Gimex Development Ltd v. Cua Wai Tai and Another

CACV000174/1999

CACV 174/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 174 OF 1999

(ON APPEAL FROM HCMP 194 OF 1998)

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Coram: Hon. Leong and Keith, JJ.A. and Cheung, J. in Court

Date of hearing: 7 October 1999

Date of handing down judgment: 8 November 1999

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J U D G M E N T

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Leong, J.A.:

1. The 1st and the 2nd respondents in the present appeal are husband and wife. By a Provisional Sale and Purchase Agreement dated 26 February 1990, the respondents purchased Flat C on 15/F Trillion Court, No. 1 Dragon Terrace, Causeway Bay, Hong Kong ("the property"). Who actually executed this provisional agreement is not known since the document was not produced in evidence.

2. On 20th March 1990, the 2nd respondent granted a general Power of Attorney to the 1st respondent authorising the 1st respondent, inter alia, to enter into an agreement for the purchase of the property and to dispose of the property on her behalf. On the same day, the 1st respondent granted a similar general Power of Attorney to a Mr. Choi. In the recital of this Power of Attorney, the 1st respondent referred to the Provisional Agreement of 26th February 1990 and stated that it was signed by Mr. Choi for him and the 2nd respondent. The 1st respondent also signed a "Deed of Substitution" appointing Mr. Choi to act for the 2nd respondent in substitution for himself. In other words, the 1st respondent had subdelegated to Mr. Choi to act for the 2nd respondent.

3. On 23rd March 1990, Mr. Choi acting for the 1st respondent under the 1st respondent's Power of Attorney and acting for the 2nd respondent under the Deed of Substitution signed by the 1st respondent, executed a formal Sale and Purchase Agreement to purchase the property for the two respondents. He also signed on behalf of the two respondents an agreement for the sale of the property to the appellant. On 28th December 1998, the property was assigned by the developer to the appellant, with the 1st and 2nd respondents as confirmors. However, the Confirmatory Deed was not signed by either of the two respondents.

4. In these circumstances, if the 1st respondent could not in law subdelegate to Mr. Choi his power to act for the 2nd respondent, Mr. Choi would have no power to act for the 2nd respondent to dispose of her interest in the property and the purported execution of the agreement for sale on behalf of the 2nd respondent would be invalid. If that be the case, the 2nd respondent's interest in the property would not have passed to the appellant. The result as it appeared to the appellant was that the appellant's title to the property would be affected.

5. The appellant therefore sought by way of an Originating Summons the following declarations from the court:

1. the 1st respondent as attorney for the 2nd respondent was entitled/empowered to appoint or substitute another person;

2. the Deed of Substitution was valid to constitute Mr. Choi an attorney for the 2nd respondent;

3. the assignment executed by Mr. Choi was validly executed by Mr. Choi as attorney for both respondents;

4. alternatively, the two respondents have no further interest in the property.

6. The 1st and 2nd respondents were duly served with the Originating Summons but they did not contest the proceedings nor appear at the hearing to contest them.

7. At the hearing of the Originating Summons before Yuen, J., the appellant's case proceeded on the basis that the interest of both respondents in the property derived from the Provisional Sales and Purchase Agreement signed by Mr. Choi on their behalf. The absence of the Provisional Sales and Purchase Agreement was not raised and it may be assumed that the absence of the document was not regarded as significant. It was submitted before the Judge for the appellant that the failure of the two respondents to sign the confirmatory document, to acknowledge receipt of the legal documents and to contest the appellant's case, was evidence that they acknowledged they no longer had any interest in the property.

8. The Judge found on the principles of agency, that the 1st respondent could not delegate the power to act for the 2nd respondent to Mr. Choi. The fact that the 1st respondent was the husband of the 2nd respondent did not imply that the 2nd respondent had authorised Mr. Choi to sell the property on her behalf.

9. Accordingly the Judge refused to grant the first three declarations sought by the appellant.

10. The Judge also refused to grant the alternative declaration that the two respondents or the 2nd respondent, in particular, had no further interest in the property. The Judge's conclusion was the evidence was insufficient for her to draw such a conclusion. In her judgment, the Judge said this:

"I do not see how I can declare that the wife has no further interest in the Property when, as I have found, she has not validly disposed of her interest in the Property via the Deed of Substitution and the disposal or purported disposal of her interest by Mr. Choi. The fact that she has not contested these proceedings in Hong Kong may be explained by a number of matters, but I will need at least some evidence to show that she has chosen not to defend these proceedings because she has acknowledged that she has no further interest in the Property. The evidence, however, is that both had previously refused to sign Confirmatory Deeds and in the same way both had refused to sign any acknowledgements of receipt of the documents in these proceedings."

11. The appellant appealed. The appellant's ground was this:

12. The silence and inaction of the two respondents after being served with the appellant's proceedings would estop the two respondents from asserting that they still have an interest in the property.

13. There was no appeal against the refusal of the first three declarations. Mr. Chain for the appellant submitted that the respondents' inaction in defending the proceedings was compelling evidence that the respondents acknowledged that they no longer had an interest in the property. Mr. Chain contended that the respondents were estopped from asserting their rights in the property because:

1. in the case of the 1st respondent, he had plainly disposed of his interest through his authorised agent Mr. Choi; and

2. in the case of the 2nd respondent, since she had authorised the 1st respondent to dispose of her interest on her behalf, she must have agreed to the 1st respondent disposing of it through Mr. Choi, albeit such disposal was legally invalid. If she was not aware of such disposal in 1990, she must be aware of this in 1997 when the appellant's solicitors wrote to her on 7th May 1997. These proceedings were taken out in January 1998. Between May 1997 and the commencement of these proceedings, over a period of 7 months, she took no action in response. After she became aware of the adverse dealing of her interest in the property, whether in 1990 or 1997, the 2nd respondent was under a duty to protest. But she did not do so.

Referring to paragraphs 56 and 57 of Spencer Bower and Turner, The Law Relating to Estoppel by Representation (3rd edn.) and Spiro v. Lintern [1973] 1 WLR 1002, Mr. Chain submitted that in the circumstances of the present case, the 2nd respondent's inaction gave rise to an estoppel by conduct and she was precluded from asserting her rights in the property.

14. Paragraphs 56 and 57 state:

"56. Where a person, having a title, right, or claim to property of any kind, perceives that another person is innocently, and in ignorance, conducting himself with reference to the property in a manner inconsistent with such title, right, or claim, it is the duty of the former to undeceive the other party forthwith; if he omits to do so, and if all the other conditions of a valid estoppel are satisfied, he is precluded from exercising or asserting his right or title or claim as against such other party on any subsequent occasion. In such cases, the law follows the language of the Church in the Marriage Service, - 'let him now speak, or else hereafter for ever hold his peace,' - and regards the absence of notice or protest as a representation of the absence of the right, title, or interest which should have been the subject of such notice or protest. The same consequences follow the suppression of any incumbrance, charge, or lien, which the party may have on the property.

57. So, also, if a party, having a right to assert his status as a shareholder in a company, or his right to a share in any business or concern, is mute and passive whilst proceedings are being taken by the company, or other persons interested in the business or concern, to forfeit his share or deal with the property as if he had no part or lot therein, and makes no protest or complaint, and takes no step to prevent or defeat such proceedings, this passivity on his part operates either as a representation that he has finally abandoned any claim to such status, right, or interest which he may have ever possessed, or else as an acknowledgement that he never had any such claim at all; and, in either case, he is precluded from asserting it on any subsequent occasion as against the parties to whose adverse proceedings he raised no objection at the time."

15. In Spiro v. Lintern, the defendant, a husband who knew that his wife had acted without his authority in entering into an agreement for the sale of his house, was held to be under a duty to disclose to the buyer that his wife had acted without his authority and his failure to do so amounted to representation by conduct that she had his authority. Since the buyer had acted on that representation to his detriment, the defendant was estopped from asserting that the agreement was entered into without his authority.

16. These propositions may well be the law relating to estoppel by representation and inaction and what circumstances would give rise to it. However, they do not assist the appellant in the present case.

17. Here, there was no evidence that the 1st respondent executed the Deed of Substitution with the consent of the 2nd respondent or she was aware of such subdelegation of her authority to Mr. Choi. There was no evidence that the 2nd respondent had authorised Mr. Choi to dispose of her interest in the property on her behalf or that she consented to or knew of such disposal i.e. she knew the property was disposed of by someone without her authority against her interest. The only evidence was that the Confirmatory Deed was sent to the respondents' Philippine address and the court documents in respect of the Originating Summons were also sent there by registered post and these were not returned. There was no acknowledgement of receipt of any of these legal documents. Can it reasonably be inferred from the respondents' relationship of husband and wife and the authority the 2nd respondent granted to her husband that the 2nd respondent must have known that her husband would appoint Mr. Choi to dispose of her interest in the property on her behalf? Or she knew that Mr. Choi had purportedly on her behalf disposed of her interest? I do not think so. The letter dated 7th May, 1997 was some seven years after the purported disposal of her interest by Mr. Choi. That could not be relied on to show that she was aware of the disposal in 1990. In any case, the purpose of the letter was to ask her to sign the Confirmatory Deed and not in respect of any impending proceedings in respect of the property. The 2nd respondent's inaction in the face of such a letter could not be taken as representation by her that she no longer had any interest in the property. On the contrary, her refusal indicated she did not acknowledge that she no longer had an interest in the property. The Judge was entitled in the face of such evidence, refuse to draw a conclusion that the 2nd respondent had no further interest in the property. The evidence, without more, is insufficient to show a representation by the 2nd respondent that Mr. Choi had her authority to dispose of the property so as to give rise to an estoppel by representation or by conduct.

18. In any case, it was the appellant who sought the declaration and it was for the appellant to show that the Respondents had no such interest. The respondents did not seek to assert their interest in the property. If the latter be the case, the appellant might be able to argue that the respondents were estopped from asserting their rights. However, in law, one cannot found an action upon estoppel. As Denning, L.J. said in Lyle-meller v. A. Lewis & Co. (Westminster) Ltd. [1956] 1 AER 247 at 251 (a case not referred to by Mr. Chain), "It did not give rise to a cause of action in itself, but it did prevent the party making it from setting up a defence which would otherwise be open to him.". In any case an estoppel does not extinguish a party's right in the property, albeit it prevents him from asserting such right. The declaration sought was to extinguish the 2nd respondent's right and the appellant could not rely on estoppel to support his claim.

19. As regards the 1st respondent, clearly Mr. Choi had his express authority to dispose of his interest in the property. The fact that the Confirmatory Deed was not signed by the 1st respondent is immaterial. That being the case, a declaration that he no longer had an interest would not be necessary.

20. I am unable to agree with the conclusion of Keith, J.A. and Cheung, J. that the 2nd respondent had ratified the purported disposal of her interest by Mr. Choi. As I have said, the evidence before the Judge could not admit an inference that the 2nd respondent knew what Mr. Choi did. In the absence of such knowledge and since the 2nd respondent had refused to execute the Confirmatory Deed, the 2nd respondent could not be taken to have ratified the disposal.

21. On the case before her, the Judge must be right in refusing the application. For my part I would dismiss the appeal.

Keith, J.A.:

Introduction

22. This is an appeal from the refusal of Yuen J. to declare that the 2nd Defendant ("the wife") had no interest in a flat in Causeway Bay. The evidence before the judge was that the 1st Defendant ("the husband") and the wife agreed on 23rd March 1990 to purchase the flat. On 28th December 1990, the flat was assigned to the Plaintiff, and the husband and the wife executed the assignment as confirmors. The formal agreement for the sale of the flat to the husband and the wife in the first place, and the subsequent assignment of the flat to the Plaintiff, were signed on behalf of the husband by Choi Che Keung, who was indisputably his lawful attorney. But they were signed on behalf of the wife also by Mr. Choi, who purported to be her lawful attorney as well.

The issues before the judge

23. The Plaintiff now wishes to sell the flat. It is worried that the wife may still be regarded as having an interest in the flat, since there is a possibility that Mr. Choi may not have been validly appointed as the wife's attorney. It issued these proceedings to obtain a declaration, amongst other things, that Mr. Choi had been validly appointed as her attorney. The judge decided that Mr. Choi had not been validly appointed as the wife's attorney, and she therefore refused to make the declarations sought. There is no appeal from that finding. But in case the judge made that finding, the Plaintiff had also sought a declaration that, even if Mr. Choi could not have validly signed the assignment to the Plaintiff on the wife's behalf, she no longer had an interest in the flat. The judge refused to make that declaration as well. It is from that refusal that the Plaintiff now appeals.

Had the wife ever acquired an interest in the flat?

24. At one stage, I thought that the answer might be that the wife had never acquired an interest in the flat at all. If Mr. Choi had not been her lawful attorney in December 1990 when he purported to sign the assignment of the flat to the Plaintiff on behalf of the wife as one of the confirmors, he could not have been her lawful attorney in March 1990 when he purported to sign the formal sale and purchase agreement. It had been by that agreement that the flat was to be sold to the husband and the wife in the first place, and by which the wife would have acquired, pending an assignment to her and her husband of the flat, a half-interest in the equitable interest in the flat.

25. However, that would have been to ignore the provisional agreement for the sale of the flat to the husband and the wife which had been signed in February 1990. The existence of that provisional agreement was referred to in the recital of the instrument by which the husband appointed Mr. Choi as his attorney. The recital referred to the provisional agreement for the sale of the flat as having been made between the vendor "of the one part" and Mr. Choi "as agent for [the husband] and [the wife] of the other part". Those words are ambiguous. On one view, Mr. Choi could have signed the provisional agreement on behalf of the husband and the wife. The alternative view is that he signed the provisional agreement on behalf of the husband only, and the wife signed the agreement herself.

26. This ambiguity could have been resolved by the production to Yuen J. of the provisional sale agreement. It was not produced to her. The burden of proving that the wife had never acquired an interest in the flat was on the Plaintiff. It did not seek to do so, which is why Yuen J. understandably did not address the issue. As it is, on the evidence which was placed before Yuen J., the Plaintiff had not excluded the possibility that the wife had signed the provisional agreement in her own right. That was accepted by Mr. Benjamin Chain for the Plaintiff (who did not represent the Plaintiff before Yuen J.), which was why he did not seek to argue that the wife had never acquired an interest in the flat.

Estoppel

27. The Plaintiff's case before the judge was that the court could infer from the wife's failure to defend the proceedings that she no longer had an interest in the flat. That was rejected by the judge, and it has resulted in Mr. Chain putting the case now in a different way. The argument proceeds on the basis that there is evidence that the husband and the wife are still married and living together in Manila. From that, it can be inferred that the wife knew something of their joint affairs in 1990, because there would have been no reason for the husband to conceal them from her. From those facts, it can be inferred that (a) the wife had known of the joint interest of her and her husband in the flat, and (b) her husband had disposed of his interest in the flat in December 1990. If those inferences can be drawn, it can then be inferred, from her knowledge of those facts, that she knew by the beginning of 1991 that her husband had purported to divest her of her interest in the flat, because

(a) she had authorised her husband to act on her behalf (by executing a power of attorney in his favour on 20th March 1990), and

(b) if her husband was disposing of his interest in the flat, he would have wanted to dispose of her interest in the flat as well.

28. I do not disagree with any of that. I am prepared to proceed on the factual basis that by the beginning of 1991, the wife had consented to the husband disposing of her interest in the flat as well as his, and that she believed that he had done so. Like her husband, she was unaware that her husband's attempt to dispose of her interest in the flat had not been effective.

29. However, I do not think that these facts entitle the Plaintiff to a declaration that the wife no longer has an interest in the flat. The fact that she wanted to dispose of her interest in the flat, and thought that her interest in the flat had been disposed of, does not mean that it was in fact disposed of. And the doctrine of estoppel on which Mr. Chain relies does not help the Plaintiff for two reasons:

(i) The most which estoppel can do is to prevent the wife from asserting that she still has an interest in the flat. Since the wife does not assert that she still has an interest in the flat, preventing her from asserting that would be an empty gesture.

(ii) In any event, I have not discerned any words or conduct on the part of the wife (or any inactivity on her part) which led the Plaintiff to act to its detriment. That is a pre-requisite for an estoppel to arise.

The plain fact is that the court can only declare that the wife no longer has an interest in the flat if the court is satisfied that the wife disposed of her interest in the flat in a way which the law recognises. On that issue, I repeat what I have already said. I am prepared to assume that the wife wanted to dispose of her interest in the flat. Indeed, I am prepared to assume that she thought that she had done so. But that does not convert the ineffective method which was adopted to dispose of her interest into an effective one.

Ratification

30. In an attempt to find a way of helping the Plaintiff, Cheung J. has looked at another possible route by which it might be said that the wife no longer has an interest in the flat. For the reasons set out in his judgment (which I have had the advantage of reading in draft), he has concluded that the wife should be regarded as having ratified (in 1990, but if not then in 1997) Mr. Choi's purported disposal of her interest in the flat. In other words, although Mr. Choi had not been validly appointed as the wife's attorney, his unauthorised act in purporting to dispose of her interest in the flat was subsequently ratified by her, with the result that Mr. Choi is to be treated as having had the actual authority to dispose of her interest in the flat.

31. In addressing this issue, I repeat what I said earlier when considering estoppel: it can be inferred that the wife knew, by the beginning of 1991, that her husband had purported to divest her of her interest in the flat, because

(a) she had authorised her husband to act on her behalf, and

(b) if her husband was disposing of his interest in the flat, he would have wanted to dispose of her interest as well.

The difficulty in relying on the doctrine of ratification is that there is no evidence that the wife knew how her husband had purported to divest her of her interest in the flat, i.e. she did not know that he had purported to appoint Mr. Choi as her attorney. But after some hesitation, I have concluded that that should not prevent the doctrine of ratification coming to the Plaintiff's aid, provided that (as I am prepared to infer) the wife knew that her husband had purported to dispose of her interest in the flat. In my view, she ratified the purported disposal of her interest in the flat (even though she did not know how it had been disposed of) when, having known that her husband had purported to dispose of it, she took no steps to disown the purported disposal of it.

Conclusion

32. For these reasons, I wish to follow the path so innovatively charted by Cheung J. I agree with him that by acquiescing in the purported disposal of her interest in the flat (albeit without knowledge of how it had been disposed of) the wife had ratified the disposal of it by the beginning of 1991. In those circumstances, I find it unnecessary to consider whether, if that is not the case, she ratified it in 1997. For these reasons, I would allow the appeal, I would set aside the refusal of the judge to declare that the wife no longer had an interest in the flat, and I would declare that she no longer has an interest in the flat. The Plaintiff has never sought to obtain an award of its costs of the proceedings, and the order nisi which I would therefore make is that there be no order as to the costs of the proceedings or of the appeal.

33. Finally, I should add that the Plaintiff had asked for a declaration that not only the wife but also the husband no longer had an interest in the flat. There was no need for the Plaintiff to seek such a declaration in the case of the husband, because there had never been any doubt that the husband had validly assigned his interest in the flat. Despite that, the judge refused to declare that the husband no longer had an interest in the flat. In my view, she was entitled to do that - on the basis that, there being no doubt as to the effective disposal of his interest in the flat, it had not been appropriate for a declaration to be sought to that effect.

Cheung, J:

Facts

34. The Defendants are husband and wife. By an agreement dated 23rd March 1990, they bought a property under construction from a developer. On the same day, they sold their interest in the property to the Plaintiff. The agreements for these two transactions were executed by Mr Choi Che Cheung ("Mr Choi"), as attorney for the Defendants.

35. On 28th December 1990, the developer assigned the property to the Plaintiff with the Defendants as confirmors. Mr Choi again executed the assignment on behalf of the Defendants.

36. Mr Choi was appointed as an attorney by the husband in respect of his interest in the property. The wife, on the other hand, appointed the husband to be her attorney under a general power of attorney. However, her husband, instead of performing the task of an attorney himself, substituted Mr Choi to be the attorney for the wife.

The Plaintiff's application

37. The validity of the disposal by Mr Choi of the wife's interest is in doubt. The Plaintiff is now seeking a declaration that the Defendants have no further interest in the property. There is no doubt that the husband no longer has any interest in the property. The only issue concerns the wife's interest.

Agent without authority

38. The legal principle is clear : an agent cannot himself delegate discretions to act for another person to someone. The effect of such an unauthorised delegation is that the acts performed by a purported sub-agent will not be valid, where validity is in question, nor bind or entitle the principal : Bowstead & Reynolds on Agency : Para.5-004.

Ratification by the principal

39. Where the principal knows of the agent's intention at the time of his employment to delegate, or subsequently acquiesces in the delegation, or where the very nature of the employment necessitates a partial or total delegation, the rule prohibiting delegation can have no application : Halsbury's Laws of England (4th Ed. Reissue) Vol.1(2), para.68.

40. Although a ratification must be clear and must bear distinct reference to the facts of the particular case, it need not necessarily be proved by positive acts of adoption. In certain cases it is sufficient evidence of ratification that the intended principal, having all material facts brought to his knowledge and knowing that he is being regarded as having accepted the position of principal, takes no steps to disown that character within a reasonable time, or adopts no means of asserting his rights at the earliest time possible : Halsbury, para.83.

Evidence of Ratification : 1990

41. Ratification was not an issue raised by Mr Chain, Counsel for the Plaintiff. But in my view, there is evidence of ratification which supports the declaration sought by the Plaintiff. Central to the Plaintiff's claim is whether the wife had knowledge that her interest in the property had been disposed of by Mr Choi, agreed to it and as a result ratified his act. The husband and wife are living together. The wife was prepared to let someone else, namely the husband, taking care of her interest. The husband had also, at the same time, authorised Mr Choi to dispose of his interest in the property. All the legal documents were prepared by the same firm of solicitors. As apparent from the Deed in which the husband appointed Mr Choi as the attorney for the wife in substitution for himself, the husband clearly intended Mr Choi to complete the purchase (by which time a provisional agreement had already been signed between the developer and Mr Choi acting as an agent for the husband and wife) and dispose of the wife's interest either before or after the completion of the purchase. The substitution is understandable as both the husband and wife lived in the Philippines whereas the transaction was to take place in Hong Kong.

42. The reasonable inference is that in 1990 the wife must have knowledge that her interest in the property had been disposed of by Mr Choi and approved of it. With these facts, I think it can hardly be argued that the wife would insist that it should be her husband and not Mr Choi executing the documents on her behalf.

Events in May 1997

43. Furthermore, the Plaintiff has been in occupation of the property since 1990. On 7th May 1997, the Plaintiff's solicitors wrote to the wife informing her that the Plaintiff was the registered owner of the property and requesting her to sign a confirmatory deed. The deed was not produced but the letter stated that :

"We act for Gimex Development Limited, the registered owner of the Property which was assigned to our client by you and Mr Cua Wai Tai as confirmor.

Our client was advised that there may be doubt on the validity of the Assignment of the Property executed by a Mr Choi Che Keung on your behalf. For avoidance of doubt, our client would like to have your assistance by executing a Confirmatory Deed to adopt and confirm the Assignment."

This letter clearly points to the fact that the wife by May 1997, if not earlier, was appraised of the fact that Mr Choi had purported to act on her behalf in disposing her interest in the property and the Plaintiff was making an adverse claim towards her. She took no steps to disown what Mr Choi had done or assert her right at the earliest possible time. Despite the service of the court documents on her, she had chosen to ignore the present proceedings. There may well be reasons for her not to sign the confirmatory deed, but the fact remains that, if she had not authorised Mr Choi at all, she had not taken any steps to protect and assert her right. Without going into the question of estoppel urged upon us by Mr Chain, in my view this is a clear case of ratification by acquiescence.

Conclusion

44. In the circumstances, by reason of the different approach I have adopted, I would respectfully differ from the conclusion of the learned Judge and hold that the Plaintiff is entitled to succeed in its application.

Leong, J.A.:

45. By a majority of this court the appeal is allowed with no order as to costs, and it is declared that the 2nd respondent no longer has an interest in the flat.

Representation:

Mr. Benjamin Chain instructed by M/S Johnny K.K. Leung & Co. for Plaintiff/Appellant

Cua Wai-tai, 1st Defendant/1st Respondent in person (absent)

Giok En. K. Cua, 2nd Defendant/2nd Respondent in person (absent)