AU HON KWONG AND ANOTHER V. SURE WOOLLEN YARNS CO.LTD.

1992, No.MP3979

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 a vendor and purchaser summons. The plaintiffs are the vendors; the defendant is the purchaser. I shall so refer to them. The property the subject of the contract dated 19th October 1992 between the vendors and the purchaser is a property known as Flat A, 13/F, Jumbo Court, 3 Welfare Road, Aberdeen, Hong Kong. The purchase price was HK$1,950,000. Completion was due to take place on or before 6th November 1992.

2. The title deeds were supplied by the vendor to the purchaser before the contract was made. On 2nd October 1992, the purchaser's solicitors, W.K. To & Co., raised some requisitions on title. The only one I need mention concerned a mortgage dated 10th July 1980 executed, or purported to be executed, by a company called Tri Tronic Limited. This company was expressed to mortgage the property to the Hang Seng Bank. In 1987, the Hang Seng Bank, purporting to act under the powers conferred on it by the mortgage, sold the property to the present vendors.

3. But the mortgage was executed by only one director for and on behalf of the company. It is this which is the subject of the requisition, which read as follows :-

"1. Assignment Memorial No.1931495 and Mortgage Memorial No.1931497 were executed by one director for and on behalf of Tri Tronic Limited. Please furnish us with the Articles of Association thereof to prove due execution."

That requisition was properly raised. The relevant article (in my judgment there are no other relevant articles) is Article 13 which reads as follows:-

"Authentication of Deeds and documents.

13. All deeds executed on behalf of the Company may be in such form and contain such powers, provisions, conditions, covenants, clauses and agreements as the directors shall think fit and in addition to being sealed with the Seal of the Company shall be signed by more than half of the existing directors of the Company as authorised by the Board of Directors."

The mortgage of 10th July 1980 bore the Seal of the Company. The problem is that Article 13 required it not only to be sealed with the Seal of the Company, but to be signed by more than half of the existing directors of the company as authorised by the Board of Directors. It is common ground that, at the date of the execution of the mortgage, the company had four directors. It follows that in order to be signed by more than half of the existing directors of the company, the mortgage had to be signed by all four or at least three of these directors; but, as I have indicated, it was in fact signed by only one director.

4. So the mortgage was plainly not validly executed and, accordingly, I turn to see how, if at all, the vendor attempted to get over this difficulty.

5. The vendors' solicitors, Y.T. Wong & Co., in a letter dated 16th October, 1992, said this :-

"With reference to your letter dated 14th instant, [in which the requisition had been repeated with a comment that only one director had executed the mortgage] we are of the opinion that the Mortgage in question as mentioned in your said letter shall be deemed to be properly executed by virtue of Section 23 of the Conveyancing and Property Ordinance by the fact that it only says in the copy extract of the Articles of Association of Tri Tronic Limited about the use of the common seal that 'The directors shall provide for the safe custody of the Seal, and the Seal shall not be use except by the prior authority of the directors' and what you mentioned in your said letter only refer to the authentication of deeds and documents of the said Tri Tronic Limited."

That was no answer to the requisition. It is precisely the failure duly to authenticate the mortgage which gives rise to the difficulty.

6. Subsequently, another firm of solicitors, Messrs. Woo, Kwan, Lee & Lo (to whom it appears Y.T. Wong & Co had appealed) expressed the opinion that they were of the opinion that although the mortgage might be ineffective as a deed, it was effective as a document under hand, and that the mortgagor was estopped from denying that it had been duly executed as a deed; and they cited TCB Limited v. Gray [1986] 1 All ER 587. That also was no answer to the requisition. No power of sale would have been conferred on the bank by the document under hand to which the solicitors referred.

7. Nothing daunted, Y.T. Wong & Co offered a further and different answer on 3rd November 1992. They said this :-

"Regarding your requisition of the execution of Mortgage Memorial No.1931397, may we refer you to Section 52 of the Conveyancing and Property Ordinance which clearly stipulates that the title of the Purchaser shall not be affected by the fact that no case had arisen to authorize the sale 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 on damages against the person exercising the power."

That too was no answer to the requisition. What is in question is not the propriety of the exercise of the power of sale, but the propriety of the execution of the mortgage itself, with which s.52 has nothing to do.

8. In these circumstances, I am of the opinion that the assignment of 20th January 1987 by which the bank purported to assign the property to the plaintiff is open to challenge; the company might well be entitled to apply to have the mortgage set aside if it had been improperly entered into by one director without the authority of the board of directors. Since no such authority has been proved, it follows that the title must be impeachable. It was sought to argue that the risk of the title being successfully impeached was theoretical or fanciful rather than real. If I had been satisfied that this was so, I should have felt able to pronounce in favour of the title offered, but I do not think that the risk, although perhaps slight, of a challenge to the title can possibly be described as merely theoretical and fanciful. I regard it as a real risk.

9. For the reasons I have endeavoured to state, I am bound to hold that the requisition raised by the purchaser has not been sufficiently answered and I propose to make a declaration accordingly. I will order that the costs of the purchaser of this application are to be taxed (if not agreed) and paid by the vendors to the purchaser.