Docstoc

IN THE DISTRICT COURT OF HONG KONG - DOC

Document Sample
IN THE DISTRICT COURT OF HONG KONG - DOC Powered By Docstoc
					                                           HCMP 3289 of 1998

              IN THE HIGH COURT OF THE
     HONG KONG SPECIAL ADMINISTRATIVE REGION
              COURT OF FIRST INSTANCE
     MISCELLANEOUS PROCEEDINGS NO. 3289 OF 1998
                    ____________

                        IN THE MATTER of ALL THOSE
                        14/2,684th parts or shares of and in
                        Sub-section 1 of Section A of Inland Lot
                        No. 2456, Sub-section 2 of Section A of
                        Inland Lot No. 2456 and the Extension
                        thereto, the Remaining Portion of
                        Section A of Inland Lot No. 2456 and
                        the Extension thereto, the Remaining
                        Portion of Inland Lot No. 2456 and the
                        Extension thereto, (Flat A, 15th Floor,
                        Celeste Court, Nos. 10, 11 and 12 Fung
                        Fai Terrace, Hong Kong).

                                          and

                        IN THE MATTER of a mortgage dated
                        the 2nd May 1996 and registered in the
                        Land Registry by Memorial No.
                        6612178.
                                          and

                        IN THE MATTER of Order 88 of The
                        Rules of the High Court of Hong Kong.

                    ____________

BETWEEN
                                    - 2    -




                    STANDARD CHARTERED BANK                           Plaintiff

                                     and

                                TANG CHUN                        1st Defendant
                              SHEM YIN FUN                      2nd Defendant

                               ____________


Coram: Deputy Judge Li in Court
Dates of Hearing: 1st and 2nd September 1999
Date of Handing Down Judgment: 16th September 1999


                               _____________

                             JUDGMENT
                             _______________

          The Defendants are, I believe, residents of Canada. They are the
registered owners, as joint tenants, of a piece of property situate and known
as Flat A, 15th Floor, Celeste Court, Nos. 10, 11 and 12 Fung Fai Terrace,
Hong Kong (“the property”). On 13th day of January 1995, the Defendants
executed a Power of Attorney (“the Power”) in favour of Madam Chow Sin
Ho (“the Attorney”). The precise terms of the Power are as follows:-
      “THIS GENERAL POWER OF ATTORNEY is made the 13th day of January One
      thousand nine hundred and ninety-five.
      By TANG CHUN (唐群) (Holder of Hong Kong I.D. Card No. A305696(4)) and
      SHEM YIN FUN (沈燕芬) (Holder of Hong Kong I.D. Card No. A305695(6) both
      of Unit 2608, 26th Floor, Block A, Kornhill, Quarry Bay, Hong Kong.
                                      - 3      -




             We appoint CHOW SIN HO (周倩荷) (Holder of Hong Kong I.D. Card No.
      D536400(1)) of Unit 2608, 26th Floor, Block A, Kornhill, Quarry Bay, Hong Kong
      to be our attorney in accordance with Section 7 of the Powers of Attorney
      Ordinance Chapter 31 of the laws of Hong Kong.
             IN WITNESS whereof we have hereunto set our hands and seals the day
      and year first above written.


      SIGNED SEALED AND ) [Signed in Chinese] [Signed in Chinese] [L.S.]
      DELIVERED by the said )      [Tang Chun]  [Shem Yin Fun] [L.S.]
      TANG CHUN and SHEM )
      YIN FUN in the present of:-)

                        [Signed]
                     WAN PO KA
          Clerk to Messrs. K.C. Tsang & Co.,
                Solicitors, Hong Kong,

      INTERPRETED BY:                              I hereby verify the signature of
                                                   WAN PO KA
                        [Signed]
                     WAN PO KA                                 [Signed]
          Clerk to Messrs. K.C. Tsang & Co.,           CHEUNG KIT LING Sandra
                Solicitors, Hong Kong.                     Solicitor, Hong Kong ”



2.        On 2nd May 1996, the Attorney executed a deed (“the Mortgage”)
thereby the Property was and still is mortgaged to the Plaintiff as security for
banking facilities granted by the Plaintiff to Delight Enterprises Limited,
Delight Industrial Company Limited, Legend Trading Co. Limited and Lung
Cheung Photo Supplier Limited (“the Borrowers”). The crucial parts of the
Mortgage are:-
          “THIS MORTGAE is dated the 2nd day of May 1996.
          PARTIES :
          (1)     TANG CHUN (唐群) and SHEM YIN FUN (沈燕芬) both
                  of Flat A, 15th Floor, Celeste Court, Nos. 10-12 Fung Fai
                  Terrace, Hong Kong (the “Mortgagor”);
          (2)     DELIGHT ENTERPRISES LIMITED )(大眾企業有限公
                              - 4    -




        司), DELIGHT INDUSTRIAL COMPANY LIMITED,
        LEGAND TRADING CO. LIMITED (集基實業有限公司)
        whose registered offices are all situate at Room 701, Luk
        Hoi Tung Building, No. 31 Queen‟s Road Central, Hong
        Kong and LUNG CHEUNG PHOTO SUPPLIES LIMITED
        (龍翔攝影材料有限公司) whose registered office is situate
        at Ground Floor, No. 64 Argyle Street, Kowloon, Hong
        Kong (the “Borrower”);
(3)     STANDARD CHARTERED BANK a body corporate
        incorporated by Royal Charter whose Head Office is at 1
        Aldermanbury Square, London EC2V 7SB, England having
        a branch office and carrying on business at No. 4-4A Des
        Voeux Road Central, Hong Kong (the “Lender”).
……………………
        Charging Clause
3.       The Mortgagor as beneficial owner and as continuing
security for the discharge of the Obligations and the observance and
performance by the Borrower and the Mortgagor of the agreements
covenants and conditions contained in this Mortgage:-
        (a)   charges the Property to the Lender by way of first
              fixed mortgage Provided that insofar as the Property
              comprises a legal estate in land this mortgage shall be
              a legal charge over the Property;
        (b)   (i)    assigns to the Lender all the interest of the
                     Mortgagor in and the benefit to the Mortgagor
                     arising out of all insurances relating to the
                     Property or any part thereof and the right to
                     receive any sums payable to the Mortgagor in
                     respect thereof;
              (ii)   agrees to assign legally to the Lender by a
                     document in a form and substance required by
                     the Lender all insurances relating to the Property
                     of which the Mortgagor is entitled to the benefit
                     forthwith upon notice by the Lender;
        (c)   assigns to the Lender, (and agrees to assign to the
              Lender and will, if so required, execute a separate
              assignment or separate assignments in such form and
              substance as the Lender may require of), the sale
              proceeds, the rents and other sums of money and
              deposits now or to become payable by virtue of each
              sale agreement, lease, tenancy agreement or other
                                        - 5     -




                         Disposal now or hereafter concluded in respect of the
                         Property or any part thereof together with power for
                         the Lender to sue for recovery and give effectual
                         discharges for the same in the name of the Mortgagor.
          ………………


          6.2(c)   the Mortgagor shall execute and do all such assurances, acts,
                   deeds and things as the Lender may require, and procure
                   other interested parties so to do, for protecting or perfecting
                   the security created by this Mortgage and to facilitate the
                   exercise of all powers, authorities and discretions vested in
                   the Lender or in any Receiver of the Property and shall in
                   particular execute all transfers, conveyances, assignments,
                   assurances and registrations, whether to the Lender or to its
                   nominees or purchasers, or sub-purchasers and give all
                   notices, orders and discretions which the Lender may think
                   expedient and, for the purposes of this Clause, a certificate in
                   writing by the Lender to the effect that any assurance or
                   thing required by it is reasonably required shall be
                   conclusive evidence of such fact;
          ………………


          SIGNED SEALED and DELIVERED by )                                 [L.S.]
          CHOW SIN HO, the lawful attorney of )
          The Mortgagor (Holder of Hong Kong )                      [Signed in Chinese]
          Identity Card No. D536400(1)) in the )                       Chow Sin Ho
          presence of :                        )


                                  [Signed]
                               LYDIA WU
                                Solicitor,
                               Hong Kong.”

3.        It is common ground that the Defendants had and have no
connection or dealings whatsoever with the Borrowers other than that they
are all parties to the Mortgage. It is assumed, putting the Defendants‟ case
at its highest, that the circumstances in which the Mortgage was executed
                                       - 6     -




were, as related by one Madam Chan, who is a good friend of the Attorney
and a shareholder and director of the Borrowers, in her affirmation filed on
12th December 1998, as follow:-
          “5.     In or about early 1996, I re-arranged the banking facilities of
                  the [Borrowers]. I recalled what [the Attorney] told me
                  about the Property and the power of attorney granted to her
                  by the 1st and 2nd Defendants. I therefore requested [the
                  Attorney] to mortgage the Property as security for banking
                  facilities for the [Borrowers] for a few months. She at first
                  refused saying that the 1st and 2nd Defendants did not know
                  me personally and they would not agree to such a mortgage.
          …………………..
          8.      At the time, a Mr. Patrick Lee (“Patrick Lee”) of the Plaintiff
                  was in charge of the [Borrowers‟] accounts with the Plaintiff.
                  I told Patrick Lee that [the Attorney] was a good friend of
                  mine and had agreed to mortgage the Property as security for
                  banking facilities for the [Borrowers]. I further told Patrick
                  Lee that the owners of the Property lived in Canada [and that
                  they were not aware of the intended mortgage]. Patrick Lee
                  told me that subject to confirmation by the Plaintiff‟s
                  solicitors of the scope of the power of attorney, [the Attorney]
                  should be about to execute a mortgage in respect of the
                  Property.
          9.      Patrick Lee later informed me that the Plaintiff‟s solicitors
                  had confirmed that [the Attorney‟s] power of attorney also
                  empowered her to execute a mortgage in respect of the
                  Property and that the Plaintiff would extend banking
                  facilities to the Companies on the execution of such a
                  mortgage.
          ………………………”


4.        Obviously, the Borrows defaulted in repayment and the Plaintiff
now seeks to enforce the Mortgage by Originating Summons under Order 88
of the Rules of the High Court, Cap. 4. The Defendants, naturally, oppose.
Since the facts of the case are essentially indisputable, it has been decided
and agreed that the case may be resolved by reference to a number of legal
                                     - 7     -




issues. Originally, there was a Joint List of Issues containing 14 questions.
At the trial, these were reduced to 5 questions. I shall deal with the issues
in the order and as framed by Mr. Jeremy Cheung for the Defendants.




(i)   Was the Power under which the Attorney purported to act a valid
      power when it was made?

5.        On this question, the argument from Mr. Cheung for the
Defendants runs like this. The Power was intended to have effect in
accordance with section 7(1) of the Power of Attorney Ordinance, Cap. 31
(“the Ordinance”). Section 7(1) provided as follows:-
          “(1)   Subject to subsection (2), a general power of attorney in the
                 form set out in the Schedule, or in a form to the like effect
                 but expressed to be made under this Ordinance, shall operate
                 to confer –
                 (a)   on the donee of the power; or
                 (b)   if there is more than one donee, on the donees acting
                       jointly or acting jointly or severally, as the case may
                       be, authority to do on behalf of the donor anything
                       which he can lawfully do by an attorney.”

Only powers which are in the form set out in the Schedule, or in a form to
the like effect but expressed to be made under the Ordinance, have the effect
specified in section 7(1). Although the section and the Schedule refer to the
possibility of two attorneys, they refer to only a single donor. In its own
terms, the form in the Schedule does not admit the possibility of two or more
donors.
                                       - 8    -




6.        Mr. Lam for the Plaintiff relies on Section 7(2) of the
Interpretation and General Clauses Ordinance, Cap. 1 which says:-
           “Words and expressions in the singular include the plural and words
           and expressions in the plural include the singular.”

Mr. Cheung countered that this subsection in the Interpretation and General
Clauses Ordinance, Cap. 1 contains a rider “unless the contrary intention
appears”. A “contrary intention appears” in the Powers of Attorney
Ordinance, Cap. 31 so as to exclude the admissibility of the plural.             Let it
be said at once that I cannot find the rider as suggested by Mr. Cheung.


7.        Nonetheless, in the spirit of counsel‟s industry, one should
examine more closely the argument and provide a fuller answer. Counsel
contended that the task of determining whether the plural is feasible is not
simply one of finding that the substitution of the plural for the singular
produces grammatical English. Mr. Cheung said that neither section 7(1)
nor the Schedule of the Ordinance admit the possibility of a general power of
attorney by joint and several donors because one would have to interpret
them as conferring “authority to do on behalf of the donors or either of them
anything which they can lawfully do by an attorney jointly or which either of
them can lawfully do severally by an attorney”. The formulation is not a
case of simply substituting the plural for the singular: it is to re-cast that part
of Section 7(1) in language of some complexity in order to cover several as
well as joint delegation of authority. In a nutshell, Mr. Cheung took the
view that each of the Defendants would have to execute a separate power of
attorney in order to appoint one attorney for the both of them.
                                       - 9    -




8.        With respect, I cannot subscribe to such view. One should start
with the premises that a power of attorney in the Schedule Form and under
Section 7 of the Ordinance (“statutory general power of attorney”) by one
donor vests all authority, including authority to deal with the several interests
of the donor and the donor‟s interests jointly with any other person. There
can be no doubt about this because in Multi-More Industries Ltd. v. Tung
Hoo Fai [1991] 2 HKC 261 at 267-268, with the concurrence of the other
two learned judges, Nazareth JA held that:-
          “On its plain meeting, s7 provides for two types of general powers of
          attorney, ie first, a power of attorney in the form set out in the
          Schedule and, second, a power of attorney in some other form to the
          like effect but expressed to be made under the Ordinance. Both are
          plainly and equivocally given the same effect; they operate to confer
          on the donee authority to do on behalf of the done anything which he
          can lawfully do by an attorney. Such authority is obviously wider
          than what is conferred by the power of attorney or any ‘general
          power of attorney’ limited to a particular property or subject matter.
          However desirable or beneficial it may be thought that the latter
          should be within s7, there is no ambiguity, obscurity or equally open
          alternative construction that would pave the way for that
          interpretation. Again, it may be observed that had that been the
          intended effect, it would have been quite simple to express it and to
          provide for both qualified application and appropriate limited effect.
          As the provision stands the only effect provided is the exhaustive
          grant of power.
          It is not without significance that, notwithstanding the approximately
          two decades that the English and Hong Kong provisions have been in
          force, no authority for the interpretation contended for and no
          approved precedent for the power of attorney can be found; that no
          the contrary, the practice on such evidence, as has been provided to
          the court, seems that the scheduled form is used only for unqualified,
          unlimited powers of attorney.” (Emphasis added)

So, when two donors create one statutory general power of attorney, the
natural effect is to vest all authority of the two donors on the attorney to deal
with the joint and several interests of the donors. No one should think, for
                                    - 10   -




a moment, that by using one piece of paper for a statutory general power of
attorney, each or either of the donors is reserving some of the authority.
The single piece of paper confers on the attorney authority to do on behalf of
the donors everything the donors jointly and severally can do.


9.        Alternatively, counsel submitted that the rule expressio unius est
exclusio alterius applies, i.e. where the Ordinance, as in here the statutory
form, expressly prescribes one or more particular modes by which joint
attorneys may act, either together or separately, such expression excludes
any other mode permissible vis-à-vis the donor. I think the rule has been
misunderstood. Anyway, as explained in the preceding paragraph, since it
is axiomatic that a statutory general power of attorney confers all authority
on an attorney to deal with the joint and several interests of the donor and the
same effect pertains when there are two donors, there is no need for the
Ordinance to expressly provide for the case of joint donors.




(ii)   Was the Power a valid power at the date of its exercise by the
       Attorney? In particular, is the Plaintiff affected by any prior
       revocation of the power?

10.       The only reason this question becomes relevant is that there is
affidavit evidence that the Defendants had during a telephone conversation
with the Attorney verbally revoked the Power. However, there is no
suggestion that the Plaintiff at the time of the execution of the Mortgage
directly or indirectly knew of such revocation. Mr. Cheung for the
                                     - 11   -




Defendant could not possibly advance any argument on how such
undisclosed revocation may affect the Plaintiff.


11.       A power of attorney by deed becomes valid and remains valid after
it has been signed, sealed and delivered. A deed of this nature ceases to be
valid when its delivery is actually or symbolically cancelled. The most
effective method of cancellation of delivery is to call in the deed itself for
safe custody by the donor. Failing that, an appropriate publication for
public notice of the act of revocation is desirable. Oral unilateral
communication to the attorney of revocation, whilst amounting to symbolic
cancellation of cancellation of delivery and thus effective vis-à-vis the
attorney, does not put third parties on notice of the revocation. In the
absence of knowledge of revocation, any party including the Plaintiff in this
case is entitled to treat a power of attorney still in the possession of the
attorney as valid and binding on the donor. The present case is clearly
covered by Section 5(2) of the Ordinance.




(iii) Was the Attorney’s execution of the mortgage a valid exercise of
      the power in point of form?

12.       The Attorney put her own signature to the Mortgage and the
attestation clause reads “SIGNED SEALED and DELIVERED by CHOW
SIN HO, the lawful attorney of the Mortgagor”. The rule at common law is
that an attorney can only bind the donor by the execution of a deed if he does
so in the name of the donor. Arguably, the Mortgage will not, therefore, be
                                      - 12     -




binding on the Defendants if its due execution is governed by the rule at
common law.       However, Section 6(1) of the Ordinance Provides that –
          “The donee of power of attorney may, if he thinks fit –
            (a)    execute any instrument with his own signature and, whose
                   sealing is required, with his own seal; and
            (b)    do any other thing in his own name,

           by the authority of the donor of the power, and any document
           executed or thing done in that matter shall be as effective as if
           executed or done by the donee with the signature and seal, or, as the
           case may be, in the name, of the donor of the power.”

Obviously, section 6(1) provides a permissive, not obligatory, method by
which an attorney may execute a deed on behalf of his principal. The
critical words in section 6(1) are “by the authority of the donor of the power”.
The question is whether that method of execution is available to all attorneys
or only in cases where it is specifically authorised by the donor[s] of the
power.


13.       Mr. Cheung for the Defendants submitted that section 6(1) does
not apply to the Power dated 13 January 1995 because on its face it does not
address in any way the formalities which the Attorney may or may not have
to observe when exercising her authority.


14.       Mr. Lam for the Plaintiff contended that the Mortgage is properly
executed where the Attorney attested to her capacity as lawful attorney of the
Defendants when she signed in her own name. I respectfully agree.
Moreover, being a statutory general power of attorney, the Power must also
                                      - 13    -




be taken as giving authority to the Attorney to execute any instrument with
her own signature.


15.       It was suggested at one stage that there being two donors, the
Attorney must sign twice on the Mortgage instead of just once. In the event,
this point was not vigorously pressed upon me. I have no difficulty in
rejecting such unnecessary formality.




(iv)   Was the execution of the Mortgage by the Attorney within the
        scope of her apparent authority?

16.       Section 7(2) of the Ordinance provides as follows:-
          “This section does not apply to functions which the donor has as a
          trustee or personal representative.”

In Walia v. Michael Naughton Ltd [1985] 1 WLR 1115 Judge John Finlay
QC, sitting as a judge of the Chancery Division, held that a conveyance of
land held by P and Q as joint tenants which was executed by P and by A on
behalf of Q, A holding a general power of attorney from Q taking effect
under the English equivalent of section 7(1) of the Hong Kong Ordinance,
did not pass a good title. By virtue of the English property legislation of
1925 P and Q held the land as trustees for sale, and A could not exercise Q‟s
functions as a trustee of the legal estate under a general statutory power of
attorney, by reason of the English equivalent of section 7(1) of the
Ordinance.
                                   - 14   -




17.       Mr. Cheung conceded that Walia v. Michael Naughton Ltd. has no
general application to land in Hong Kong because trusts are not imposed by
statute in cases of co-ownership. But at the same breath counsel said that if
the Defendants were in fact trustees of the property, then the Power
conferred on the Attorney no authority to act for the Defendants in dealing
with the Property in any way. I can simply say that this is not the “if” case.
Moreover, even if each Defendant individually is a trustee, when the two
unite together as they did in granting the Power they are absolute beneficial
owners.




(v)   Is the Plaintiff affected by the fact that the exercise of the power
      by the Attorney was not in the interests of the Defendants?

18.       Apart from questions of formal validity of the Power, this is the
other pillar of the defence. Mr. Cheung contended that the Plaintiff should
have made enquiries with the Defendants directly for approval of the
Mortgage before accepting the Power and authority of the Attorney. In
particular, there were at least three matters which should have put the
Plaintiff on enquiry.   The first is the conversation Madam Chan had with
Patrick Lee of the Plaintiff: vide extracts from the affirmation of Madam
Chan filed on 12th December 1998 quoted supra. The second is the fact that
the Mortgage of the Property was to secure banking facilities to obvious
strangers and thus not in the interest of the Defendants. Thirdly, by the
time the Attorney uttered the Power, it was already more than 12 months
after the date of the Power. Counsel submitted that these and other minor
                                     - 15    -




matters affixed the Plaintiff with constructive notice of abuse of authority,
and, the Plaintiff did not act in good faith, i.e. honestly, but wilfully shut its
eyes to the obvious or wilfully or recklessly failed to make the enquiries
which it ought, as an honest and reasonable person, to have made.


19.       For support, Mr. Cheung relied on a number of authorities: Re
Whitley Partners Ltd (1886) 32 Ch. 337; Manchester Trust v. Furness (1895)
2 QB 539; Midland Bank v. Greene (1981) 1 all E.R. 153; Tang Che Ching &
others v. Overseas Trust Bank Ltd (1989) 2 HKC 104; Honour Finance Co
Limited v. Poon Ting-chau [1990] 2 HKLR 629; Multi-More Industries Ltd. v.
Tung Hoo Fai (1991) 2 HKC 261; DH Shuttlecocks Ltd. v. Keung Siu Tang
(1993) 2 HKC 600; Citilite Properties Ltd. v. Innovative Development Co
Ltd. [1998] 4 HKC 62; Sun Sek Haw and others v. Au So Kum, Civil Appeal
No. 215 of 1998; Kung Wing Chuen v. Marden [1989-91] CPR 584; and
Boyce v. Mouat (1994) 1 A.C. 428. Further, the following texts were
referred to: Power of Attorney by Bower Alock (1935) p 133; Halsbury Laws
of England (3rd ed) Vol 1 at 217 (text and footnote (u)); Bowstead on Agency
12th edition at p 205; Good Faith in Sales by Reziya Harrison (1997) p
234-253; Emmet on Title 19th ed. Para 11.017 and Law Society Circular No.
197 of 1987.


20.       Such abundance of authorities is not necessarily helpful. For
instance, it is 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.      “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
                                       - 16     -




the interests of his principal” per Kempster JA in Tang Che Ching And
Others v. Overseas Trust Bank Ltd. (1989) 2 HKC 104 at 108. That case
concerned a power of attorney expressed to confer authority on the agent to
recover for the agent himself US$25,000 only. I think principles applied in
cases involving patent limited authority are hardly of reference value to the
instant one where a statutory general power of attorney is in question. In
fact, as I have mentioned to counsel during the trial, one must not be too
ready to pray in aid authorities on general agency principles in arguing a case
on a statutory general power of attorney.           Estoppel by deed does not operate
in ordinary agency cases. As the Court of Appeal observed in Overseas
Trust Bank Limited v Tang Che Ching and others, Civ App No 47 of 1989
(4/7/89) (unreported) at p 3:
          “A power of attorney is a deed whereby a principal confers authority
          upon his agent and if, as in the instant case, its existence is known to
          a party dealing with the agent it usually constitutes a definitive
          statement both of his actual and of his ostensible authority. When a
          third party is about to conclude an agreement with a principal by the
          agency of his attorney he will be concerned to satisfy himself that the
          agent is acting with the scope of his authority as defined by the deed.
          The motive of the agent is neither here nor there. Hambro v.
          Burnand [1904] 2 KB 10.”

In the case of a statutory general power of attorney the scope of authority is
unlimited and not challengeable. In all other cases, the scope of authority
due to the nature of the empowering act or circumstances may well be
questioned and the exercise of the authority is often subject to some
over-riding equities.
                                       - 17     -




21.       In DH Shuttlecocks Ltd. v. Keung Siu Tang (1993) 2 HKC 600, a
vendor who exercised his power of sale under a Sec. 7 Power of Attorney
sought to include a special stipulation in a sales and purchase agreement that
the purchaser, having been supplied with a copy of the power of attorney,
could not raise any objection or requisition relating to it. Rhind J decided
that such a stipulation, if allowed, would deny the purchaser protection under
Sec 5(2) of the Ordinance in the event of claims brought by the estate of the
deceased, bankrupt or mentally ill vendor.
          “If the purchaser‟s solicitors had allowed the special stipulations in
          Pt IX to become part of the formal agreement, the consequences
          could have been highly prejudicial to the purchaser in the event of
          the revocation of the power of attorney on account of the vendor‟s
          becoming bankrupt, suffering mental incapacity or dying during the
          interval between the signing of the formal agreement and the
          completion date. Suppose that knowledge of such a catastrophe
          came to the purchaser‟s attention during that interval before
          completion: the purchaser could the find itself in the unenviable
          position of being forced to complete without being entitled to object
          that the power of attorney was no longer valid and subsisting.
          Because of such knowledge, the purchaser would forego the
          protection of s 5(2) of Power of Attorney Ordinance in respect of
          claims brought against it by the estate of the deceased, bankrupt or
          mentally incapable vendor, as the case might be.
          The combined operation of ss 13 and 35, together with Pt II of the
          First Schedule, of the Conveyancing and Property Ordinance bring
          about the result that the vendor is required to prove the validity and
          non-revocation of the power of attorney, in the usual way, as an
          essential link in the title. There is no basis in law to justify the
          vendor‟s attempt by the „special stipulations‟ to deny the purchaser
          the right to raise objections or requisitions concerning the validity
          and non-revocation of the power of attorney.” p 608-610

Counsel sought to rely on this as authority for the proposition that there is a
duty on a purchaser or mortgagee dealing with the attorney of the vendor or
mortgagor to make enquires with the donor of the power of attorney. I
                                      - 18     -




cannot accept that. All that Rhind J decided is that a purchaser mortgagee
dealing with an attorney always has the right to raise requisitions and
objections. A right is quite different from a duty. The learned judge has
not imposed a duty to raise requisitions or objections.


22.       Mr. Cheung contended that whilst the Plaintiff‟s lawyers handling
the Mortgage saw fit to stress to other mortgagors that they were solely
acting for and on behalf of the Plaintiff there is not a scintilla of evidence
that the same caveat was extended to the Attorney. There is no suggestion
that the Attorney was advised to take independent legal advice before
execution of the Mortgage. Might that not put the Plaintiff‟s lawyer in an
unenviable position of handling a transaction for two parties with conflicting
interests? For support, Mr. Cheung quoted:-
          “Their Lordships are accordingly satisfied that Mrs. Mouat required
          of conveyancing on her behalf and explain to her the legal
          implications of the transactions. Since Mrs. Mouat was already
          aware of the consequences if her son defaulted Mr. Boyce did all that
          was reasonable required of him before accepting her instructions he
          carried these out properly and was neither negligent nor in breach of
          contract in acting and continuing to act after Mrs. Mouat had rejected
          his suggestion that she obtain independent advice. Indeed not only
          did Mr. Boyce in carrying out these instructions repeat on two further
          occasions his advice that Mrs. Mouat should obtain independent
          advice but he told her in no uncertain terms that she would lose her
          house if Mr. R.G Mouat defaulted. One might well ask what more
          he could reasonably have done.” Per Lord Jauncey in Clark Boyce
          v. Mouat (1994) 1 AC 428 at 437”

With respect, the fact that conveyancing solicitors acting for the mortgagee
saw the need to advise the mortgagors to seek independent legal advice (and
I am not holding or accepting that there is such duty to advise) is irrelevant
                                       - 19    -




in this case because the Plaintiff as mortgagee bank is not necessarily liable
for its solicitors‟ failure to advise the mortgagor in appropriate terms.


23.       Counsel should not be blamed for treating the issues of
constructive notice and good faith as one for it appears that they both turn on
the question of duty to make enquiries. In my view the question of duty to
make enquiries should be broken down into two:- (1) Is there a general duty
to make enquiries when dealing with a person uttering a statutory general
power of attorney and (2) if there is no general duty but an ad hoc duty to
make enquiries, did the latter duty arise in this case?        The answer to the first
question, I should think, is no.


24.       In Bryant, Powis and Bryant Limited v The Quebec Bank [1893]
AC 170 at 180, the Privy Council approved the following principle:
          “Whenever the very act of the agent is authorised by the terms of the
          power, that is, whenever by comparing the act done by the agent with
          the words of the power, the act is in itself warranted by the terms
          used, such act is binding on the constituent, as to all persons dealing
          in good faith with the agent; such persons are not bound to inquire
          into facts aliunde. The apparent authority is the real authority. ”
          (Emphasis added)

In Hambro v Burnand [1904] 2 KB 10 at 20, Collins MR observed,
          “… where a written authority given to an agent covers the thing done
          by him on behalf of his principal, no inquiry is admissible into the
          motives upon which the agent acted. It would be impossible, as it
          seems to me, for the business of a mercantile community to be
          carried on, if a person dealing with an agent was bound to go behind
          the authority of the agent in each case, and inquire whether his
          motives did or did not involve the application of the authority for his
          own private purposes…”(Emphasis added)
                                       - 20    -




Collins MR further stated at p 22 that “it seems to me that the law on the
subject is clearly established”.

Romer LJ held at p 23 that:
          “We have here an authority given to an agent to underwrite policies
          for his principals, expressly stating what powers are conferred upon
          him. If the agent, in underwriting a policy in the principal‟s name,
          acted within the scope of that written authority, it appears to me on
          principle that, as regards a person taking in good faith and for
          valuable consideration the policy so underwritten, it is binding on the
          principal, who cannot escape from liability merely because the agent
          may have abused the authority or betrayed his trust.” (Emphasis
          added)

His Lordship added that “As a matter of principle this appears to me so clear
that I will not further consider the point.” See also the judgment of Mathew
LJ at pp 25-26. A statutory general power of attorney being one that gives
the widest possible scope of authority, there is no conceivable situation in
which enquiry needs to be made as to whether the attorney exceeded or
abused the authority or betrayed the trust of the donor. I should think there
is no general standing duty to make enquiries relating to a statutory general
power of attorney which appears in order in form.


25.       Mr. Lam for the Plaintiff suggested that even if there is a duty to
make enquiry, the duty arises only where circumstances arouse the
reasonable suspicions of the party dealing with the person relying on a
statutory general power of attorney. But in this case, there was no reason
for the Plaintiff to be suspicious. The Attorney was given the widest
possible authority to act for and against the interests of the Defendants.
There is no reason to suspect that the Attorney cannot be trusted to act for
                                   - 21   -




the Defendants who may for whatever reason pledge the Property for other
people. It is not uncommon for an owner to mortgage his property as
security for banking facilities to another borrower. The vaults in many
banks in Hong Kong have a fair collection of such mortgages. It is not a
bank‟s business to pry a mortgagor directly or through an attorney why the
mortgagor is willing to stand surety. Sometimes a mortgagor or attorney
may even take offence for such enquiry.   The fact that the Defendants as
donor did not know or had not been informed by the Attorney about the
Mortgage is neither here nor there. It is not uncommon for people who
would become uncontactable or not easily accessible to appoint an agent to
handle their affairs. That is often the whole point of using a power of
attorney. After all, if there should be some safeguard, it is much simpler for
the Defendants or any donor to impose a restriction on the authority of the
Attorney in appropriate terms in the power of attorney. I wholeheartedly
agree.


26.       Mr. Cheung suggested that in cases involving land transactions,
there is ample time to make enquiries. I am afraid this is not always so. A
purchaser may be bound by contract to complete. It may not be feasible for
the purchaser to locate the donor of a power of attorney before completion
date. Meanwhile, if the purchaser does not accept the power of attorney
there may be a disastrous claim for damages for failure to complete on time.
See Union Eagle Ltd. v. Golden Achievement Ltd [1997] 1 HKC 173.
Besides, in this day and age when protection of privacy is of prevalent
concern, one does not make enquiries just because there is time to do so.
                                     - 22    -




27.       I do accept that there is an ad hoc duty to make enquiries
concerning a statutory general power of attorney in those circumstances
mentioned by examples in the judgment of Rhind J in DH Shuttlecocks Ltd v.
Keung Siu Tang. In other words, even in the case of a statutory general
power of attorney, enquiries must be made if there are reasons to suspect that
the power has been revoked by the donor or by operation of law or that the
deed is not valid due to some formal defect. None of these circumstances
apply to the instant case.


28.       As to the Power being more than 12 months old, the Plaintiff
obviously (acting on the advice of its solicitors handling the Mortgage) took
the Power as a good document of title. The Plaintiff was entitled to act
according to legal advice which, for the reasons I will give, is not at the time
manifestly wrong. As Mr. Cheung for the Defendants demonstrated by
instances, the solicitors handling the mortgage for the Plaintiff took the usual
prudent steps. They may have sent one letter to a wrong address by
mistake. But it takes more than one misdirected letter to justify a
conclusion of constructive notice against those solicitors or the Plaintiff.
Moreover, even if the advice on the Power turns out to be wrong, that does
not per se advance the Defendants‟ case further.


29.       Before leaving this topic, I should deal with the issue of good faith
canvassed by Mr. Cheung. Counsel suggested that equity requires not only
the absence of notice, but also bona fides. In Midland Bank v. Greene
(1981) 1 All E.R. 153 Lord Wilberforce held at p. 157 that:-
          “… it would be a mistake to suppose that the requirement of good
                                       - 23    -




          faith extended only to the matter of notice, or that when notice came
          to be regulated by statute the requirement of good faith became
          obsolete. The classic judgment of James L.J. in Pilcher v Rawlins
          (1872) LR 7 Ch App 259 at 269 is clear authority that it did: good
          faith there is stated as a separate test which may have to be passed
          even though absence of notice is proved.”

For the instant case, Section 5(6) of the Ordinance defines a purchaser as one
in good faith for valuable consideration, hence there is all the more
requirement for good faith. Whilst I do not believe section 5(6) is relevant
in the present context, I accept that if it is shown that the party dealing with a
person uttering a power of attorney did not act in good faith, the transaction
does not bind the donor of the power of attorney. But, what does this
concept of good faith entail?


30.       According to Mr. Cheung, the concept of good faith refers
ultimately to honesty; see what Millett J said in Agip (Africa) Ltd v. Jackson
[1990] Ch. 265. Happily, Mr. Lam shared the same view and cited Millet J
in Agip (Africa) Ltd v. Jackson [1990] Ch. 265 at 293 as follows:-
          “Knowledge may be provided affirmatively or inferred from
          circumstances. The various mental states which may be involved
          were analysed by Peter Gibson J in Baden’s case [1993] 1 WLR 509
          as comprising: (i) actual knowledge; (ii) wilfully shutting one‟ eyes
          to the obvious; (iii) wilfully and recklessly failing to make such
          inquiries as an honest and reasonable man would make; (iv)
          knowledge of circumstances which would indicate the facts to an
          honest and reasonable man; and (v) knowledge of circumstances
          which would put an honest and reasonable man on inquiry.
          According to Peter Gibson J., a person in category (ii) or (iii) will
          taken to have actual knowledge, while a person in categories (iv) or
          (v) has constructive notice only.
          I gratefully adopt the classification but warn against over refinement
          or a too ready assumption that categories (iv) or (v) are necessarily
          cases of constructive notice only. The true distinction is between
          honesty and dishonesty. It is essentially a jury question. If a man
                                       - 24    -




          does not draw the obvious inferences or make the obvious inquiries,
          the question is: why not? If it is because, however foolishly, he did
          not suspect wrongdoing or, having suspected it, had his suspicions
          allayed, however unreasonably, that is one thing. But if he did
          suspect wrongdoing yet failed to make inquires because ‘he did not
          want to know’ (category (ii)) or because he regarded it as ‘none of
          his business’ (category (iii)), that is quite another. Such conduct is
          dishonest, and those who are guilty of it cannot complain if, for the
          purpose of civil liability, they are treated as if they had actual
          knowledge.” (Emphasis added)


31.       There is absolutely no evidence that the Plaintiff colluded with the
Attorney to defraud the Defendants. This is distinguishable from the case
of Powell v. Thompson [1991] 1 NZLR 597. In that case, the attorney
embezzled her employer‟s money. The employer, also knowing that the
attorney should not use an ancient general power of attorney for the purpose,
took a property assigned by the power of attorney in satisfaction. The
transaction was naturally set aside by the New Zealand High Court. Did
the Plaintiff in the present case deliberately turn a blind to possible
wrong-doing? I have already found that the circumstances did not arouse
reasonable suspicions. Even if I am wrong, can it be said that the Plaintiff
was dishonest in not making enquiries? Well, as Millet J observed, the
Plaintiff was entitled to have its suspicions allayed, however unreasonably.
Here, the Plaintiff relied on the Power and believed it had no right to go
behind it. The reliance may be based on misunderstanding of the law. But
it takes more than a bare accusation of bad faith to convince any court that
major bankers, being naturally prudent businessmen, would not take
appropriate steps to investigate if they did not genuinely believe that they
were protected by the unlimited and unquestionable authority of the Power.
Taking all factors and circumstances into consideration, in discharge of the
                                        - 25    -




jury function, I have little difficulty in finding that the Plaintiff did not act
with dishonesty.




Does the Plaintiff have good title under the Mortgage?

32.       The Mortgage was executed more than 12 months after the date of
the Power. This brought to my mind section 5(4) of the Ordinance which
provides that:-
           “(4) Where the interest of a purchaser depends on whether a
           transaction between the donee of a power of attorney and another
           person was valid by virtue of subsection (2), it shall be conclusively
           presumed in favour of the purchaser that that person did not at the
           material time know of the revocation of the power if –
                   (a) the transaction between that person and the donee was
                       completed within twelve months of the date on which
                       the power came into operation; or
                   (b) that person makies a statutory declaration, before or
                       within three months after the completion of the purchase,
                       that he did not at the material time know of the
                       revocation of the power.”

Mr. Lam for the Plaintiff informed the court that there is yet no statutory
declaration made pursuant to section 5(4)(b) because the Plaintiff believes
that a statutory declaration under this paragraph can only be made before or
within 3 months after the Plaintiff conveys the Property to another party.
Counsel referred to dicta by Godfrey J (as he then was) in Xiamen
International Finance Co. Ltd. v. Tsui Tai Yan and another [1987] 2 HKC
422 in support. But that judgment of Godfrey J prompted the Law Society
of Hong Kong to issue a circular to its members expressing dissent and
suggesting that what the learned judge said was obiter.
                                     - 26   -




33.       Two problems arise in this regard. First, because the Power was
more than 12 months old what quality of title did the Plaintiff obtain?
Secondly, will the Plaintiff be able to pass good title on a mortgagee sale?
It is also implicit in these two questions that if the Plaintiff does not have
good title under the Mortgage then perhaps it may not have lawful right to
enforce the Mortgage against the Defendants.


34.       The standard of proof of good title is beyond reasonable doubt.
See Sun Sek Haw et al v. Au So Kum Civil Appeal No. 215 of 1998. In the
case where the power of attorney is less than 12 months old, there should be
little difficulty in showing and passing good title because there is an
automatic conclusive presumption. However, when the automatic
conclusive presumption does not apply, it may be argued that the power of
attorney forming part of the chain of title is no longer beyond reasonable
doubt.


35.       Mr. Lam for the Plaintiff contended that a power of attorney like
the Power in the instant case which does not have a prescribed effective
period never degenerates into a useless or lesser piece of paper by effuxion
of time. It remains valid until there is effective revocation. There has
been no effective revocation of the Power as against the Plaintiff.
Moreover, Section 5(4) of the Ordinance merely provides for convenient
proof. That subsection does not prescribe the only methods of proof and
does not operate against the converse situation. For example, if the donor
confirms the act of the agent the party who dealt with the agent has proof by
such confirmation of doubtless good title. I suppose, by the same token, if
                                       - 27     -




the Defendants have been cited in a mortgagee action and are unable to
defeat the Plaintiff, the Plaintiff‟s title may also be deemed good.


36.       Alternatively, the Plaintiff may take advantage of Section 5(4)(b)
of the Ordinance to perfect its title. But, how can this be done? There is
no need to go into the Xiamen judgment itself or the Law Society Circular
because in a subsequent case, Kung Wing Chuen v. Marden [1989-91] CPR
584, Bokhary J (as he then was) at p. 588 laid the matter to rest in this way:-
          “But there is another thing about what Godfrey J says that makes
          what he means perfectly clear. He says that it does not matter when
          or how late the statutory declaration is made provided that it is made
          before or within three months after the completion of the purchase in
          question. Plainly, he must be saying that it did not matter when or
          how late in relation to the original transaction a statutory declaration
          is made provided that it is one made before or within three months
          after the completion of the purchase called into question. If any
          doubt arose out of what Godfrey J said in 1987, then what he said
          this year has removed it.”

Many moons have come and gone since then without any further query on
the meaning and effect of section 5(4)(b). The pronouncements of both
learned judges must now be taken as settled law.


37.       It follows that there is nothing to prevent the Plaintiff from causing
or arranging a suitable statutory declaration to be done. Then there is
conclusive presumption that the Plaintiff did not at the material time know of
the revocation of the Power. This would complete and perfect the
Plaintiff‟s title under the Mortgage for the purposes of a mortgagee sale. It
may be said that the conclusive presumption is still challengeable if the
Plaintiff indeed had had notice of revocation or does not meet the good faith
                                     - 28      -




test already discussed. For instance if in fact one official of the Plaintiff
had actual notice of revocation a statutory declaration by another official to
the contrary would be of no assistance to the Plaintiff. However, I have
already held that in the circumstances of this case the Plaintiff had no notice
and did not fall short of good faith.


38.       For the reasons given, I give judgment for the Plaintiffs and invite
the parties to agree on the terms of the orders to be made. There is also
order for costs to the Plaintiff to be taxed if not agreed.




                                                        (Z. E. Li)
                                        Deputy Judge of the Court of First Instance




Mr. Paul Lam instructed by M/s. Deacons Graham & James for the Plaintiff
Mr. Jeremy Cheung instructed by M/s. Joseph Li & Co. for the 1st Defendant
   and 2nd Defendant

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:94
posted:7/21/2010
language:English
pages:28