YOOK LU FONG AND ANOTHER v. LAU PO CHING

HCMP4603/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.4603 OF 2001

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REASONS FOR DECISION

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Background

1. The present vendor and purchaser summons concerns the property known as "ALL THAT one equal undivided 100th part or share of and in ALL THOSE pieces or parcels of ground respectively registered in the Land Registry as THE REMAINING PORTION OF INLAND LOT NO.3448, THE REMAINING PORTION OF INLAND LOT NO.3449 and THE REMAINING PORTION OF INLAND LOT NO.3444 and of and in the messuages erections and buildings thereon known as Nos. 78, 78A, 80, 82, 84 and 84A Hennessy Road and collectively known as WAI LUN BUILDING (偉倫大樓) TOGETHER with the full right and privilege to the use occupation and enjoyment of the whole of the THIRD FLOOR and its FLAT ROOF of the said NO.78 HENNESSY ROAD" ("the Property").

2. By a provisional Sale and Purchase Agreement dated 29 May 2001 and a formal Sale and Purchase Agreement dated 8 June 2001, the defendant agreed to purchase the Property from the plaintiffs for the sum of $600,000. The issues that arise in the present proceedings stem from a requisition raised by the defendant in relation to the Property. Before identifying these issues, I think it important first to set out the relevant background.

3. On 28 June 1969, Ellen Yee Hi Fong, also known as Ellen Yee Hi and Yee Tik Ling ("the Deceased"), purchased the Property from Mee Lun Investment Company Limited. By a general power of attorney dated 28 February 1990, the Deceased appointed her daughter, Fong Dolly Yee (one of the plaintiffs herein) ("the Attorney") as her attorney with powers under section 7 of the Powers of Attorney Ordinance, Cap.31 (thus conferring on the Attorney the authority to do on behalf of the Deceased anything which she could lawfully do by an attorney).

4. By an assignment dated 4 February 1991 ("the 1991 Assignment"), executed on her behalf by the Attorney, the Deceased assigned the Property to Yook Lu Fong, Fely Yee Fong and the Attorney herself as joint tenants for a consideration of $544,500. Yook Lu Fong is the other plaintiff in the present proceedings. Fely Yee Fong was another of the Deceased's daughters. As will presently be seen, it is the questions in relation to this transaction that form the subject matter of the present proceedings.

5. By a Declaration of Trust dated 3 August 2001, the Attorney confirmed that as far as the 1991 Assignment was concerned, she was in fact all along holding her share of the Property on behalf of Yook Lu Fong. In a Statutory Declaration dated 31 August 2001, Yook Lu Fong states that it was he who paid the Attorney's share of the purchase price.

6. The Deceased died intestate on 24 June 1992 in The Philippines. By the operation of section 4(3) of the Intestates' Estates Ordinance, Cap.73, the Deceased's beneficiaries were :

(1) Her husband : Yook Lu Fong.

(2) Her children : the Attorney, Lily Yee Fong, Daimond Yee Fong, Welmond Yee Fong, Benmond Yee Fong and Fely Yee Fong.

7. Fely Yee Fong died on 19 September 1999 also in The Philippines. By operation of law, her interest in the Property as a joint tenant therefore passed upon her death to the plaintiffs.

8. As I have said earlier, the defendant has agreed to purchase the Property from the plaintiffs. The original completion date was 15 August 2001 but this was postponed pending the outcome of the present proceedings. They arise as a direct result of some requisitions that had been made by the defendant to the plaintiffs. By a letter dated 16 June 2001 from the defendant's solicitors to the plaintiffs' solicitors, some six requisitions were made. Amongst them was the following in relation to the 1991 Assignment :

"4. Assignment Memorial No.4751012 was executed by the Vendor, Ellen Yee Hi alias Yee Tik Ling through her attorney, Fong Dolly Yee. Without prejudice to our client's rights in relation to the requisition stated in the immediate following sentences of this requisition No.4, please produce the relevant Power of Attorney to complete the chain of title and for our consideration. The said attorney is also one of the Purchasers named in the said Assignment. It is trite law that an attorney cannot purchase from his/her principal. Thus, the said Assignment was void and your clients had and have no title to the above property. On behalf of our client, we expressly reserve all rights in this connection."

9. This was ultimately the only requisition that was not resolved and it was this deadlock that has led to the present vendor and purchaser summons being taken out. For present purposes, only the second part of the requisition is relevant as the power of attorney was eventually provided.

The issues

10. The basic problem raised in the unresolved requisition was the fact that the Attorney had not only acted on behalf of the Deceased in the 1991 Assignment, but was also one of the purchasers in that transaction.

11. The following issues therefore arise for determination :

(1) What is the effect of a transaction in which an attorney not only acts on behalf of the donor but in which he also gains a benefit himself? (Issue 1)

(2) Does it make any difference that the benefit that the Attorney apparently gains is in fact a benefit to a third party on whose behalf the attorney also acts? (Issue 2)

(3) Notwithstanding the above, can good title be shown by the plaintiffs in the present case? (Issue 3)

The decision on 26 February 2002

12. The substantive hearing of the vendor and purchaser summons first took place before me on 24 January 2002. This was adjourned to enable the plaintiffs to file more affidavit evidence. I shall explain below just why this was necessary.

13. At the resumed hearing on 26 February 2002, I gave judgment to the plaintiffs in terms of the originating summons as amended. I indicated that I would hand down the reasons for judgment at a later date. At both hearings, Mr Thomas Au appeared for the plaintiffs, the defendant being absent. Despite the defendant's objections as shown in the correspondence between his solicitors and the plaintiffs' solicitors, he was content to be bound by whatever the court decided.

14. I now deal with the three issues I have identified above.

Issue 1

15. I begin with a statement of basic principles. In the absence of a clear power allowing him to do so, an agent, like any other person in a fiduciary relationship, must not act in such a way as to give rise to a conflict of interest. By conflict of interest is meant the conflict between his principal's interests and the agent's (or for that matter anyone else's) interests. In other words, unless otherwise agreed, an agent's authority is confined to acting only for the benefit of the principal : see Bowstead and Reynolds on Agency (17th edition) at paragraph 3-008. This basic principle stems from an agent's duty of a loyalty and fidelity towards his principal.

16. One of the manifestations of this principle is that an agent will not be permitted to enter into a transaction with his principal unless he demonstrates that it was a fair one, that full and fair disclosure of all material matters were made and that the informed consent of the principal was obtained : see Bowstead and Reynolds at paragraph 6-064; Bristol and West Building Society v. Mothew [1998] Ch. 1.

17. An attorney under a power of attorney is in law an agaent. Like many agencies, the appointment arises under a written instrument but is more formal in that it is governed by statute, in this case the Powers of Attorney Ordinance. For example, it must be by deed : see section 2 of the Ordinance. Powers of Attorney are strictly construed : see Bowstead and Reynolds at paragraph 3-010. Thus, where the exercise of powers under a power of attorney results in a conflict of interest situation, the court will not construe a power of attorney to allow this unless expressly provided for, even where the power of attorney is expressed to be "without restriction" : see the well-known dissenting judgment of Russell J in Reckitt v. Barnett, Pembroke and Slater Limited [1928] 2 KB 244, at 268-9. The statements of principle contained in this dissenting judgment were upheld in the House of Lords in the same case ([1929] AC 176, at 183 and 195) and they have also been consistently applied in Hong Kong (see Lo Hung Biu v. Lo Shea Chung [1997] HKLRD 721).

18. Where, in any transaction, an attorney (agent) has benefited himself without the express approval or consent of the donor (the principal), the transaction is not void, but merely voidable : see Lo Tai Yam v. Hu Mu Simon [1997] HKLRD 588, at 592 where Stone J referred to certain passages from Snell's Equity (in the 30th edition of that textbook, the relevant passages being at paragraphs 11-77 and 11-80).

19. In the present case, one of the purchasers of the Property under the 1991 Assignment being the Attorney herself, prima facie then, this was a voidable transaction because the Attorney had apparently sought to benefit herself. That the Attorney may have had a beneficial interest is shown by the fact that the initial position taken by the plaintiffs when the said requisition was raised, was that there was a presumption of advancement in favour of the Attorney (being as I have said, the Deceased's daughter). However, in later correspondence (and this was the position before me), the Attorney contended that she was only acting as Yook Lu Fong's trustee when she was named as a purchaser of the Property. It is to this aspect I next turn.

20. Before I do so, I should just record that there was no evidence of any consent on the part of the Deceased to the Attorney being one of the purchasers under the 1991 Assignment. In a letter dated 28 July 2001 from the plaintiffs' solicitors to the defendant's solicitors, it was stated that the Deceased's beneficiaries would confirm in statutory declarations that the Deceased was fully aware of the fact that under the 1991 Assignment, the Property would be sold to the Attorney and had consented to it. No such confirmation, however, was contained in the Statutory Declarations before me.

Issue 2

21. As I have said earlier, the plaintiffs' eventual position was that under the 1991 Assignment, the Attorney was not a purchaser in her own right but had all material times acted as trustee for Yook Lu Fong. There is no evidence from the defendant to contradict this, although at one stage it appears to have been challenged in correspondence.

22. Even if the position that the plaintiffs now adopt is correct, this does not in my judgment save the 1991 Assignment from being rendered voidable for the simple reason that an agent is not permitted to act for more than one principal without disclosing this to other principal : see Bowstead and Reynolds at paragraph 6-044. This principle is in turn derived from the wider principle I have already mentioned that an agent, like any fiduciary, must not put himself in a conflict of interest situation. In Bristol and West Building Society, Millett LJ said at 18, "A fiduciary must act in good faith; he must not make a profit out of his trust; .... he may not act for his own benefit or the benefit of a third person without the informed consent of his principal".

23. The transaction becomes voidable in circumstances when the "other" principal knows or ought to have known of this conflict (cf. : Reckitt). In the present case, the "other" principal was Yook Lu Fong. It is clear that at the time of the 1991 Assignment, he was aware of the dual role of the Attorney. Not only would knowledge of this be attributable to him through the Attorney herself, in his Statutory Declaration dated 3 August 2001, he makes express reference to the power of attorney at the time of the 1991 Assignment.

24. I am therefore of the view that the 1991 Assignment was a voidable transaction. But is this "blot" on the title to the Property fatal? Mr Au says it is not.

Issue 3

25. A "blot" on the title of a vendor (as in the present case where one of the crucial links in the title chain is prima facie voidable) is not necessarily fatal to a finding that there exists good title. In what circumstances can this arise?

26. A "blot" on title in the sense that a previous transaction in the title chain is voidable (as in the present case), carries with it the risk of litigation by interested persons. The court's role in determining whether such a "blot" is fatal to good title being shown, is to assess that risk.

27. Where the risk is slight and there is no probability of an adverse claim being made, a good holding title is shown and the relevant property "can usually be sold and forced on a purchaser under a special condition requiring him to assume facts ..... upon which the title depends" : see Kan Wing-yau v. Hong Kong Housing Authority [1988] 2 HKLR 187, at 199A-C per Clough JA. However, apart from such special conditions in the relevant contract, a holding title is not good enough as the court has no jurisdiction to accept a mere holding title in a vendor and purchaser summons : see Kan Wing-yau at 199C. Only a good title will be accepted (and in the present case, of course, this was the plaintiffs' obligation under the Sale and Purchase Agreement dated 8 June 2001 : cf. section 13 of the Conveyancing and Property Ordinance, Cap.219). Thus, where there exists the risk of an adverse claim being made, even if slight, in the absence of special conditions along the lines mentioned above, good title will not be shown.

28. But where it can be demonstrated beyond reasonable doubt that the risk of litigation is non-existent or is "ridiculous" or that it would be "laughed out of court", then it will be disregarded and a good title will be shown : see Kan Wing-yau at 198F-I referring to In re Heaysman's and Tweedy's Contract (1893) 63 LT 89, at 91 per Lindley LJ.

29. The modern statement of this principle is contained in the speech of Lord Russell of Killowen in MEPC Limited v. Christian-Edwards [1981] AC 205, where at 220C-D, he said, "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".

30. Once it is shown beyond reasonable doubt that the purchaser will not be at risk of litigation, the "blot" on the title becomes merely theoretical and not practical. The consequence of such a finding is that good title is shown and this can be forced on an unwilling purchaser.

31. In the present case, I am satisfied beyond reasonable doubt that the "blot" caused by the voidability of the 1991 Assignment would not give rise to litigation by interested persons :

(1) The only persons who could possibly be interested in instituting proceedings based on the voidability of the 1991 Assignment are the Deceased's beneficiaries as identified above. All of these persons have made Statutory Declarations confirming that they did not and do not have any claims in relation to the 1991 Assignment. They also confirm the existence of the said trust of the Attorney's interest in the Property in favour of Yook Lu Fong.

(2) At the first hearing of the present originating summons, I had some misgivings as to whether the said beneficiaries were the only persons who might be interested in possibly overturning the 1991 Assignment. I had in mind the personal representatives of the Deceased (if such existed), but there was at that time no evidence before me in relation to the administration of the Deceased's estate. Accordingly, I adjourned the hearing to allow the plaintiffs to clarify the position. Affidavits were subsequently filed, again from all the beneficiaries, stating that as the Deceased left no assets in Hong Kong, The Philippines or indeed anywhere else, no application was made anywhere for the administration of her estate. It was also confirmed that as at the date of her death, the Deceased had no debts, liabilities or claims against her, statutory or otherwise.

32. Finally, out of completeness, I should just add that the absence of any risk of litigation was expressly mentioned and, in my view, satisfactory dealt with by the plaintiffs' solicitors in correspondence with the defendant's solicitors when dealing with the said requisition raised by the defendant regarding the 1991 Assignment. No point therefore arises that the plaintiffs have somehow failed satisfactory to answer requisitions : cf. Kok Chong-ho v. Double Value Developments Ltd [1993] 2 HKLR 423.