HUI YUK CHUN v. TANG WAI HANG, HENRY and Another

1998, M.P.No.1

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. I have before me a vendor and purchaser summons. It concerns an apartment on the second floor of a residential block known as Tsuen On Building. The apartment is described as an equal undivided 22nd share of a parcel of land registered in the Tsuen Wan District Land Office and known as Tsuen Wan Town Lot 195.

2. On 22nd September 1997 the Plaintiff entered into a provisional agreement of sale with Defendants in terms of which the Plaintiff agreed to purchase the property from Defendants for a sum of $1,630,000.00. I am advised that both Plaintiff and Defendants are content to give effect to the agreement. However, in fulfilling their mandate by advising their client as to title, Plaintiff's solicitors identified what they believed to be a defect in the Defendants' title. It was therefore agreed that a ruling should be sought. To enable this to happen, a summons was issued pursuant to Section 12 of the Conveyancing and Property Ordinance (Cap. 218) seeking a declaration that Plaintiff's requisitions had not been sufficiently answered by Defendants and in addition that the Defendants had not shown good title to the property.

3. The objection to title goes back to the original deed of assignment dated 24th September 1973 made between Ping Hing Hong Limited, the company which had developed the apartment block, and the first purchasers of the property : Leung Lin Siu, Lo Sam and Chia Ting Moo. It is alleged by Plaintiff that this assignment was executed on behalf of Ping Hing Hong Limited in a manner which was defective. It was sealed with the company's common seal and was signed by Nina T.H. Wang, a director, in the presence of a solicitor. However, Article 71 of the company's Articles of Association provides as follows :

"The seal of the company shall not be affixed to any instrument except by the authority of a resolution of the board of directors, and in the presence of a director and of the secretary or such other person as the directors may appoint for the purpose; and that director and the secretary or other person as aforesaid shall sign every instrument to which the seal of the company is so affixed in their presence."

4. I read that article as it has previously been read by Godfrey J. (as he then was) in Peking Fur Store Ltd. v. Bank of Communications [1993] 1 HKC; namely, that the common seal shall not be affixed except with the authority of a resolution of the board of directors and, when affixed, it shall be in the presence of two representatives of the company, a director and the secretary or, failing the secretary, some other duly authorised person. Both representatives must then sign the instrument.

5. As a result, since the deed of assignment in this matter dated 24th September 1973 was signed only by a director, and no other person, the provisions of Article 71 were not complied with and the execution of the assignment was formally defective.

6. In such circumstances, I am satisfied that the Plaintiff is entitled to proof that the execution of the assignment was authorised by the company, on the basis that the departure from the provisions of the Articles of Association is some evidence that the assignment may not have been so authorised.

7. For reasons which will become apparent, the Defendants have been unable to supply a resolution of the board of directors of Ping Hing Hong Limited. If such a resolution had been exhibited it would have provided the necessary proof that the assignment had been duly authorised. As was said by Godfrey J. in Peking Fur Store Ltd. v. Bank of Communications supra :

"But the matter does not end there. The vendor has produced, as I have already said, a copy of a resolution of the board of directors of Hillo, which not only authorized the transaction carried into effect by the assignment, but expressly authorized the signature of the assignment by one director only. That being so, there is no risk that Hillo might succeed in proceedings to have the assignment declared invalid. Any such a claim would be laughed out of court. The transaction was duly authorized and there is nothing to suggest that it was not carried into effect in accordance with the terms on which it was so authorized. The company's seal was affixed to the assignment and the legal estate passed accordingly, despite the formal defect in execution. The general rule is that a corporation is bound by an instrument under its seal, unless it can be shown that its execution was obtained by fraud, or there is some illegality in the transaction: see Agar v. Athenaeum Life Assurance Society (1853) 3 CB(NS) 725, 756; 140 ER 927 per Willes J.

8. Although unable to produce any signed resolution by the board of directors of Ping Hing Hong Limited, the Defendants have attempted to provide other satisfactory evidence, albeit oblique, that the execution of the deed of assignment was duly authorised and that, therefore, the legal estate passed despite the formal defect in execution.

9. Essentially, as background, the Defendants have pointed to the fact not in issue that Ping Hing Hong Limited was in the business of building residential apartments and arranging for their sale and that the one signatory to the deed of assignment was not only a director but also one of the two original subscribers to the Memorandum of Association of the company. The Defendants have then gone on to show that on 14th April 1976, at an extraordinary general meeting of the members of the company, it was resolved that the company be wound up voluntarily and that Wang The Huei, one of the other directors, be appointed liquidator. Exactly one year later a final general meeting of the members was held and on 30th April 1977 the liquidator made a report to the Registrar of Companies pursuant to Section 239(3) of the Companies Ordinance (Cap.32) to the following effect -

"I, Wang The Huei of 67 Beacon Hill Road, 11th Floor, B-1, Kowloon, being the Liquidator of PING HING HONG LIMITED, hereby inform you that a Final General Meeting of the Members of the Company was duly held on the 14th April, 1977, pursuant to Section 239(3) of the Companies Ordinance (Chapter 32), for the purpose of having an account, a copy of which is attached herein, laid before them, showing the manner in which the winding up has been concluded and the property of the Company disposed of, and that the same was done accordingly."

10. Thereafter the company was dissolved and in due course all the books and records of the company (including any resolutions of the board) were destroyed.

11. On the basis of these combined factors, Defendants have argued that the irresistable inference must be that the assignment was duly authorised. Not only was it signed under the common seal by a director but less than three years later a voluntary winding up of the company commenced with another director being appointed liquidator. Accounts were prepared, laid for inspection by the members and a copy of those accounts submitted to the Registrar of Companies. This orderly process of winding up would, inter alia, have revealed any fraud in the earlier disposal of the company assets or other illegality,. Accordingly, it has been argued, the general rule that a corporation is bound by an instrument under its seal applies, it being shown objectively that there could have been no fraud or other illegality in the execution of the deed of assignment: see Agar v. Athenaevm Life Assurance Society supra :

12. I accept, of course, that one director, not being a managing director, has no authority to do anything on behalf of a company unless authorised by the board of directors to do so : see, for example, Gower, Company Law (14th edition) page 194. But in the particular and special circumstances of the case before me I believe there is evidence that the single director, Nina T.H. Wang, was duly authorised albeit that such evidence, instead of being taken from a single unambiguous document, is drawn indirectly from a body of historical matters.

13. Of greater moment, however, I am satisfied that the Plaintiff, in taking transfer of the property, will be under no risk of having his title successfully challenged. The dicta, therefore, of Lord Russell in MEPC v. Christian Edwards [1981] AC 205 is relevant :

'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 encumbrance, the court should declare in favour of a good title shown.'

14. It must be remembered that the deed of assignment which is the subject of criticism was signed some twenty four years ago; Ping Hing Hong Limited was voluntarily wound up and thereafter dissolved more than twenty years ago. There can, therefore, be no successful challenge by the company (or any of its then shareholders) to Plaintiff's title. In this regard, see, for example, the Law of Company Liquidation by McPherson and O'Donovan (3rd edition) at page 449:

"Dissolution of the company deprives the court of jurisdiction either to wind up the company or to deal with any application made in winding up after the dissolution has taken place. It also prevents actions from being brought against the company, or against a former officer of the company, in order to obtain contribution to the assets."

15. Since the original deed of assignment and the winding up of the company, there have been three unchallenged assignments.

16. From my reading of the provisional agreement of sale which the parties agreed should govern the sale and purchase of the property, no intention contrary to the provisions of Section 13(1)(a)(ii) of the Conveyancing and Property Ordinance was stated. Accordingly, the Plaintiff is only entitled to require from the Defendants, as proof of title, the Crown Lease and intermediate root of title extending to fifteen years. This has been supplied, being Assignment Number 158667 dated 15th April 1978.

17. Accordingly, as the original assignment has in any event been produced from proper custody, I am satisfied that the risk of the title being successfully challenged is so remote that it may be discounted.

18. The only question left for me to consider is whether the Defendants have made a title to the property in that they have satisfactorily answered the Plaintiff's requisitions. Having considered the relevant documents, and in light of my findings herein, I am so satisfied.

19. Accordingly, a declaration is given that the Defendants have shown good title and have, in addition, satisfactorily answered the Plaintiff's requisitions.

20. As for costs, I am advised that, in seeking a ruling from this court, the parties agreed that there should be no order as to costs. I will therefore take that matter no further.

(M.J. Hartmann)

Judge of the Court of First instance