Hillier Development Ltd. v. Tread East Ltd.
Read the full judgment text of CACV 209/1992 on BabelCite. This Court of Appeal judgment was delivered on 17 June 1993 before Penlington JA, Nazareth JA, Sears J.
Civil law – conveyancing – sale of property – agreement dated 27 April 1990 for $2.9 million – unit in Carson Mansion, 113-123 King's Road, Hong Kong – title derived from 1984 assignment by Oliver Paris (Hong Kong) Limited to its director Chan Bing Fai for $125,000 – assignment signed only by Chan on behalf of company – purchaser's solicitors raised requisition on due execution in May 1990 – vendor's solicitors answered in June 1990 relying on Law Society Circular No. 105/90 and s.23 of Conveyancing and Property Ordinance (Cap 219) – purchaser's solicitors made no further response until forwarding draft deed of assignment on 24 July 1990 – proposed mortgagee's solicitors later raised queries about the undervalue sale and the absence of a board resolution – vendor refused to provide shareholders' resolution – purchaser called off contract on 30 July 1990 – Godfrey J. held purchaser entitled to recover $150,000 initial deposit and to give good receipt for further $140,000 deposit – whether purchaser's solicitors accepted title by forwarding draft deed of assignment – whether five-day time limit for requisitions displaced because requisition went to root of title – whether purchaser entitled to call for shareholders' resolution regarding apparent undervalue sale by company to its own director – Court of Appeal held that purchaser's solicitors accepted title by forwarding draft assignment before the second requisition – mere forwarding of draft conveyance without reference to outstanding requisitions constitutes implied acceptance of title, applying Farrand on Contract and Conveyance and Burroughs v Oakley – five-day time limit under clause 11 of agreement applied because matter complained of was obvious from title documents already in purchaser's solicitors' possession at time of agreement – proposition in Re Cox & Neve's Contract and Re Tanqueray-Willaume and Landau that time limit does not run where vendor unaware of defect did not assist purchaser – s.23 of Conveyancing and Property Ordinance (Cap 219) presumes due execution of instruments – Turquand rule (Morris v Kanssen [1946] AC 459) protects persons dealing with company in good faith from inquiring into internal management – purchaser not entitled to require sight of shareholders' resolution nearly six years after sale – appeal allowed – order of Godfrey J. set aside – vendor entitled to retain deposits and to have costs below and of appeal.
Legal issues: Acceptance of title by forwarding draft deed of assignment · Effect of time limit on requisitions going to root of title · Purchaser's right to call for shareholders' resolution on undervalue sale by company to director
Outcome: Appeal allowed; order of Godfrey J. set aside.
Cited by 10 cases
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CACV000209/1992 IN THE COURT OF APPEAL 1992, No. 209 ________________
________________ Coram: Hon. Penlington, Nazareth, JJ.A. and Sears, J. Date of hearing: 30 April 1993 Date of handing down judgment: 17 June 1993 ________________ J U D G M E N T ________________ Penlington, J.A.: Background 1. By an agreement dated the 27th April 1990 ("the agreement") the defendant ("the vendor") agreed to sell to the plaintiff ("the purchaser") Unit 10 on the Ground Floor of Carson Mansion, 113-123 King's Road, Hong Kong for $2.9 million. The legal description was "8 undivided 2,689th parts" of three inland lots. On the 12th April 1990 the purchaser paid to the vendor an initial deposit of $150,000 and on the 27th April 1990 the purchaser paid to the vendor's solicitors a further deposit of $140,000 to be held by those solicitors as stakeholders. 2. Completion was due to take place on the 31st July 1990 but on the 30th July the purchaser's solicitors claimed that the vendor had failed to answer certain requisitions on title. They said the purchaser would not go on with the contract. The vendor's solicitors said that they had satisfactorily answered the requisitions and that in any event the purchaser had already, through the action of its solicitors, accepted the title before attempting to resile from the contract. The purchaser claims that the vendor must repay to it the initial deposit of $150,000 and sought a declaration that it was entitled to give a good receipt to the vendor's solicitors for the further deposit of $140,000. 3. The matter came before Godfrey J. on the 10th and 11th November 1992 and in a judgment dated the 23rd November 1992 he found for the purchaser and ordered that the initial deposit of $150,000 be so repaid and he granted the purchaser the order sought in respect of the further deposit of $140,000. The vendor now appeals against that decision. 4. The property which is the subject of the agreement was assigned in 1984 from a company called Oliver Paris (Hong Kong) Limited ("Oliver Paris") to one Chan Bing Fai ("Chan"). The assignment stated that the consideration for the purchase was $125,000. It was sealed by Oliver Paris and signed by Chan himself, the purchaser, as "one of its directors as directed and authorised by the board of directors to sign". Chan also executed as purchaser and was therefore the only person to sign the deed. This assignment is the one which was the subject of the requisitions raised by the purchaser. 5. The agreement provided as follows:
The agreement further provided:
6. Before the date of the agreement some documents had been delivered by the vendor's solicitors to the purchaser's solicitors and on the 25th April 1990 the purchaser's solicitors requested further documents. On the 8th May, after the agreement had been signed, the purchaser's solicitors raised three requisitions of which only no. 2 is material. This read as follows:
As was noted by Godfrey J. this requisition is a challenge to the due execution of the assignment of 12th September 1984. It does not challenge the validity of that assignment on any other ground. 7. This requisition was answered by the vendor's solicitors on the 30th May as follows:
The Law Society Circular referred to states that opinion has been obtained from leading London counsel who was of the opinion that a vendor is not required to produce evidence of authorisation by a board of directors in order to prove title because s. 23 of the Conveyancing and Property Ordinance, Cap. 219 provides that:
There was no reply to that letter and on the 6th June and on the 5th July the vendor's solicitors delivered to the purchaser's solicitors further documents relating to the property. 8. On the 24th July sent by hand the purchaser's solicitors forwarded a draft deed of assignment to the vendor's solicitors for their perusal and, if in order, for execution by their client, and asking in whose favour the cheque for the balance of the purchase price should be drawn. There is no reference in that letter to any unanswered requisition. 9. By a letter dated the 23rd July but not sent until 6:14 p.m. on the 24th July by facsimile, solicitors acting for the proposed mortgagee of the purchaser wrote to the purchaser's solicitors raising queries regarding the title being offered to the mortgagee. It read as follows:
On that same day, the 24th July, at 7:24 p.m. the purchaser's solicitors sent a copy by facsimile of the proposed mortgagee's solicitors' letter to the vendor's solicitors, asking for an urgent reply. 10. The purchaser's solicitors endeavoured to persuade the proposed mortgagee's solicitors that the title was in order but were unable to allay their concern. The purchaser's solicitors accordingly insisted on an answer to the requisitions raised by the mortgagee's solicitors and on the 26th July received a response from the vendor's solicitors as follows:
11. On the 27th July the purchaser's solicitors wrote to the vendor's solicitors stating that they required to sight a shareholders' resolution sanctioning or ratifying the execution of the assignment of 12th September 1984. In the absence of such shareholder's resolution, the purchaser would reject the vendor's title. This the vendor's solicitors declined to do and said that the purchaser was entitled to assume that the internal procedures of Oliver Paris had been complied with. 12. On the 30th July the purchaser's solicitors, being dissatisfied with the reply they had received, called off the contract and submitted their bill to the purchaser for fees and disbursements. 13. Godfrey J. said that he was satisfied that the requisition relating to the due execution by Oliver Paris was satisfactorily answered on the 6th June 1990 and that the purchaser, not having challenged that answer until the 23rd July must be taken to have waived its objection. He held, however, that the purchaser had not accepted the title prior to the 24th July although he said:
However, he found that they had not in fact accepted the title. 14. He then went on to find that there was nothing in the initial requisition regarding the due execution of the assignment from Oliver Paris to Chan and that s. 23 of the Conveyancing and Property Ordinance provided for due execution to be inferred and that the purchaser was not entitled to call for a sight of the resolution of the directors of Oliver Paris authorising the assignment to be executed in the manner in which it was. A purchaser was not entitled to enquire into the matters of internal management of a limited company; it is enough for him to satisfy himself that the power to do what has been done did exist. 15. However, he did find that the purchaser's solicitors were entitled even at a very late stage to raise the requisition which has been forwarded to them by the mortgagee's solicitors regarding the apparent assignment by Oliver Paris to one of its directors at what seemed to be a low purchase price. He said:
16. This was a trial in which no evidence was called by agreement between the parties. It was argued entirely on the documents and there was no question of the credibility of witnesses being involved. Acceptance of title 17. Godfrey J. found that the purchaser's solicitors did "come very close to accepting the title on behalf of the purchaser". He was under the impression that the letter from the mortgagee's solicitors to the purchaser's solicitors dated the 23rd July 1990 raising the requisitions regarding the consideration which had been paid was forwarded to the vendor's solicitors by facsimile on that day. This was not correct as it can be seen from an examination of the document itself which shows that it was sent at 6:14 p.m. on the 24th July. Accordingly, it was received after and not before the draft assignment was forwarded to the vendor's solicitors. 18. I am unable to see what further action the purchaser's solicitors could have taken whereby acceptance by them of the title offered on behalf of their client could have been inferred. In the fourth edition of Farrand on Contract and Conveyance at 130 the learned author says:
He goes on to say:
19. Here that was certainly not the case. The purchaser's requisitions had been forwarded on the 8th May 1990 and had been replied to on the 30th May. Nothing further had been received from the purchaser's solicitors indicating in any way that they were dissatisfied with the reply which, on the face of it, seemed to be perfectly proper. The draft conveyance was then sent almost two months afterwards. It certainly did not accompany the requisitions. Short of a letter from the purchaser's solicitors expressly stating that they considered their requisition had been satisfactorily answered, it is difficult to see what else they could have done to indicate to the vendor's solicitors that they now accepted the vendor's title. The letter which accompanied the draft deed said it was for the vendor's solicitor's approval and enquired as to the way in which the cheques for the purchase money should be made out. There was not the slightest indication in that letter that there was any unsatisfied requisitions. As Mr. Patrick Fung for the vendor has said, it is highly desirable that requisitions should be forwarded to the vendor's solicitors promptly. In my opinion from the circumstances here it must be implied the purchaser's solicitors had accepted the vendor's title on the 24th July by forwarding the draft deed of assignment. Time limit for requisitions 20. The vendor further relies on clause 11 of the agreement which provided that requisitions were to be made within five days after the delivery of "sufficient title deeds" to the purchaser's solicitors, time being of the essence. 21. Miss Chow, who appears for the purchaser, submitted that this was of no assistance to the vendor because firstly, further title deeds had been delivered by the vendor's solicitors after the period of five days had expired following the delivery of the first bundle of documents and secondly, a time limit on the lodging of requisitions was of no effect if the requisition went to the root of the title. Here that was the case because there might be a successful action brought by the minority shareholders of Oliver Paris against the directors for selling the property to Chan as an undervalue. 22. A large number of documents of title were delivered to the purchaser's solicitors on the 24th April 1990 prior to the filing of the agreement. There is no suggestion that these documents were not sufficient to enable the purchaser's solicitors to check whether or not their client was going to receive a good title. Those documents included a copy of assignment memorial no. 2652561. The further documents did not go to the root of title. In my view, therefore, the five days would run in effect from the date of the agreement, i.e. the 27th April 1990. I do not consider that time limit had been waived by the vendor's solicitors forwarding further documents after that date or in replying to the requisition of 8th May. 23. The question of the effect of a time limit on requisitions when they go to the vendor's root of title was considered in detail in Giant River Ltd v. Asie Marketing Ltd [1990] 1 HKLR 297. At 311 Deputy High Court Judge Cruden refers to Warde v. Dixon (1858) 28 LJ Ch 316, Re Tanqueray-Willaume and Landau (1881-2) 20 Ch D 465 and In re Cox & Neve's Contract [1891] 2 Ch 109. I am satisfied that those authorities only go to the proposition that where a vendor, having used due diligence, is unaware of some defect in the vendor's title, the time limit imposed in the agreement does not run against him. In Re Cox v. Neve's Contract the agreement provided that the purchaser should within 14 days of the delivery of the abstract sent to the vendor's solicitors all his objections and requisitions as to title. After the expiration of that 14 days, the purchaser discovered that there was a restrictive covenant as to the right to build on part of the property and objected to the title on those grounds. North J. held that under those circumstances the 14 day time limit did not apply. During the course of argument, at 114, he said:
Clearly he considered that if the purchaser had been aware of the covenant the 14 day time limit would have run, notwithstanding that it affected the root of title. Re Tanqueray-Willaume and Landau was concerned with the possibility of land held by trustees being charged with debts due to legatees. Again it is clear that a time limit does not run if the purchaser has no knowledge whether such debts exist. Here, it seems to me, the situation is entirely different in that the matter now complained of, i.e. the sale by Oliver Paris to one of its own directors at what seems to be an undervalue, was obvious from the papers already in the possession of the purchaser's solicitors at the time the agreement was entered into. It certainly became clear to the mortgagee's solicitors who were in possession of no more information than the purchaser. I do not think that the proposition contended for by Miss Chow applies in this instance and that the purchaser's solicitors were under a duty to make requisition within the time stipulated in the agreement. Inadequate consideration 24. Godfrey J. held that s. 23 of the Conveyancing and Property Ordinance had the effect of presuming that the execution of assignment memorial no. 2652561 by Chan alone was due execution by Oliver Paris. That, in my opinion, must also mean that there was a proper resolution of the board of directors of Oliver Paris authorising the sale to Chan, otherwise it could not be said to be "duly executed". What the final requisition of the purchaser's solicitors required was a resolution of the shareholders of Oliver Paris to be passed, almost six years after the sale, authorising such sale. I do not consider that the purchaser could make such a requisition on the basis that the consideration for the sale seemed inadequate (though it was apparently not challenged by the Commissioner of Stamp Duties). "There is a presumption in favour of persons dealing with a company that acts within its constitution and powers have been properly and duly performed" Halsbury Laws of England, 4th Ed., Vol. 17, para. 118. In Morris v. Kanssen [1946] AC 459, at 474, Lord Simonds said:
If that was not so it would in my view impose an intolerable burden on the solicitors acting for any purchaser to enquire into any prior sale within 15 years by a company had been for adequate consideration. Here the sale was to a director who himself was the person authorised to execute on behalf of the company but I do not consider that fact is enough to remove the presumption. It must be presumed that the board of directors of Oliver Paris did have power to sell the property to Chan and did so without fraud on their part. 25. I am therefore of the opinion that this appeal should be allowed and the order of Godfrey J. set aside. Nazareth, J.A.: 26. I agree that for the reasons given by my Lord, the appeal must be allowed. As we are disagreeing with the judge, I would add the following. 27. My Lord has set out the facts. Having outlined those facts in his judgment, the judge at page 8 said:
28. With respect, in my view, the judge's conclusions on the execution point were entirely correct, for the reasons he gave:
29. The original requisition or objection, it is quite plain, is exactly the same as that raised by the prospective mortgagee's solicitors on 23rd July 1990, and passed on to the vendor's solicitors by the purchaser's solicitors on the next day. Having waived it (as indeed the judge himself found) the purchaser cannot rely upon what in reality is the same requisition simply because a third party, even if it be the proposed mortgagee's solicitor, has raised it. However the judge apparently considered that because the requisition went to the root of the title, neither the time limit of 6 days for raising requisitions nor the waiver applied, although the latter was not expressly addressed. My Lord has explained why the contention that the second requisition goes to the root of the title does not avail the purchaser. In referring to that matter, I would say that I am in addition not persuaded that the requisition does go to the root of the title. 30. However that may be, I did not understand counsel on either side to suggest that an objection or requisition, even one which goes to the root of the title could not be waived. Plainly it can; and in many cases, that precisely is what is done when a calculated risk is taken by a purchaser on possible objections that are thought unlikely to arise. It was no doubt in recognition of this that Miss Chow for the purchaser submitted that such waiver had to be express. But she produced no authority for that proposition, which must be rejected. 31. As to the judge's unwillingness to conclude that the purchaser must be taken to have accepted the title before 24th July 1990 although the purchaser's solicitors did come very close to doing so, it seems to me that the judge was led into error by the confusing reference to the time and date printed at the top of the copy of the proposed mortgagee's solicitors' letter to the purchaser's solicitors. That came about when it was faxed by the purchaser's solicitors to the vendor's solicitors on the 24th July, 1990, the day after the purchaser's solicitors received it. 32. The evidence conclusively shows that the purchaser's solicitors accepted the vendor's solicitors' answer to their first requisition. Nothing was heard by the vendor's solicitors from the former after they received the answer until the 24th July 1990. Meanwhile, the purchaser's solicitors had actively sought to persuade the proposed mortgagee's solicitors that the title was not affected by the absence of evidence of due execution. Had the finance sought been forthcoming, clearly the purchaser would have completed the purchase. What puts the acceptance of the title beyond argument is that the draft assignment was sent by the purchaser's solicitors to the vendor's solicitors on the 24th July 1990, prior to the second requisition and contemporaneously with their enquiry as to how the payment cheque should be split. The judge's misdirection of fact as to the date of the second requisition entitles, indeed requires this Court itself to determine the issue of whether the title was accepted. In my judgment the evidence that it was accepted is so overwhelming as not to admit of the possibility of any other conclusion. 33. The judge concluded his judgment in the following way:
34. With respect, the plaintiff having accepted the title and in the process having waived the requisition, it was not open to the judge to rely upon either. Further, as I have said, I am not persuaded that the requisition went to the root of title, the basis upon which the judge apparently accepted that the requisition could be made out of time. Moreover the matter is not just one of the 6 day time limit being exceeded, but of the objection or requisition having been waived, and therefore it not being open to the purchasers to seek thereafter to rely upon it. 35. For the reasons I have endeavoured to give and the reasons my Lord has given, I would also allow the appeal. Sears J.: 36. I agree that this appeal should be allowed, but as we are differing from the Judge below, who has wide experience in this branch of the law, I would, with respect to him, add a few words. 37. The assignment from Oliver Paris to Chan was on 12th September 1989. It does, on its face, appear unusual. The company was selling a block of property to one of its directors for a very low price and the signature on behalf of the company was that of the purchaser. No one had up to July 1990 sought to challenge the validity of that assignment, but I recognise that there was a risk, because of the unusual features disclosed in the document itself, that such might occur. 38. I agree with my lord Penlington J.A. that s. 23 of the Conveyancing and Property Ordinance presumes that the assignment by Chan was due execution by Oliver Paris and it would also follow that there was assumed a valid resolution of the board of Oliver Paris to sell the property for the consideration stated. 39. This appeal, however, could be decided on one narrow ground. The judge found that the purchaser's solicitors had "come very close to accepting the title on behalf of the purchaser". The letter from the mortgagee's solicitors is dated 23rd July, but it was not sent by fax until 6:14 p.m. on 24th July. If the judge had recognised this fact, he would, as is clearly implicit in his choice of words, have found that the purchaser's solicitors had accepted title on behalf of the purchaser. Penlington, J.A.: 40. There will be an order nisi that the vendor is entitled to retain the deposits paid and to have its costs below and of this appeal.
Representation: Mr. Patrick Fung (Patrick Chung & Co.) for appellant/vendor Miss J. Chow (Terry Yeung & Lai) for respondent/purchaser |
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