”);

(b)  Certified copy of the Certificate of Incorporation of D;

(c)  Certificate of Incumbency of D;

(d)  Certificate of Good Standing of D;

(e)  A written legal opinion issued by a BVI lawyer certifying and confirming the execution of the documents by D are legal, valid, binding on and enforceable by D under the BVI laws.

6.  On 27 June 2024, HYL informed TYL that two directors of D would sign and execute the intended assignment of the Property in accordance with the procedure provided by section 20(1) of the Conveyancing and Property Ordinance, Cap 219 (“CPO”).

7.  HYL and TYL exchanged letters in the following weeks. By a letter dated 12 July 2024, TYL informed HYL that D and HYL failed to satisfactorily answer their requisitions; that D was in wrongful repudiation of the PSPA; that Ps had accepted D’s wrongful repudiation; and the PSPA was terminated. Ps demanded D to return the deposits and to pay the liquidated damages of HK$1.67 million as provided by clause 9 of the PSPA.

8.  On 12 July 2024 at around 6:12 pm, HYL faxed the certified copy of the Certificate of Incumbency dated 30 May 2024 to TYL. HYL reiterated D’s position that it has proved good title and was ready, willing and able to complete the sale of the Property to Ps.

9.  On 17 July 2024, Ps took out the originating summons (“the OS”) in these proceedings. Ps sought declarations to the effect that D failed to answer requisitions satisfactorily, failed to prove good title to the Property; and was in wrongful repudiation of the PSPA. Ps claimed for the return of the deposit of HK$1.67 million and an additional HK$1.67 million as liquidated damages.

10.  On 13 November 2024, D took out a summons (“the November Summons”) for declarations to the effect that the PSPA had been rescinded by D and that D was entitled to forfeit the deposit paid by Ps and the vacation of certain entries in the Land Registry.

11.  Ps were represented by Mr Benny Lo (appearing with Mr Jiang Zixin) at the hearing on 20 March 2025. Mr Lo confirmed that, of the documents sought by the solicitors for Ps, Ps would no longer seek to rely on the Certificate of Incorporation for the assertion that D failed to satisfactorily answer the requisitions by Ps.

DISCUSSION

12.  The law on a vendor’s duty to show good title is well established. Even though Mr Lo alluded to the possibility of challenging the correctness of the Court of Appeal’s decisions in Au Wai Ming v Kam Tze Ming Alfred [2010] 1 HKLRD 198 and Town Bright Industries Limited v Bermuda Trust (Hong Kong) Limited (unreported, CACV 137/1998, 21 January 1999) (See §22.4 of Ps’ Skeleton Submissions), he has not advanced any serious argument as to the correctness of those decisions.

13.  For convenience, I would gratefully adopt the summary of the relevant cases by Lam VP (as he then was) in §§66-72 of Kingdom Miles Ltd v Ever Crystal Ltd [2019] 1 HKLRD 643:

“66. As illustrated by the facts of Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLRD 396, there could be instances where a vendor with a good title has failed to show one due to the manner in which requisitions were answered. We shall discuss this issue in the context of the present appeal later. But it is useful at this juncture to remind ourselves of the test for a good title in conveyancing transaction.

67. Litton NPJ alluded to the relevant authorities in De Monsa at [107] to [110] and summarized the test in these words at [109]:

“… Is there a real risk that a third party might assert some right over the property, thereby encumbering it or defeating the title altogether?”

68. A good title need not be a perfect title. In the assessment as to whether there is any real problem in the title the matter should be approached from the stand-point of a willing purchaser and a willing vendor with reasonably robust commonsense. Thus Litton PJ said in Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109 at 117D-E:

“A good title does not mean a perfect title, free from every possible blemish. Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”

69. In Chun Tat Paper Co Ltd v Wong Ip Cheng [2013] 1 HKLRD 571, Kwan JA cited with approval the judgment of Liu JA in Jumbo Gold Investment Ltd v Yuen Cheong Leung [1999] 3 HKLRD 825 at p.833 where His Lordship said:

“In a vendor and purchaser summons … the court would be considered best guided by the commercial reality as to whether there is any real risk of problems in title. It is not to be troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in matters requisitioned. Conveyancing practice must be geared to uphold bargains…”

70. Jumbo Gold had reached the Court of Final Appeal. It was cited by Litton NPJ in De Monsa at [110] as a clear example where the court held that there was no real risk of government taking action to encumber the title. In that judgment, reported at (2000) 3 HKCFAR 52, Bokhary PJ said at [60]:

“The question is therefore whether, assuming that the Government has [a right of entry on account of an unwaived breach of condition], there is any real risk that it would actually take the drastic step of enforcing it to the detriment of innocent owners. I entirely agree with Justice Litton PJ that the correct answer is in the negative. It is simply not in the nature of good government to harm innocent people unnecessarily like that. Accordingly it is safe to proceed on the basis that the Government would never do so.”

71. A similar approach was adopted by Fok JA (as he then was) in So Mariko v Tse Chun Chung John [2011] 3 HKC 174 where His Lordship applied the robust common sense that a vendor and purchaser summons called for and worked on the assumption of a willing vendor and purchaser, see [40] and [45].

72. See also Jovian Corporate Communications Ltd v Link Wide International Investment [2016] 2 HKLRD 1287.”

14.  Ps contended at §19 of Ps’ Skeleton Submissions that the Certificate of Good Standing is relevant to the issue of whether D existed and was capable of holding title to the Property and giving title to Ps (“First Issue”). It was further contended that the M&A, the Certificate of Incumbency and the BVI legal opinion (“Second Issue Documents”) were necessary for showing that the transaction documents were or would be properly authorised and binding on D (“Second Issue”).

15.  Ps further submitted that the presumptions contained in sections 20 and 22 of the CPO were of no use to D because they were only helpful in relation to potential title defects in the historical chain of documents.

16.  I will deal with the Second Issue first because it relates to one of the contentions in the First Issue. During Mr Lo’s oral submissions, he accepted that the Second Issue Documents were matters of conveyance as defined in Au Wai Ming and contended that D’s failure to provide the same on the date of completion constituted a breach of the PSPA.

17.  Ps were asked by the court if there was any precedent where a vendor was found liable for failing to supply documents similar to the Second Issue Documents. Ps could not identify any such case.

18.  While it is true that a vendor is required to provide documents to prove title (Chen & Another v Lord Energy Ltd (1997-1998) 1 HKCFAR 365) and to do so within a reasonable time before completion (Summit Link Ltd v Sunlink Group (HK) Co Ltd [2000] 2 HKLRD 724), I do not accept the burden to prove title is wide enough to also require a vendor to prospectively prove that it has capacity to execute the assignment and other legal documents on the date of completion.

19.  While there are cases where the capacity to execute a previous instrument has been successfully called into question, such as Au Wai Ming; Grand Trade Development Ltd v Bonance International Ltd [2001] 2 HKLRD 759; Lee Chat & Anor v China Roll Industries Ltd [1998] 1 HKC 269; Li Yuen Ling v Tang Kwong Wai Thomas [2010] 1 HKLRD 522, the present case appears to be the first time where a purchaser complains about inadequate documentary proof as to execution before the instrument is executed.

20.  I accept that D’s capacity to execute the assignment is an important and legitimate consideration for Ps. After all, if the assignment turns out to be invalid, Ps will not be able to obtain title or prove title to a subsequent purchaser. However, in my view, a vendor’s capacity to execute a future assignment is simply not a matter which falls within the duty to show good title and it is not the practice in Hong Kong to require a corporate vendor to answer requisitions for its ability to execute a future assignment.

21.  Ps did not seriously dispute the above but tried to justify the Second Issue Documents by arguing that D was a BVI company and thus, D had the burden to show that as a matter of BVI law, the transaction documents would be properly authorised and binding on D.

22.  In my judgment, this argument has been misconceived. There is nothing out of the ordinary for foreign corporations to hold and transact in real property in Hong Kong and their capacity to execute is not often called into question. If Ps’ proposition were right, it would mean that every foreign corporation would need to supply documents similar to the Second Issue Documents which include a legal opinion about the corporation’s capacity to execute. There is nothing in the long line of cases in the 20 years after Active Keen that tends to support Ps’ proposition and I therefore reject it.

23.  A separate but relevant issue is whether D was right in contending that it was entitled to rely on sections 20 and 22 of the CPO to preempt any challenge as to the validity of the execution of the future assignment. Ps submitted that those sections could only be relied upon in relation to the historical chain of documents and could not be relied upon by a party to a transaction to cure an otherwise invalid execution.

24.  Insofar as sections 20 and 22 of the CPO are concerned, I am inclined to agree with Ps that the sections will not assist D if the execution turns out to be invalid. However, as I have found that D is not required to answer requisitions as to its capacity to execute a future instrument, the issue of whether those sections could be relied upon by D to answer Ps’ requisitions has become moot.

25.  Other than the alleged duty to show good title, Ps have not advanced any reason for seeking the Second Issue Documents. As I have found that the duty does not cover the Second Issue Documents, it follows that Ps had no right to demand those documents and D was not in breach of the PSPA for failing to supply the same.

26.  I now turn to the Certificate of Good Standing which is the only remaining document for the First Issue after the indication by Mr Lo at the hearing that Ps would abandon the reliance on the Certificate of Incorporation for the First Issue. Ps claimed that this document is necessary for showing that D has not been struck off from the Register of Companies and therefore it remains in existence on the date of completion.

27.  Ps claimed that there were two reasons for requiring D to prove its existence. The first reason was that a BVI company (and its director) that has been struck off the Register of Companies may not in any way deal with the assets of the company under section 215(1)(a) of the BVI Business Companies Act. This argument appears to be yet another challenge to D’s capacity to execute the instruments for the intended sale and I would dismiss it for the reasons given above for the Second Issue Documents.

28.  The second reason advanced by Ps was that D must be existent to be able to hold title and give title to Ps. Ms Gekko Lan for D criticised this argument as innovative and not supported by any authority. After reviewing the authorities, I agree with Ms Lan that this argument is unsupported by authorities and has no merit.

29.  Even if I am wrong and the continued existence of a corporate vendor can be a matter of title or conveyance in the Au Wai Ming sense, I do not accept that Ps could have properly demanded D to provide a Certificate of Good Standing in the situation of this case. It has been said that conveyancing is not a game (Victory Star Ltd v Ng Fung Ying & Ors [2003] 4 HKC 677) and a vendor is not required to prove a “perfect title”. A purchaser may only raise requisitions which are reasonable and what is reasonable in the situation may be determined with reference to “reasonably robust commonsense” (Mexon Holdings) and “commercial reality” (Jumbo Gold).

30.  There is no dispute that at the material time, D had a valid business registration in Hong Kong and actively engaged with an estate agent and its solicitors to sell the Property which is under the name of D. A reasonable person armed with this information would not have any reasonable doubt as to the continued existence of D as a company. In the circumstances of this case, a reasonable purchaser would not have any concern about the continued existence of D and any requisition based on the existence of D was unreasonable.

31.  I therefore do not accept that the requisition for a copy of the Certificate of Good Standing was properly made and D’s failure to provide the same did not cause it to fail to show good title.

32.  Because none of the requisitions by Ps was validly made, D was not in breach or anticipatory breach of the PSPA when it failed to supply the documents sought by Ps. I find that D has shown a good title to the Property and Ps were not justified in refusing to perform their obligations under the PSPA, one of which was to pay the remainder of the purchase price on the completion date. Therefore, Ps were in breach of the PSPA.

33.  There was no serious dispute by Ps that D should be entitled to forfeit the deposit (being 10% of the purchase price) if their case is based on the failure to satisfactorily answer requisitions. This must be the case under clause 8 of the PSPA, which provided:

“Should the Purchaser fail to complete the purchase in the manner herein contained the deposit shall be forfeited to the Vendor and the Vendor shall then be entitled at his absolute discretion to sell the said premises to anyone he thinks fit and the Vendor shall not sue the Purchaser for any liabilities and/or damages caused by the Purchaser’s default of this Agreement”

34.  D sought a declaration that it was entitled to forfeit the deposits paid by Ps in the sum of HK$1.67 million. I find that this declaration is proper and I would make an order in terms of paragraph 2 of the November Summons.

35.  Paradoxically, in the November Summons, D also asked for a declaration that the PSPA has been rescinded by D. It is not clear how D could be allowed to keep the deposit if the PSPA has been rescinded by D. I note that rescission is not the theory upon which a non-breaching vendor is allowed to keep the entirety of the deposit irrespective of its actual loss: See §§67-68 of Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234.

36.  Counsel for D had not explained at the hearing why this declaration is appropriate or necessary. I am satisfied that the principles enunciated by the majority in Polyset provide a sufficient basis for forfeiting the 10% deposit. I therefore refuse to grant the declaration at paragraph 1 of the November Summons.

37.  There is no serious dispute that the registrations of the OS and the PSPA should be vacated from the Land Registry after the conclusion of these proceedings. I will make an order in terms of paragraphs 3 and 4 of the November Summons.

CONCLUSION

38.  For the above reasons, I dismiss the OS and make an order in terms of paragraphs 2, 3 and 4 of the November Summons. Costs should follow the event and Ps should pay the costs of these proceedings, including the costs of the OS and the November Summons, to D with certificate for counsel, to be taxed if not agreed.