Very Cheer Development Li Mited and Au Ka Yeung v. Bring All Limited

1994, No. MP1343

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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Coram: Deputy Judge Kwok, Q.C.

Dates of hearing: 10 & 15 June, 1994 (in Chambers)

Date of handing down judgment: 30 June, 1994 (in Court)

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J U D G M E N T

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Vendor and Purchaser Summons

1. This is a Vendor and Purchaser Summons issued by the Plaintiffs ("the Purchasers") on the 28th May, 1994, which was set down to be and was heard by me in Chambers. It should have been set down and heard by a judge in Court, not in Chambers: per Godfrey J. (as he then was) in Re Kwun Tong Inland Lot No. 386, H.C.M.P. No. 1996 of 1988, unreported, 12th October, 1988, at p. 4 and in Pak Lan Ching v. Crown Great Co. Ltd., H.C.M.P. No. 2253 of 1988, unreported, 24th November, 1988, at pp. 4 - 5. As I indicated to Counsel at the conclusion of the hearing, my Judgment will be handed down in Court and I release it for publication.

2. By an Agreement dated the 9th April, 1994 made between the Defendant ("the Vendor") as the Vendor and the Purchasers as the Purchaser, the Vendor agreed to sell and the Purchasers agreed to purchase all those 46 equal undivided 29,750th parts or shares of and in all that piece or parcel of ground registered in the Land Registry as Subsection 11 of Section K of Quarry Bay Marine Lot No. 2 and the Extension thereto and of and in the messuage erections and buildings thereon now known as Lotus Mansion, Wisteria Mansion and Primrose Mansion, Harbour View Gardens, Taikoo Shing together with car parking spaces and commercial areas thereunder ("the Building") together with the sole and exclusive right and privilege to hold use occupy and enjoy all that Flat "B" on the 9th floor of Primrose Mansion, Harbour View Gardens (collectively "the Property").

3. The purchase price was $7,700,000.00; deposits and part payments in the total sum of $770,000.00 were paid to the Vendor directly, not held by their Solicitors as stakeholders, by the date of the Agreement; and completion was to take place by the 17th June, 1994. Neither party had placed any reliance on the precise terms of the Agreement which was in common form and I do not think it is necessary to recite any other term of the Agreement.

The issue

4. Solicitors for the Purchasers raised a number of requisitions in the course of their investigation of title. By the Originating Summons, the Purchasers sought, inter alia, a declaration that the requisitions in 11 letters had not been sufficiently answered. Be that as it may, in the course of the hearing, Counsel for both parties agreed that the only life issue before me was whether the requisition on the authority of the donee under the relevant Power of Attorney to execute the Assignment Memorial No. 3487230 had been sufficiently answered. The issue is one of pure construction - whether the Power of Attorney authorised the donee to make a gift to or otherwise benefit himself.

5. By an Assignment dated the 25th May, 1983, and registered in the Land Office on the 14th June, 1983 by Memorial No. 2419366, the Property was assigned to Mr. Choi Wah and Mr. Cho Ho Bun as Joint Tenants (p. 9 of that Assignment).

The relevant provisions in the Power of Attorney

6. By a Power of Attorney ("the Power of Attorney") dated the 21st August, 1986, Mr. Choi Wah ("the Donor") appointed Mr. Choi Ho Bun ("the Donee") as his Attorney with power to do perform transact and effectuate in Hong Kong and its dependencies all or any of the following acts deeds matters and things that is to say:-

"1. To manage my property in such manner as my Attorney shall think fit and to make any outlay in connection with all my property or any part or parts thereof."

"2. To sell (either by public auction or privately) or exchange all or any or any part or parts of my property for such consideration and subject to such terms and conditions as my Attorney shall think fit and to give valid receipts for all or any part of the purchase or other consideration money."

"8. To sign seal and deliver any deed or instrument in writing and to do every other thing whatsoever which may be necessary or proper for carrying any agreement for any sale and purchase into complete effect and execution in such manner that all my estate right title and interest in or to my property may be effectually and absolutely conveyed and assured unto the purchaser or respective purchasers thereof or unto such other person or persons and for such estate or estates therein and in such manner and form as my Attorney shall direct or appoint."

Evidence of undervalue and benefit to the Donee

7. Assignment Memorial No. 3487230 ("the Assignment") is dated the 20th August, 1987 and was executed by the Donee, both as a co-owner and as the lawful attorney for the Donor, the other co-owner. The consideration stated therein was $950,000.00. The Assignee was Fresh Energy Limited.

8. The Collector of Stamp Revenue appeared to be dissatisfied with the consideration of $950,000.00 and additionally assessed stamp duty in the sum of $6,875.00, representing a further consideration of $250,000.00 at 2.75% The fact that additional stamp duty had been assessed on the Assignment is apparent on the face of the relevant Memorial at the Land Office.

9. Section 27(4) of the Stamp Duty Ordinance, Cap. 117, provides that (emphasis added):-

"Any conveyance or transfer (not being a disposition made in favour of a purchaser or incumbrancer or other person in good faith and for valuable consideration) shall for the purposes of this Ordinance be deemed to be a conveyance or transfer operating as a voluntary disposition inter vivos, and (except where marriage is the consideration) the consideration for any conveyance or transfer shall not for this purpose be deemed to be valuable consideration where the Collector is of opinion that by reason of the inadequacy of the sum paid as consideration or other circumstances the conveyance or transfer confers a substantial benefit on the person to whom the property is conveyed or transferred."

10. Read with section 27(1) & (3) and section 13(3)(b), the Collector appeared to take the view that the Assignment conferred a substantial benefit on the Assignee, Fresh Energy Limited, and that the value of the Property at the time of the Assignment was $1,200,000.00. The consideration of $950,000.00 stated on the Assignment represented an undervalue of 20.83%, not "over 26%" as Mr. Johnny Mok, Counsel for the Purchasers, seemed to suggest by dividing the contractual price of $950,000.00 by the additional consideration of $250,000.00. Be that as it may, 20.83% is in my judgment a not insignificant undervalue and the Purchasers were justifiably concerned and were justified in raising requisitions thereon.

11. The Donee and another person were at all material times the only shareholders and directors of the Assignee, Fresh Energy Limited. The Donee held 1 of the 2 shares issued. Thus there was some evidence to suggest that, by purportedly assigning the Donor's ½ share in the Property to Fresh Energy Limited, purportedly under the Power of Attorney, the Donee benefitted himself and made a gift to himself to the extent of $250,000.00 x ½ x ½ = $62,500.00, at the expense of the Donor.

The requisitions and the answers

12. As the parties disputed whether the Purchasers' requisitions had been sufficiently answered by the Vendor and whether a good title had been shown, I will set out the relevant requisitions and the vendor's answers in full.

13. The requisition was first raised in the letter of the 30th March, 1994 in these terms questioning the power or authority of the Donee under the Power of Attorney to make a gift to or otherwise benefit himself:-

"3. Assignment Mem. No. 3487230

(I) Insofar as the Vendors named in the Assignment Mem. No. 3487230 are concerned, we note that Mr. Choi Ho Bun [the Donee] as one of the joint tenants and also as the lawful attorney of the co-joint tenant, Mr. Choi Wah [the Donor] sold the said premises to Fresh Energy Limited in which one of the directors by the same name of Choi Ho Bun also attested the affixion of common seal of the Purchaser, the said Fresh Energy Limited. Please clarify whether the aforesaid two Choi Ho Bun are in fact one and the same person. If the answer is in the affirmative, we would require a confirmatory assignment by the Vendors in favour of the Purchaser be executed, because there was no express power under the Power of Attorney dated 21.8.1986 to enable the Attorney to sell to the party in which the Attorney was interested. From the certificate of payment of additional stamp duty by Collector of Stamp Revenue and endorsed on the said Assignment Mem No. 3487230, it is apparent that the Assignment consideration of HK$950,000.00 was grossly inadequate and the Purchaser struck a bargain at a price substantially lower than the then prevailing market value."

14. The Purchasers' Solicitors followed up their earlier requisition by a letter dated the 7th April, 1994, stating that:-

"Further to our letter dated 6th April 1994, we send you herewith copies of the annual returns for the years of 1987 and 1988 relating to Fresh Energy Limited which we have just obtained from the Companies Registry.

From the said annual returns, it is revealed that one of the Directors of Fresh Energy Limited, Mr. Choi Ho Bun is Holder of Hong Kong Identity Card No. XXXXXXX(X) and is in fact the one and same person as the lawful attorney of Choi Wah mentioned in the Assignment Mem. No. 3487230. Our concern as raised by Requisition No. 3 of our letter to you dated 30th March 1994 appears to have been well-founded. Accordingly, we look forward to your urgent reply in this regard."

15. The Purchasers' Solicitors sent a letter dated the 5th May, 1994 reminding the Vendors' Solicitors:-

"... to let us have the confirmatory assignment relating to the Assignment Mem No. 3487230 for our approval as soon as possible as required by our letters to you dated 30.3.1994 and 7.4.1994".

16. A further reminder was sent by letter dated the 17th May, 1994.

17. The Vendor's Solicitors replied by letter dated the 23rd May, 1994 stating that:-

"With regard to the Assignment Memorial No. 3487230, we do not see the necessity of a confirmatory assignment to be made. Mr. Choi Ho Bun has been properly authorised under the Power of Attorney dated 21st August 1986 in pursuance to Clause 2 thereof to execute the said Assignment and the legal title of the above property has thereby transferred to Fresh Energy Limited. Although it appeared that Mr. Choi Ho Bun might have made a profit out of the transaction and therefore in breach of his fiduciary duty to Mr. Choi Wah, such breach, if there has been really such breach, did not render the said Assignment void. The duty of Mr. Choi Ho Bun thereafter would be to account to Mr. Choi Wah for any profit he has made, which is a matter between Messrs. Choi Wah and Choi Ho Bun and does not affect our client's title".

18. Not satisfied with this answer, the Purchasers' Solicitors replied in their letter dated the 25th May, 1994 stating that:-

"3. Assignment Mem. No. 3487230

(I) Insofar as the validity on the execution of the Vendors in the Assignment Mem. No. 3487230 is concerned, unless you can enlighten us with authorities in support of your propositions (a) that "Mr. Cho Ho Bun has been properly authorised under the Power of Attorney dated 21st August 1986 in pursuance to Clause 2 thereof to execute the said Assignment and the legal estate of the above property has thereby transferred to Fresh Energy Limited" and (b) that breach of fiduciary duty to Mr. Choi Wah (the Donor) owed by Mr. Choi Hoi Bun (the Attorney) does not affect the title of the said premises, we are unable to accept such reply as satisfactory answers to our requisition ... In view of the above and in the absence of any authorities from you, we would reiterate our request from you the draft Confirmatory Assignment to be executed by the Vendors and the Purchaser named in the said Assignment Mem. No. 3487230 for our approval and subsequent execution by the parties well in advance of the date of completion to ratify and confirm the said Assignment Mem. No. 3487230, the consideration of which was substantially below the then prevailing market value. "

19. The Vendor's Solicitors answered by letter dated the 28th May, 1994 stating that:-

"3. (I) We maintain that sufficient powers were conferred upon Mr. Choi Ho Bun by the Power of Attorney dated 21st August 1986 ...

The magnitude of Mr. Choi Wah's claim is immaterial. What would concern us is if Mr. Choi Wah would have a successful claim against the above property. In view of the above, we opine the negative. "

20. On the same day, the Purchasers issued the riginating Summons herein.

21. The fact that additional stamp duty was assessed appears on the face of the title deeds and documents and on the face of the register and public documents kept in the Land Office in relation to the Property. There is evidence that the Donee might have made a gift to himself by assigning to Fresh Energy Limited, although only to the extent of $62,500.00. The question is whether the Donee was empowered by the Power of Attorney to make this or any gift to or otherwise benefit himself, directly or indirectly.

Common grounds

22. This turns on the true construction of the Power of Attorney. Although there was some dispute on the 1st day of the hearing, Counsel for both parties eventually agreed that if the Donee acted without authority, he did not bind the Donor, and that if the Donee purported to dispose of the Donor's properties without authority, no interest, whether legal or beneficial, would pass.

23. It was common ground that the relationship between the donor and the donee under a power of attorney was one of principal and agent, that the relationship of agency was of a fiduciary nature, and that the donee owed the donor duties of a fiduciary nature.

24. It was also common ground that the question was one of pure construction of the Power of Attorney and that one should not look beyond the 4 corners of the document.

The Reckitt Case

25. Counsel for both parties referred me to a number of authorities. I shall start with the dissenting judgment of Russell J. in the Court of Appeal in Reckitt v. Barnett, Pembroke & Slater Ltd. [1928] 2 Q.B. 244, at pp. 268 - 269, emphasis added:-

"It is said that the plaintiff's statement to the bank that he wishes the power of attorney to cover the drawing of cheques upon them by Mr. Woodhouse 'without restriction', operates to enlarge the powers conferred by the power of attorney, and to such a sweeping extent that Lord Terrington became authorised to do what he liked with the plaintiff's moneys, even to the extent of applying them in payment of his own personal debts. It would need words unambiguous and irresistible to enable me to attribute such a meaning and intention to a power of attorney. The primary object of a power of attorney is to enable the attorney to act in the management of his principal's affairs. An attorney cannot, in the absence of a clear power so to do. make presents to himself or to others of his principal's property. Thus it has been held by the Court of Appeal that a power to mortgage does not enable an attorney to execute a mortgage of the principal's property to secure an existing debt of the principal. Such a mortgage was held to be invalid: In re Bowles. In the present case we are asked to hold that a document under seal addressed to the world at large is completely altered in its scope by virtue of a letter addressed to the plainitff's bankers and to no one else. We are not, in my opinion, justified in treating the matter as though a clause to the same effect as the letter had been added to the power of attorney. The letter appears to me only a document whereby the plaintiff's bankers would be protected as against the plainiff in honouring cheques drawn by the attorney.

Even assuming that this letter is not to be treated as a communication made solely to the principal's bank for the purpose of enabling them, without any question, risk, or liability, to honour all cheques drawn by the attorney, but is to be treated as forming part of the power of attorney, I am unable to find words which would justify me in holding that it conferred a power on the attorney to apply his principal's moneys for his private purposes. The words 'without restriction' can be sufficiently satisfied by interpreting them to mean without restriction as to amount.

Powers of attomey are to be construed strictly; and where authority to do an act purporting to be done under a power of attorney is challenged, it is necessary to show that on a fair construction of the whole instrument the authority in question is to be found within the four corners of the instrument either in express terms or by necessary implication: Bryant's case. Construing the power of attorney and the letter upon those principles, I am unable to find either in express terms or by necessary implication authority in the attorney to draw cheques on the plaintiff's bankers in favour of the attorney's personal creditors."

Principles applicable to construction of powers of attorney

26. I have quoted the above passage in full to show the context in which Russell J. stated general principles in the terms of the 2 passages underlined. The learned Judge set out the contention of the defendants, stated general principles of law, gave an illustration of the application of the general principles, dealt with the documents which he was concerned with, stated general principles of law, and proceeded to apply those principles. In my judgment, Russell J. was stating the general principles applicable to the construction of powers of attorney when he said that:-

"The primary object of a power of attorney is to enable the attorney to act in the management of his principal's affairs. An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property."

27. In my judgment, Russell J. was again stating general principles when he said that:-

"Powers of attorney are to be construed strictly; and where authority to do an act purporting to be done under a power of attorney is challenged, it is necessary to show that on a fair construction of the whole instrument the authority in question is to be found within the four corners of the instrument either in express terms or by necessary implication: Byrant's case."

28. Russell J. then proceeded to apply "those principles" to construe the power of attorney and the letter before him.

29. The dissenting judgment of Russell J. was expressly approved in the House of Lords by Lord Hailsham L.C. {Reckitt v. Barnett, Pembroke & Slater Ltd. [1929] A.C. 176 at p. 183} and Lord Warrington (at p. 195).

30. My view that Russell J. was stating general principles is in line with what our Court of Appeal said in Overseas Trust Bank Ltd. v. Tang Che Ching and Others, Civil Appeal No. 47 of 1989, unreported, 4th July, 1989 at pp. 6 - 7 (emphasis added):-

"It would be surprising if the terms of an agent's appointment were to be found susceptible of the construction that he was permitted to act otherwise than in the interests of his principal. As Russell J. observed in Reckitt v. Barnett, Pembroke and Slater. Ltd. [1929] 2 K.B. 244 at p. 268 in the course of a judgment subsequently approved in the House of Lords ([1929] A.C. 176):

'It is said that the plaintiff's statement to the bank that he wishes the power of attorney to cover the drawing of cheques upon them by Mr. Woodhouse 'without restriction', operates to enlarge the powers conferred by the power of attorney, and to such a sweeping extent that Lord Terrington became authorised to do what he liked with the plaintiff's moneys, even to the extent of applying them in payment of his own personal debt. It would need words unambiguous and irresistible to enable me to attribute such a meaning and intention to a power of attorney. The primary object of a power of attorney is to enable the attorney to act in the management of his principal's affairs. An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property.'"

31. Li Ming On v. Lucky Apple Limited and Lo Sai Cheong, H.C.M.P. No. 1084 of 1992, unreported, 14th May, 1992, is further support for my view that Russell J. was stating general principles. At pp. 8 - 9, Godfrey J. (as he then was) said that (emphasis added):-

"The law is clear enough. A useful statement of it is to be found in the judgment of Russell J. in Reckitt v. Barnett [1929] 2 K.B. 244 at p. 268, subsequently approved in the House of Lords at [1929] A.C. 176:-

"The primary object of a power of attorney is to enable the attorney to act in the management of its principal's affairs. An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property.'"

32. The learned judge then went on to consider the words of the power of attorney which he had to construe. They are quite different from Clauses 2 and 8 of the Power of Attorney. For this reason, I do not think it is necessary in my judgment to deal with the interesting submission of Mr. Horace Wong that the learned Judge was wrong in his construction of the power of attorney in that case.

33. If further judicial opinion in support of my view is necessary, there is this passage from the Judgment of Stock J. (as he was at the time of handing down of judgment) in Wong King Wai and Wong King Fai v. Chan Shui Ying, H.C.M.P. No. 708 of 1992, unreported, 10th July, 1992, at pp. 9 - 10 (emphasis added):-

"At p. 268 Russell J. addressed the fundamental principles:

'It is said that the plaintiff's statement to the bank that he wishes the power of attorney to cover the drawing of cheques upon them ... "without restriction" operates to enlarge the power conferred by the power of attorney, and to such a sweeping extent that [the donee] became authorized to do what he liked with the plaintiff's moneys, even to the extent of applying them in payment of his own personal debts. It would need words unambiguous and irresistable to enable me to attribute such a meaning and intention to a power of attorney. The primary object of a power of attorney is to enable the attorney to act in the management of his principal's affairs. An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property.'"

Construction of the Power of Attorney

34. Construing the Power of Attorney upon the principles stated by Russell J., and reading Clauses 2 and 8 (the only provisions relied on by Mr. Wong) fairly, objectively and carefully, I find that neither Clause 2 nor Clause 8 contained any clear or express power for the Donee to make any present to or otherwise benefit himself, whether directly or through a Company in which he was interested as a shareholder and director. Nor is it a necessary implication by Clause 2 and/or Clause 8 that the Donee should have power to benefit himself. Clause 1, which is relied on by the Purchasers, expressly set out what was stated by Russell J. to be the primary object of a power of attorney, i.e. to enable the attorney to act in the management of his principal's affairs. As I understand it, Mr. Wong's contention was that by virtue of Clause 2, the question of the consideration was to be decided by the Donee, and the Donee alone, whether or not the Donee stood to gain thereby. Taking Mr. Wong's contention to its logical extreme, the Donee must have authority under Clause 2 to sell the Property to himself at $1 so long as the Donee "thought fit". That seems to me to be patently absurd and cannot be right. Further, to adopt Mr. Wong's construction would be to permit the Donee to act otherwise than in the interests of his principal, the Donor, and in the Donee's personal interests.

There are no clear or unambiguous words to allow the Donee to act in his personal interests at the expense of the Donor. In my judgment, Clause 2 is not in terms wide or clear enough to cover a sale at what might be at a not insignificant undervalue to a company which the Donee was interested as shareholder and director. Clause 8 does not in my judgment take the Vendor's case any further.

Conclusion

35. In the judgment, the Donee had no power under the Power of Attorney to execute the Assignment to Fresh Energy Limited.

36. The Assignment was executed by the Donee without the authority of the Donor. It was common ground that, in the absence of authority, no interest of the Donor, whether legal or beneficial, would pass under the Assignment. It follows that the Purchaser's requisitions have not been sufficiently answered by the Vendor; that a good title to the Property has not been shown in accordance with the Agreement; that the Purchasers are entitled to a refund of the deposit and part payment made with interest, and to be paid their cost of investigating the title. I therefore make an Order in these terms:-

(1) A Declaration that the requisitions of the Purchasers in respect of the title of the Property comprised in the Agreement made in its solicitors' letters dated 30th March 1994, 7th April 1994, 5th May 1994, 17th May 1994, 25th May 1994 and 27th May 1994 have not been sufficiently answered by the Vendor;

(2) A Declaration that a good title to the Property has not been shown in accordance with the Agreement;

(3) A Declaration that the Purchasers are not obliged to complete the purchase pursuant to the Agreement;

(4) The Vendor do pay the Purchasers the sum of HK$770,000.00 being the total amount of deposit and part payment previously paid to the Vendor together with interest thereon at judgment rate(s) from the 9th April, 1994 to the date of Judgment;

(5) The Vendor do pay to the Purchasers their costs of investigating the title of the Property.

37. I order a stay of execution of the Judgment under Paragraph (4) above until the 14th July, 1994. I also make an Order Nisi, to be made absolute within 14 days, that the Vendor do pay the Purchasers the costs of these proceedings, to be taxed if not agreed.

Estimated time of hearing

38. Before I leave this case, I must say a few words about the estimated time of hearing in this case. The hearing before me was set down for ½ day. The Purchasers sought a declaration that the requisitions raised in no less than 11 letters had not been sufficiently answered. The Bundle runs to 233 pages, not including further Affirmations put in by consent. The Purchasers' List of Authorities has 11 items, and the Vendor's 14 items, not including further cases referred to in submission. I appreciate that it is notoriously difficult to give an accurate estimate of the time of hearing, for the length depends on a number of factors which may be outside the control of the person(s) giving the estimate. But the parties must make a bona fide estimate and inform the listing officer of their genuine estimate. What they should not do is to give a shorter period than was in fact estimated in order to secure an earlier hearing date, or to give a longer period in order to secure a later hearing date. I do not suggest that the parties understated their estimate in this case. But the fact is that the hearing of this case overran its estimate of ½ day, resulting in the matter fixed before me to be heard in the afternoon of the 10th June, 1994 being transferred to another judge at short notice; and in the postponement of the commencement of the trial of a fixture list case due to start before me on the 15th June, 1994 by 1 day.

39. Having said that, I must record my gratitude to all 3 Counsel who appeared before me, as without their able and succinct submissions and assistance (particularly where all the local decisions referred to in this Judgment are unreported), the hearing could not have been concluded in 2 days.

Representation:

Mr. Johnny S.L. Mok (10/6/94) and Mr. Erik Shum (15/6/94) (Lo, Chan & Leung) for Plaintiffs

Mr. Horace Wong (Tsang & Chan) for Defendant