FAST FORWARD LTD v. MAGICSOUND CO LTD AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. Phase I of the Sui Ying Industrial Building was constructed in two stages. The first stage, from the ground to the 3rd floors and the garage floor, was completed on the13th December 1965. The second stage, from the 4th to the 11th floors together with, of course, its main roof, was completed on the 9th March 1970. After the completion of the first stage, Workshop C on the 1st floor of Phase I was conveyed to one Mrs Fong by the Third Party. Thereupon, the Third Party as vendor entered into a Deed of Mutual Covenant dated the 18th July 1969 with Mrs Fong. One undivided 100th share was allotted by the Deed of Mutual Covenant to Mrs Fong with the full right and privilege to hold, use, occupy and enjoy the said workshop C to the exclusion of the vendor. The Third Party as vendor retained the remaining 99/100th shares of the land and building with the full right to hold, use, occupy and enjoy the rest of Phase I of the Sui Ying Industrial Building including its main roof except for Mrs Fong's Workshop C and other common areas. Mrs Fong was equally entitled to use these common areas which were specified in the First Schedule to the Deed of Mutual Covenant. The First Schedule contained the staircases, landings, entrances, corridors, lobbies and common right of way as well as the Transformer and Switch-Rooms on the ground floor. The Water Tanks, the lifts and the machine room on the main roof in both stages of construction were also included. The lift machine room and the Water Tanks for fire fighting and flushing purposes on the temporary main roof had to be relocated. Clause 23(5) of the Deed of Mutual Covenant envisaged the removal of the water tanks from the temporary main roof of the first stage and the reinstatment thereof on the ultimate main roof of the completed 11-storeyed building in the second stage. It was only to be expected that the lift machine room would also be brought up to the ultimate main roof of the finished building. Therefore, the lift machine room and the water tanks on the ultimate main roof were clearly regarded as common areas.

2. Clause 19 is, like some other clauses of the Deed of Mutual Covenant, difficult to understand. It reserved to the vendor the following rights :

"The right to the exclusive use and enjoyment of the spaces, open yards and water storage tank on the roof of the said premises and the said building (other than those specifically assigned or agreed so to be)in such manner as the company shall in its absolute and uncontrolled discretion think fit and at the like discretion to allocate all or any of such spaces, open yards and water storage tank for the exclusive use of any one or more purchasers of undivided shares and workshops in the said premises and the said building." (underlining mine).

3. The words "the said premises and" would appear to be redundant. That aside, Clause 19 would seem to take the water storage tank (not, be it noted, "tanks") on the main roof out of common usage, leaving only the lift machine room on the main roof as part of the designated common areas.

4. The word "roof" appears in the Deed of Mutual Covenant in a number of variations e.g. "Main Roof" in recital (3) and Clause l; "each workshop (and, where applicable, the portion of roof and/or the yard adjoining thereto)" [emphasis added] in Clause 4; "the workshop roof or portion thereof" in Clause 6; "the Owner of the Roof" in Clause 15; "any workshop or the open yard or the roof or any loading or unloading or water tank on the roof" [emphasis added] in Clause 18(a); "the roof" in Clause 18(b); "water storage tank on the roof" in Clause 19; "the roofs of the said building" in Clause 23(4); "removal of the water tanks from the roof of the said first stage" and "the reinstatement of the same on the roof of the said building" in Clause 23(5); "the machine room to be built on the roof of the said building" in the First Schedule; "the flat roof on the 1st floor level" in paragraph 6(d) of the Third Schedule and "the owners of the Roof", "the door leading to the roof" and "the roof" in paragraph 6(e) also of the Third Schedule.

5. It would seem that "each workshop (and, where applicable, the portion of roof and/or the yard adjoining thereto)" in Clause 4 of the said Deed of Mutual Covenant refers to the workshop roof. Clause 6 contains a direct reference to "workshop roof". There existed 18 workshops from the 1st to 3rd floors of the building with more to be added to, inter alia, the 9th, 10th. and 11th. The description "any workshop or the open yard or the roof" [emphasis mine] in Clause 18(a) may arguably be said to speak of only workshop roofs whilst the description following, "water tank on the roof", clearly refers to the main roof in both stages of construction. But "the roof" in Clause 18(b) would seem to include all types of roof. The same seems to apply to "the roofs" in Clause 23(4) which deals with exclusive rights on completion. Clause 15 regulates the putting up of signs or signboards and "the owner of the Roof" in that Clause must relate to the Main Roof over the 11th Floor. It is also self-evident that the roof in "the water tank on the roof" and "the water storage tank on the roof" in Clauses 18(a) and 19 means the main roof in both stages of construction.

6. It would be more convenient to set out the relevant parts of Clauses 4, 6 and 18(a) :

7. What seems to be disallowed under Clause 4 is a separate sale of a workshop together with its open yard (if any) and its roof (if any) from its allotted undivided shares. Thus, every workshop is, where applicable, to be considered with "the open yard" or "the roof". "Open yard" was allotted no undivided shares, and as in Clause 4 "the open yard" in Clause 18 (a) must therefore be an adjunct of a workshop. The words "or the open yard" in Clause 18 (a) are immediately followed by the words "or the roof" in the description "any workshop or the open yard or the roof" therein. To interpret these words as associated with a workshop would seem to be. more congruent. Hence Clause 18(a) may fairly be taken to prohibit a sale, assignment etc. of any workshop (and where applicable, its open yard and its roof) "separately from the undivided shares with which the same is held". However, it must be recognised that such prohibition could be read liberally as embracing not only any workshop and its appurtinances but also any open yard, any roof including the main roof,

8. Clause 18(a) would seem to be silent on the Main Roof and it suffers from obscurity insofar as it is sought to be construed as requiring the Main Roof to be sold/assigned with its allotted 4/100th undivided shares. The Deed of Mutual Covenant clearly does not provide for the Main Roof to be sold/assigned only with the floor adjoining to it.

9. Recital 3 allotted to the Main Roof notionally 4/100th undivided shares in the land and building. These are fictitious shares and as such they cannot per se affect proprietary rights. At best they would bind parties in contract and may found a cause of action for an injunction or damages. Property ownership has not been multilated by such notional allocation. Even if a sale of the Main Roof parately from its allotted undivided shares had not been permitted by Clause 18(a) of the Deed of Mutual Covenant, the vendor would not have been hampered in effectually disposing of merely the exclusive right to use the surface of the Main Roof to Wong Kai-lun.

10. In fact, before the date of the Deed of Mutual Covenant in the same year, by an Agreement for Sale and Purchase dated the 20th May 1969, the Third Party as vendor. agreed to sell to one Wong Kai-lun 24 undivided shares with the exclusive right to hold, use, occupy and enjoy the 9th, 10th and 11th floors of the Sui Ying Industrial Building. Mr Wong Kai-lun had prior sight of the Deed of Mutual Covenant. Permission was given to use the surface of the Main Roof by Clause 17 of the Agreement for Sale and Purchase, subject to. the right of the vendor to erect advertisements, signboards, water tanks and cooling towers. This 1969 Agreement was produced and marked "TP-1". It has the appearance of a standard format and was not registered. It is debatable whether a bare licence was thereby granted for the use of the surface of the Main Roof. But whatever ambiguity this 1969 Agreement generated, the real intention of the parties was clearly reflected in the registered formal Assignment to Wong Kai-lun dated the 26th June 1970. The property sold were described in the operative words of the 1970 Assignment as "ALL THOSE twenty four equal undivided 100th parts or shares of and in .... the .... ground ....and buildings ..... TOGETHER with .... WORKSHOP and OFFICE SPACE on the NINTH FLOOR ..... WORKSHOP on the TENTH FLOOR .... and WORKSHOP on the ELEVENTH FLOOR .... Together with .... the surface of the Main Roof" subject to the rights reserved to the vendor. I adopt the term "sold" from the express provision of Clause 18(a) of the Deed of Mutual Covenant, which reads "The right to the exclusive use  shall not be sold, assigned" etc. (Emphasis added). It is perfectly legitimate to say that in a Hong Kong style conveyancing, Mr Wong Kai-lun purchased the three upper floors and, subject to the rights reserved to the vendor, the main surface of the Main Roof. The Court of Appeal in Chiu Shu-choi v. Merrilong Dyeing Works Limited [1990]1 HKLR 385 observed at 389 FIG to G/H :-

"We have so far freely used the general language of ownership and purchase and sale with respect to the two floors. That is a convenience of language, more readily to set out the history behind this appeal. It does not however accurately reflect the situation. The plaintiff and the defendant company do not have ownership of the eighth and the ninth floors as such; they have each an equal undivided tenth part or share in the land and the building as a whole, the result of conveyancing practice which has long been adopted with regard to multi-storeyed buildings in Hong Kong."

11. The operative words and habendum in this 1970 Assignment to Wong Kai-lun are as follows :-

"The Vendor DOTH hereby assign unto the Purchaser ALL THOSE twenty four equal undivided 100th parts or shares of and in ALL THOSE the said pieces or parcels of ground ......... and of and in the messuages erections and buildings thereon .... designated as 'Sui Ying Industrial Building' (hereinafter refer to as 'the said building') TOGETHER with the exclusive right to hold use occupy and enjoy FIRST ALL THAT WORKSHOP and ALL THAT OFFICE SPACE on the 9TH FLOOR of the said building .... SECONDLY ALL THAT WORKSHOP on the 10TH FLOOR of the said building .... and THIRDLY ALL THAT WORKSHOP on the 11TH FLOOR of the said building .... TOGETHER with the exlusive right to use the surface of the Main Roof of the said building subject nevertheless to the exception and reservation hereinafter mentioned .... EXCEPTING AND RESERVING unto the Vendor or its assigns and the owner or owners for the time being of the other 76 equal undivided 100th parts or shares .... the exclusive right to the use occupation and enjoyment of Flat-roof, Car Parking Spaces, Yards and all other self-contained workshops of the said building and to put up advertisements and signboards and to erect water tanks and/or cooling towers etc. on the Main Roof of the said building ........ TO HOLD the said premises hereby assigned .......... unto the Purchaser ......"

The 1970 Assignment was executed in pursuance of the said 1969 Agreement for Sale and Purchase and expressly subject to the provisions of the said Deed of Mutual Covenant.

12. It is reasonably clear that in the Hong Kong scenario "the said premises hereby assigned" by the 1970 Assignment were the undivided shares in land and building AND all the exclusive rights granted. There seems to be no real significance in the difference between "the exclusive right to hold use occupy and enjoy" the 9th-11th floors and "the exclusive right to use the surface of the Main Roof" in the operative words. In the habendum for defining the extent of the interest taken, the undivided shares and these exclusive rights i.e. "the said premises hereby assigned" were all held unto the purchaser for the respective residues to come.

13. By the Covenant for quiet enjoyment, "the purchaser shall and may ..... peacefully and quietly possess and enjoy the said premises" which means, in its proper context, "the premiss hereby assigned" i.e. the undivided shares and the exclusive user rights.

14. After mesne assignments, the 1st defendant became successor-in-title of Wong Kai-lun in 1981. The 2nd defendant has, since its initial Tenancy Agreement dated the 15th June1981, been a tenant of the 1st defendant. On a date or dates unknown, structures were erected on the Main Roof. In 1988, by an Agreement for Sale and Purchase dated the 30th June and a follow-up Assignment dated the 20th July, the Third Party as vendor sold to the plaintiff nearly the whole of the Ground Floor and the Main Roof of Phase I and the entire Phase II of the Sui Ying Industrial Building. More accurately, the Third Party as vendor assigned to the plaintiff almost the whole of 8/100th undivided shares of and in the land and building with the exclusive right to use the bulk of the Ground Floor of Phase I and 4/100th undivided shares of and in the land and building with the exclusive right to use the Main Roof. By Clause 7 of the Agreement for Sale and Purchase to the plaintiff, the premises were sold on an "as if" basis after the plaintiff's inspection. By Clause 8 and the First Schedule, Phase I property to be "sold" to the plaintiff was made "subject to all subsisting rights". Clause 25 expressly stipulated that the vendor did not warrant the legality of the structures erected on the Main Roof and would not deliver vacant possession of the Main Roof to the plaintiff upon completion.

15. By the Assignment dated the 20th July 1988, the Third Party as the vendor assigned to the plaintiff as purchaser, inter alia, the Main Roof of Phase I described in the Schedule in these terms :

"ALL THOSE 4 equal undivided 100th parts or shares of and in the land and of and in the Building thereon TOGETHER with the exclusive right to the use occupation and enjoyment of the Main Roof of the Building ..... subject to and with the benefit of ....... all other subsisting right"

16. I shall call these personalities and instruments "Sui Ying" for the Third Party and/or vendor, "Wong" for Mr Wong Kai-lun, "the DMC" for the said 1969 Deed of Mutual Covenant, "the 1969 Agreement" for the 1969 Agreement for Sale and Purchase in favour of Wong, "the 1970 Assignment" for the Assignment in 1970 to Wong by Sui Ying, "the 1981 Assignment" for the Assignment in 1981 whereby the 1st defendant became ,. successor-in-title of Wong after mesne assignments, "the 1988 Agreement" for the Agreement for Sale and Purchase and "the 1988 Assignment" for the Assignment in 1988 by Sui Ying to the plaintiff.

17. The 1970 Assignment was registered in the Land Office only against the 9th, 10th and 11th Floors. It was not registered in the Sub-Division Card for the Main Roof. The mesne assignments as well as the 1981 Assignment to the1st defendant were all similarly registered but kept out of the Sub-Division Card for the Main Roof, and none of them was presented for registration with a memorial describing the Main Roof as premises affected. On the other hand, both the 1988 Agreement for Sale and Purchase and the 1988 Assignment to the plaintiff by Sui Ying were registered in the Land Office against, inter alia, the Sub-Division Card for the Main Roof. That is in totality the history gleaned from the documents. The dispute is focused on the defendants' right to use the surface of the Main Roof.

18. Only eight days after the execution of the 1988 Assignment did Mr Gilboa, the director of the plaintiff, visit the said premises, including the Main Roof. The plaintiff had caused some enquiries to be made by its solicitors. The plaintiff's estate agent had also been causally spoken to after it had committed itself to purchase. The Sub-Division Card for the Main Roof, allotted 4/100th undivided shares, had been searched. The search revealed Sui Ying as the registered owner of those undivided 4/100th shares of the land and the Sui Ying Industrial Building standing thereon without any encumbrances save for the DMC.

19. The enquiries conducted as to the nature of the occupancy on the Main Roof were far from being exhaustive and yielded no positive or clear answer. The plaintiff was given to understand that there had been a change in the vendor's staff responsible for matters concerning the Main Roof and that as a result, the vendor was not in a position to explain the presence of the roof structures and their habitation. As disclosed by Sui Ying's solicitor who declined to verify in writing, Sui Ying was unaware of any grant of a lease or licence in respect to the Main Roof or any receipt of rent or licence fee therefor. The plaintiff and its solicitors assumed that the occupants of the structures on the Main Roof were trespassers. This assumption is incorrect. The 2nd defendant, with the consent of the 1st defendant, a successor-in-title of Wong under the 1981 Assignment, is now the occupier of the Main Roof and the structures erected thereon.

20. On these facts, solicitor for the plaintiff, Miss Winnie Lai, warned Mr Gilboa that a claim of an adversary title might be possible. That warning was given evidently on the assumption that the occupiers were trespassing. The plaintiff's objective in the purchase was to acquire Phase II. Presumably, the Ground Floor of Phase I would provide better access and other facilities. But the Main Roof was, in the words of Mr Gilboa's, of "secondary importance" in a pending $68 million acquisition.

21. It was the intention of the plaintiff to have its group logo sign erected on the roof and a water tank installed for air-conditioning units. In whatever way the documents in this case are read, the plaintiff is still being assured of its rights to erect that logo sign and water tank. The sale price of the said premises was tempting to the plaintiff and time for completion was pressing as both parties were keen in closing the deal. The matter rested there. The sale and purchase was completed on the understanding that there was to be no guaranteed vacant possession for the Main Roof, the assumed trespass of which might cause problems. The plaintiff now seeks possession against both defendants in ejectment.

22. It is the plaintiff's claim that as legal and registered owner with all its documents of title duly processed in accordance with the provisions of the Land Registration Ordinance, whatever interests these defendants have or may have, are overreached. The 1st defendant's Defence is that the plaintiff's title and its registration cannot prejudice its right of user over the surface of the Main Roof. The 2nd defendant claims the same right through the 1st defendant, having permission to use the surface of the Main Roof as its tenant. In broad outline, the 1st defendant maintains that since it had secured by purchase through Wong a right to use the surface of the Main Roof prior to Sui Ying's purported sale of the whole of the Main Roof to the plaintiff, Sui Ying could not effectively convey to the plaintiff what it had sold and was no longer possessed of: Hence the 1st defendant's interest and that of the plaintiff's over the main Roof are wholly different and are not competing interests for land registration purposes. Secondly, counsel for the 1st defendant argued first that its user right as a vested interest had been duly registered in compliance with the provisions of the Land Registration Ordinance. In the alternative, if there had been any shortfall in the registration process as laid down by the provisions of the same Ordinance, registration would have been deemed to be completed. Thirdly, Sui Ying and its successor-in-title, the plaintiff, have each become a constructive trustee of the 1st defendant's somewhat limited right of user over the surface of the Main Roof. Put in another way : first, the interests which the plaintiff and the 1st defendant hold and enjoy do not overlap, and as such independent property rights, priority need not be argued under the Land Registration Ordinances; secondly, the 1st defendant's interest was either duly registered or deemed to have been registered prior in time to that of the 1988 Assignment to the plaintiff; thirdly, the 1st defendant's interest is subject matter of a constructive trust, falling outside the provisions. of the Land Registration Ordinance, with Sui Ying and the plaintiff as successive constructive trustees. Hence, the 1st defendant's interest has never been overridden by Sui Ying's 1988 Assignment in favour of the plaintiff, and the2nd defendant is in lawful occupation as the 1st defendant's tenant.

23. In the Third Party proceedings, the 1st and the2nd defendants as claimants sue the Third Party, the vendor, as the defendant. I have chosen to call the Third Party vendor "Sui Ying". If both defendants (the 2nd defendant claiming through the 1st defendant) were found, as against the plaintiff, to have no right, either in title or priority, to the continued occupation of the Main Roof and its structures, first of all they would seek from Sui Ying damages on an alleged breach of an express covenant for quiet possession. Alternatively, these defendants would base their claim for damages on an alleged derogation from Sui Ying's grant of the right to use the surface of the Main Roof. The Third Party Defence of Sui Ying is : first, the right to use the surface of the Main Roof was a personal licence without any proprietary interest, and it was therefore not registrable against land. Moreover, it was revocable at will and has been revoked. Consequently, the 1st defendant cannot complain of its termination or resist this action of the plaintiff. In the further alternative, if it were a registrable right under an indeterminable contract for the residue of the Crown Lease, the 1st defendant would be the author of its own misfortune brought about by its neglect in observing our law for land registration.

24. As for the Third Party proceedings as a successor-in-title the 1st defendant calls in aid the express covenant for quiet possession in the Sui Ying's 1970 Assignment to Wong, which is said to be a covenant affecting and running with the land for the benefit of the 1st defendant. The 2nd defendant claims as a party who took under or through the 1st defendant pursuant to section 39(1) of the Conveyancing and Property Ordinance. S.39(1) presumes, in the absence of any contrary intention, a covenant relating to any land of the covenantor to have been made also with, inter alia, "any persons deriving title under or through" the covenantor or his successors-in-title. Alternatively, these defendants argued in the Third Party proceedings that the undivided 4/100th parts of the land and building must necessarily accompany a valid grant of a right of user over the surface of the Main Roof. in other words, if the right of user over the surface of the Main Roof granted independently of such undivided 4/100th shares had been invalid, such undivided 4/100th shares should have been perpetually held for the benefit of Wong and his successors-in-title. Hence, the 1988 Assignment of these undivided shares and the entire Main Roof to the plaintiff was a derogation of that grant to Wong and his successors-in-title, including the 1st defendant.

25. For both the alleged breach of covenant for quiet possession and deorgation of grant, these defendants claim damages. Strictly speaking, the alleged derogation of grant stemmed from the 1988, Assignment dated 20th July 1988, but actual damage did not flow until the issuance of the writ when the user right over the surface of the Main Roof was sought to be interrupted. Damages for breach of the covenant for quiet possession evidently only flowed from the issuance of the writ whereby possession was demanded from these defendants. These defendants are content to have value of their user right over the surface of the Main Roof assessed as at the date of the writ in all causes of action.

26. Mr Chain sought to keep in water-tight compartments the ownership right over the 9th to the 11th Floors and the right of user over the surface of the Main Roof. The former was, so submitted counsel, a licence coupled with proprietary interest and the latter a bare licence. It was argued by Mr Chain for Sui Ying, the Third Party, that the user right over the surface of the Main Roof was not touching and concerning land and could not form subject matter of a covenant, that therefore it could not enure to the benefit of the 1st defendant as a successor-in-title, and that there was nothing for the 2nd defendant to inherit under section 39(1) of the Conveyancing and Property Ordinance. Alternatively, Mr Chain maintained that being co-extensive with the right reserved in the 1970 Assignment to Sui Ying to use the Main Roof for putting up advertisements and signboards and erecting water tanks and cooling towers, etc., the right of user over the surface of the Main Roof was exclusive as against the whole world except for Sui Ying. Since these rights of user of Wong and Sui Ying were both registrable, the non-registration of one would yield the floor to the latter of them, particularly when it was registered. The failure to so register was the sole responsibility of Wong and his successors-in-title, including the 1st defendant. Hence, Sui Ying was not liable to the 1st defendant, especially when the sale by the 1988 Assignment to the plaintiff was expressly made subject to existing rights. It was, so Mr Chain concluded, the 1st defendant and its predecessors-in-title who had made default in preserving priority of the user right over the Main Roof.

27. The case of Wright v. Dean [1948] 1 Ch.686 was cited by both Mr Chain and Mrs Clough. Mr Chain submitted that unlike Mr Dean, the owner there, who remained liable after selling his property without disclosing an option previously granted, Sui Ying had categorically preserved "subsisting rights". But Wright v. Dean is decidedly against Mr Chain. In as much as the burden of the tenant's option of purchase was not sought to be passed over to the purchaser by Mr Dean, Sui Ying has never attempted to effectively rid itself of the burden of the covenant for quiet possession. At p.695, Wynn-Parry J. asked rhetorically that if a contracting party did "not take steps to see that his purchaser (was) bound at law to perform the contract in his place or pay damages for his default, why should (he) be regarded at law as free of his contractual bargain?". The plaintiff was never made to assume Sui Ying's liability for this covenant for quiet enjoyment. I should mention that Sui Ying is also facing an added claim for an alleged derogation from its grant.

28. Mrs Clough for the defendants responded that the right to use the surface of the Main Roof derived from two sources : first, as an incident of Wong's ownership in common holding undivided shares, and secondly, from the express grant in favour of Wong of an exclusive right of user over such surface by the 1970 Assignment. Even if no express grant had been effectively made without some of the allotted 4/100th undivided shares for the Main Roof, the 24/100th parts for the 9th to the 11th Floors assigned to Wong under the 1970 Assignment would have allowed him, as a co-owner, to enjoy a common owner's right over any other area which had not been carved out for exclusive user, including then the Main Roof surface. Hence, the right of user over this surface was supported also by a right so to use it inherent to Wong's common ownership by virtue of these 24/100th undivided shares. Therefore, it was contended that this licence was one coupled with some proprietary interest in land. At the very least, so it was further submitted, it was an irrevocable contractual licence.

29. Next I turn to the viva voce evidence : Mr Tang, a witness for the defendants, explained that the structures on the roof have been and are still being used by the2nd defendant for its Engineering Department, canteen and garden. Both defendants are closely associated.

30. Mr Gilboa, a director of the plaintiff, testified that from his former headquarters he had a good view of the I structures on the Main Roof long before the negotiation for the 1988 Agreement. He relied on information from the his firm's solicitors and estate agent. The plaintiff was in need of more space. The location was familiar to Mr Gilboa. The asking price was favourable. He was anxious to clinch the deal at $68M. Mr Gilboa only liaised with his firm's estate agent, Richard Ellis, after the plaintiff had agreed to purchase these premises. Richard Ellis' remark was that the structures had been used as "an illegal gambling den". No instructions were given to Richard Ellis to explore. On the 28th July 1988, 8 days after the 1988 Assignment from Sui Ying to the plaintiff, Mr Gilboa paid his first visit to the Main Roof. No effort had been or was then made to liaise with the occupants on the Main Roof and other tenants of the building. Phase II was the target of the plaintiff's acquisition. Compared with the mammoth purchase price of $68M, any likely problem from the Main Roof and its structures could only be, as Mr Gilboa put it, of "secondary importance".

31. Miss Winnie Lai was the solicitor in charge of the 1988 Agreement and Assignment. Her counterpart acting for Sui Ying was Mr Luk of Messrs Johnson, Stokes & Master. She was told by Mr Luk that no tenancy or licence was known to have been granted by Sui Ying in respect of the Main Roof and its structures, nor had any rent or licence fee been accepted. Mr Luk also stated on instructions that no one previously in charge of matters relating to the Main Roof in Sui Ying was still with the company and that the new personnel were unable to account for the structures and their occupation. Mr Luk also furnished the information that the structures on the Main Roof were probably illegal. He declined to confirm any of this in writing. Miss Lai discussed with Mr Gilboa the illegality of the roof structures, in particular a possible breach of airport height restrictions and other particulars she had been fed by Mr Luk. She warned Mr Gilboa that a claim of adverse possession was possible Miss Lai was left in no doubt that the premises were to be "sold" on an "as is" basis and no delivery of vacant possession of the Main Roof on completion was assured. With hindsight, all this information and the reluctance of Mr Luk to commit himself in writing cried out for a more in-depth investigation, but I accept that in the circumstances the plaintiff could be excused for closing this transaction in haste even with known problematic structures on the Main Roof. As for Miss Winnie Lai, faced with client's eagerness and pressure for expedition, it is understandable that given client's determination to purchase on an "as is" basis with no warranty for vacant possession. of the Main Roof, she saw fit to depart from the usual standard of viligance exercisable in a comparable land transaction. Moreover, she had no instructions for further enquiry from Mr Gilboa who had been briefed on all on the information she had received. Even if there had been any unjustifiable shortfall on the part of Miss Lai and/or Mr Gilboa, they could not have been said to harbour any improper motive against these defendants in processing the documentation of these premises and implementing their sale. Moreover, the plaintiff must have been encouraged by the search on the Sub-Division Card for the Main Roof which revealed a clear and acceptable title.

32. On behalf of the plaintiff, Mr Merry submitted that the 1st defendant had at nest secured a licence to use the surface of the Main Roof, a licene either personal to Wong alone or in any case, revocable. A contractual licence to occupy land, so counsel maintained, would confer no interest in land and would not bind' the plaintiff as purchaser. see Holding 2 at page 2 of Ashburn Anstalt v. Arnold, [1989] 1, p.8 D/E, page 13 D and F, p.14 D, p.15 H, p.16 E/F; 68(1952) L.Q.R. 337 at 339. A licence merely permits the doing of something which is illegal or unlawful to do. A licence is not an interest in land. See also Megarry and Wade on Real Property 5th edn. p.p.798-9 for a discussion of occupational licences granting exclusive possession, which are regarded as interests in land. Mr Merry further argued that even if the grant to use the surface of the Main Roof had constituted an interest in or affecting land, by prior registration under the Land Registration Ordinance, whatever interest had accrued to the 1st defendant through the 1970 Assignment would have been null and void under section 3(2) of the Land Registration Ordinance as against the plaintiff's estate, title and right to the Main Roof. In essence, counsel contended that no registrable interest had vested in Wong and that if there had been, the 1st defendant's interest must have been overreached by the plaintiff's registration. Counsel further submitted that the plaintiff was under no obligation and had not wilfully or recklessly failed to make any enquiry and that there could be no question of any conscience affecting the Main Roof. Consequently, it would not be inequitable for the plaintiff to deny the 1st defendant's claim of an interest in it. Consequently, no constructive trust arose. The 2nd defendant's claim would thus fall with the 1st defendant's.

33. The main submission advanced by Mrs Clough on behalf of the defendants was that there were no competing registrable interests between Wong and his successors-in-title down to the 1st defendant on one hand and the plaintiff under Sui Ying on the other in respect to their respective rights over the Main Roof. Counsel addressed the situation on different planes : first, the right to use the surface of the Main Roof given by the 1970 Assignment to the 1st defendant's predecessor-in-tile, Wong, did not entirely depend on the conferment on Wong of a new user right over the Main Roof. Self-restraint on the part of Sui Ying as a co-owner, from exercising its right in common to use the Main Roof would also result in an exclusive right of user in favour of Wong : the 1st defendant's predecessor-in-title, Wong, was assigned by Sui Ying 24/100th undivided shares of the land and the building in Phase I, and Wong enjoyed unity of possession. See p.422, The Law of Real Property, Megarry and Wade, 5th edn. With unity of interest, Wong shared the use and enjoyment of the Main Roof in common with his other co-owner, Sui Ying. It was as much a new grant of an exclusive right of user over the Main Roof as it was a  solitary exercise by Wong of the right of ownership in common over the Main Roof from which Sui Ying had chosen to withdraw. In the 1970 Assignment, for the Main Roof Sui Ying merely reserved to itself and its assigns and other owners of the remaining 76 equal undivided 100th parts of the land and building "the exclusive right ... to put up advertisements and signboards and to erect water tanks and/or cooling towers on the Main Roof". The rest of the co-ownership right was, in effect, abandoned by Sui Ying. For good measure, Wong covenanted with Sui Ying that he and his assigns would not interfere with Sui Ying's reserved right to "put up any advertisement or signboard on the   Main Roof of the said building and (would) allow the Vendor and all persons by it authorised to enter into the Main Roof for the purpose of putting up advertisement and signboards and water tanks and/or cooling towers etc. and to repair and maintain the same".

34. Mrs Clough further submitted that the title to or exclusive user right over any portion of the Sui Ying Industrial Building was not inextricably tied to its undivided shares notionally allotted in Recital (3) of the 1969 DMC. I have directed attention to the lack of any unambiguous provision requiring a sale of any interest over the Main Roof to be acompanied by some of the shares allotted. Recital (3) itself is silent on any binding obligation on Sui Ying to desist from making a grant of or over any part of the Main Roof without the allotted 4/100th undivided shares. In addition, Clause 6 of the 1969 DMC empowers every owner of any undivided share to deal with it as he pleases. Moreover, nothing in the 1969 DMC, so it was argued and I think rightly, has brought about a fusion of any right over the Main Roof with its proposed allotted 4/100th parts in the DMC recital. Even if the 1969 DMC had put in place a contractually binding restriction against the granting of any right over the Main Roof without a corresponding conveyance also of the proposed allotted 4/100th shares, no one has taken any action in contract under that 1969 DMC for a declaration, injunction or perhaps more appropriately damages. After all, there have stood these substantial structures on the Main Roof for many years. It was also not suggested that an interest granted in breach of any provision of the 1969 DMC would be null and void. Sui Ying could, therefore, grant an exclusive right to use the surface of the Main Roof to Wong without any undivided share as it did in the 1970 Assignment, reserving to itself "the exclusive right to put up advertisements and signbrands and to erect water tanks and/or cooling towers". In my judgment, the Main Roof was effectually purchased by Wong in 1970 in the Hong Kong style conveyancing subject to the right reserved to Sui Ying as aforesaid.

35. Even if Main Roof and its allotted undivided shares had had to be dealt with together, there seems to be much to be said for Mrs. Clough's submission that the right of user over the surface of the Main Roof could have been maintained by Wong in his capacity of an owner in common, fed by other undivided shares.

36. With a right to use the surface of the Main Roof effectually given away in these circumstances, Mrs Clough invoked the maxim: nemo dat quod non habet, that is to say, no one can convey what he does not own. "In principle, the registered system is not governed by the maxim." See p.103 Megarry and Wade on the Law of Real Property, 5th edn. Some caution must be exercised as that observation must be understood in the light of what is stated earlier at p.102 : "It is possible for a purchaser to take a title free from some encumbrances which was binding on the vendor, so that in one sense he may obtain more than the vendor had himself". These passages deal primarily with equitable interests. In Hong Kong, we are concerned with registration of deeds and not of title. See Financial & INvestment Services v. Baik Wha International, [1985]HKLR 103; Ng Kam Ha v. Vincent Sina Traders (HK) Ltd., [1987]HKLR 1193. Our position is reaffirmed by a decision of the Privy Council, which lays to rest that maxim for our land registration. See Mark Faith Investment Limited v. Chiap Hua Flash Lights Limited, [1990]2 W.L.R. 1451.

37. Winland Investment Limited v. Apesole Limited [1988] HKLR 541 was commended for my consideration but that is a case unconcerned with any registration or priority. There, the right to use in common a part of the lower floors had simply not been preserved. It was decided that the landlord was unable to give the upper floors tenants common right to use that part of the lower floors which he no longer had. The question was not one of priority under the Land Registration Ordinance between any two competing registrable interests. At p.549, Nazareth J. observed:

"If I am right that the lower floors were demised to Kings without reservation, then the plaintiff had no more right to grant such right of use in common ... , because it had already been conveyed to Kings."

38. Here, I am to consider Hong Kong registration. All registrable but unregistered instruments would be overreached by a subsequently registered instrument under section 3(1) of the Land Registration Ordinance. That would be the case whether or not the parties to the subsequently registered instrument had notice of the prior registrable but unregistered ones. See s.4. That is so even if the subsequently registered instrument were to be expressly made subject to any prior registrable but unregistered instrument. Further, under section 3(2), all registrable but unregistered instruments are null and void as against any subsequent bona fide purchaser.

39. I pass then to the opinion so succinctly expressed in their Lordships' House in Mark Faith Investment Limited v. Chiap Hua Flash Lights Limited, supra., also reported in [1990] HKLR 84. In that case, some Kowloon premises subject to 13 tenancy agreements were sold; the tenancy agreements, all of less than 3 years' duration, were not registered when the purchasers caused to be registered their Agreement for Sale and Purchase. 10 of the tenancy agreements contained options to renew for a period, in all, exceeding 3 years. The purchasers were only informed, after the registration of their Sale and Purchase Agreement, of the options and they refused to accept an assignment of the premises from the vendor "subject to the existing lettings and tenancies thereon". For easy reference, I shall attempt to isolate the principles relevant to this case from the speech of Lord Templeman delivering the opinion of the Board: first, "subject to the existing lettings and tenancies" is to be interpreted as subject to only valid interests which are "subsisting and capable of being enforced against the purchaser(s)". P.1453G, p.1458H. Even actual notice of a registrable but unregistered prior instrument would not affect the operation of section 3(2) of the Land Registration Ordinance, which would render it null and void as against a subsequent bona fide purchaser. See p.1455F - 1456C/D. At p.1456A-B, the Privy Council indorsed the reasoning of Harman J. in Hollington Brothers Limited v. Rhodes [1951] 2 TLR 691 at p.696:

"Finally, as under section 13 of the Land Charges Act 1925 ... an unregistered estate contract is void and under section 199 of the Law of Property Act 1925 the purchaser is not to be prejudicially affected by it, I do not see how that which is void and which is not to prejudice the purchaser can be validated by some equitable doctrine. There is, after all, no great hardship in this. The plaintiffs could at any time right up to the completion of the assignment .... have preserved their rights by registration ...."

40. Lord Templeman concluded that the issue in Mark Faith "is indistinguishable from the decision of Harman J." P.1456 C/D.

41. In Hollington Brothers Limited v. Rhodes, supra. the vendors assigned a head lease "subject to and with the benefit of such leases and tenancies as may affect the premises". The tenants who held under an unregistered agreement for a 7 years' lease found their equitable interest void against the purchaser under s.13(2) of the Land Charges Act 1925 but sued the vendors for damages. Harman J. rejected an argument, similarly run in this case, that "the purchaser did not contract to obtain and did not by the assignment get any estate in the land expressed to override the tenants' rights, and consequently the purchaser took subject to those rights which were expressly mentioned; the land purchased was in fact only an interest in the land subject to the rights of the tenants". Lord Templeman shared the view of Harman J. "that it was the policy of the framers of the 1925 legislation to get rid of equitable rights unless registered". See Mark Faith Case, supra. p.1455H. I have already endeavoured to point out that our different land registration is one of documents.

42. Lord Templeman inferentially excluded the operation of the maxim for our section 3(2) :

"In the present case, however, the Ordinance is not limited to beneficial interest. Section 3(2) provides that all registrable, unregistered instruments in writing shall be absolutely null and void to all intents and purposes against any subsequent bona fide purchaser for valuable consideration of the same parcels of ground, tenements or premises. In the present case the tenants and the purchasers claim and compete for the same parcel of ground; the tenants claim under an unregistered instrument which is void against the purchasers. Any other conclusion is inconsistent both with the language and the obvious purpose of the Ordinance." p.p.1456H - 1457A

43. Drawing heavily from the purport of the preamble of the Land Registration Ordinance that. "it is expedient to prevent secret and fraudulent conveyances .... and to provide means whereby the title to real and immovable property may be easily traced and ascertained", Lord Templeman concluded:. "Section 3(2) of the Ordinance .... puts the purchaser in a better position than his vendor." see P.1457 B//C.

44. The right to use the surface of the Main Roof is registrable but unregistered. I have found that the plaintiff had no notice of the 1st defendant's right over the Main Roof. In reality, as Lord Templeman has summed up, section 3(2) of the Ordinance puts the plaintiff as purchaser in a better position than its vendor, Sui Ying. The 1st defendant's unregistered interest through Wong is null and void as against the plaintiff, a subsequent bona fide purchaser under the 1988 Assignment. Moreover, that 1988 Assignment is registered. The reservation in the 1988 instruments, viz. "subject to and with the benefit of .... all other subsisting rights", could only refer to valid subsisting rights binding on the plaintiff as purchaser. By virtue of section 3(2) of the Land Registration Ordinance, the 1st defendant's right of user is not such a valid and binding right.

45. I have found the plaintiff to have had no notice of the 1st defendant's right over the Main Roof. The meaning I have, on the authority, ascribed to "subject to all subsisting rights" in the 1988 Assignment has spared me from considering the notion of imputed notice to its signatories. In any case, notice would be quite immaterial under ss.3(2) and 4 of the Land Registration Ordinance. However, I should not part company with this subject without making a passing reference to Mr. W.K. Thompson's well-researched article "The Land Registration Ordinance of Hong Kong:  Historical and Legal Aspects", HKLJ (1974) 242. At p.260, Mr Thompson cited Honeycomb v. Waldron (1736) 93 E.R.1035, "in which it was held, in a competition between two unregistered leases, that the non-registration of the second lease was not cured by an assignment reciting it."

46. Section 4 of the Land Registration Ordinance provides : "No notice whatsoever, either actual or constructive, of any prior unregistered deed, conveyance, or other instrument in writing, or will or judgment, shall affect the priority of any such instrument as aforesaid as is duly registered". At p.267 Mr Thompson sets out Lord Redesdale's rationale in the Irish case of Bushell v. Bushell, (1803)1 Sch. & L. 137, for rejecting, as constructive notice, a recital of a priorregistrable but unregistered instrument in the registered memorial of a subsequent instrument.

"It is true, the registry is considered as notice to a certain extent; no person thinks of purchasing an estate without searching the registry, and if he searches he has notice; but I think it cannot be considered as a notice to all intents, on account of the mischiefs that would arise from such a decision. For if it is to be taken as constructive notice, it must be taken as notice of everything that is contained in the memorial; if the memorial contains a recital of another instrument, it is notice of that instrument, if a fact, it is notice of that fact."

47. Financial and Investment Services, [1985] HKLR 102 cannot be a case on the maxim nemo dat quod non habet. At p.112H, Hunter J. coined the phrase of "validity first and priority second" for easy reference. But the Court was not there dealing with the doctrine of nemo dat. In contrasting one registered interest with another under section 3(1) of the Land Registration Ordinance, the judge found it necessary to resolve the question of validity before determining their priority. At p.113H, Hunter, J. commented:"... registration is only prima facie evidence of ownership. It does not exclude inquiry into the underlying transaction which is the subject matter of the registration. The validity and effectiveness of such trasactions depend upon the results of such inquiry independently of the fact of registration."

48. Mrs Clough advanced yet another subtle argument : counsel submitted that the 1970 Assignment to wong was, in fact, duly registered even though no memorial had been submitted against the Sub-Division Card for the Main Roof. It . was emphasised that nowhere in section 2(1) and section 3(2) was registration required against any or any corresponding Sub-Division Card of the premises affected. Section 28 enables regulations to be made for registration. Regulation 5(1) provides that "registration under the Ordinance shall be effected by delivering into the Land office such instrument together with a memorial thereof in the form prescribed ... and by compliance with the Ordinance and ... Regulations". Regulation 6(1)(d) requires certain particulars to be given in a memorial, i.e. "a description of the land and premises affected or intended to be affected, including the lot number and address". (Emphasis added). "Address" is further dealt with in regulation 6(4) as including "the name of the street and the number of the premises". (Emphasis again added). It must not be overlooked that the lot number and the name of the street and number of the premises are not the only particulars required to be furnished. They are merely matters to be included in addition to the particulars specified in section 6(1)(d), that is to say : to be included in the particulars specified in the "description of the land and premises affected of intended to be affected". For registering the right to use the surface of the Main Roof, regulation 6(1)(d) explicitly requires the memorial to contain a description of the Main Roof as premises affected. If the Main Roof should be described in the memorial as the premises affected as I think it should be, then it must follow that due process requires that memorial to be submitted for registration against the Sup-Division Card for the named premises i.e. the Main Roof. I am unable to support this contention of counsel.

49. Mrs Clough relied, in the alternative, on Regulation 13 and Regulation 14(1) as creating an obligation on the part of the Land Officer to seek out the particular premises affected or to be affected from all documents submitted for registration; for malting a proper entry against the appropriate sub-divisions. It was suggested that that was precisely what was done in relation to the 1969 DMC. No evidence was given as to how the Sub-Division Cards came to be compiled or how registration of the 1969 DMC came to be entered against every sub-division. It was surmised that after sub-divisions had been proposed in the 1969 DMC by an allocation of undivided shares, the Land Officer took upon himself to give effect to the owners' wish by installing Sub-Divisions Cards and making an entry against each newly created Sub-Division Card of the already registered 1969 DMC. Counsel therefore contended that with a duty to register any submitted instrument as a whole and to scrutinise every document so submitted for full registration, irrespective of any errors in the memorial or any neglect on the part of the Land Officer, a signed certificate of registration put on the document by the Land officer pursuant to Regulation 14(2) would have the effect of deeming that registration "to be completed" against whatever premises affected by the instrument. In other words, the 1970 Assignment to Wong should have been discovered by the Land Officer as affecting the Main Roof even with a memorial containing no description of the Main Roof as premises affected, and registration against the main Roof was deemed to be complete and effective under Regulation 14(2).

50. Provisions of the Land Registration Ordinance and its Regulations do not demand compulsory registration of a registrable instrument nor its compulsory registration againt every premises thereby affected. It is a system of optional registration of documents. Much was sought to be made by Mrs Clough of the absence of any enabling provision for part registration of a document. Evidently, the 1970 Assignment to Wong was presented as a whole for registration and the instrument was and was intended to be registered wholly, but it need be remembered that the memorial was submitted only against the Sub-Divisions of the 9th - 11th Floors. It was not obligatory for Wong and his successors-in-title to register the same against all or any of the premises affected by it. The Regulations, including Regulation 13. and Regulation 14(1), have not imposed any such duty upon the Land Officer to act in the manner as suggested by counsel. If Mrs Clough were right, the Land Officer would have an endless task, for the performance of which no multitude of professional officers would be adequate. There is no warrant for inferring such an exorbitant demand from these Regulations. In my view, a submission for registration against any subsisting Sub-Division affected must be specific. A registration against other parts or sub-divisions of a parcel would not suffice. The crux of the matter is : which particular premises had Wong chosen to register his memorial against? The memorial of the 1970 Assignment to him did not include the Main Roof as "premises affected" nor was it submitted for registration against the Main Roof. For the purposes of entertaining a submission for registration against only the 9th - 11th Floors as the premises affected, the Land Officer had overlooked nothing in conducting his scrutiny pursuant to Regulation 13. Particulars required by Regulation 6 for registration against only the 9th - 11th Floors were duly given in the memorial so submitted. Under section 23, the Land Officer had no option but to accept for registration document submitted against any specified Sub-Divisions of Wong's own choice. No registration against the Main Roof was sought. The Land Officer could not compel registration against any other Sub-Divisions when the instrument affecting those sub-divisions was submitted for registration only against the 9th - 11th Floors. Mrs Clough's alternative submission therefore also fails.

51. Lastly, the defendants relied on constructive trust. It was submitted that if a valid grant of the right to use the surface of the Main Roof could not have. been made without the undivided 4/100th shares in the land and building, then in the 1970 Assignment to Wong, these 4/100th shares must have been held for his benefit by Sui Ying as a constructive trustee. I have held that the right to use the surface of the Main Roof could be granted exclusively to Wong free from any of its own allotted undivided shares or any further undivided share over and above the 28/100th shares conveyed in the 1970 Assignment. In view of that, it is quite unnecessary for me to consider this submission on constructive trust. However, a constructive trust could hardly provide an escape from the consequences of registration. At p.266 of his said article of "The Land Registration Ordinance of Hong Kong : Historical and Legal Aspects," Mr Thompson recalled the lack of success in alleging resulting trusts for the purpose of circumventing the Land Registration Ordinance.

52. Constructive trust is an involved topic. Tsang Chuen v. Li Po Kwai [1932] A.C. 715 did not decide on any resulting trust. At page 729, in delivering the opinion of their Lordships in the Privy Council, Lord Blanesburgh acknowledged the possibility of a resulting trust which need not. be in writing, defeating priority under the Land Registration Ordinance. But the decision turned otherwise on issues irrelevant for our present purposes, viz. evidence inadmissible to contradict the plain terms of a deed and estoppel arising from the registered memorial against the submitting party from alleging a trust. At page 730, Lord Blanesburgh observed that the alleged trust failed "also because of estoppel" and his Lordship continued:

"To their Lordships, it seems clear that by his registration of the memorial of his deed of assignment, the respondent is estopped as against the appellant, who took his registered mortgage in reliance on that memorial, from denying its correctness in an essential particular. The memorial is a complete statement of the deed of assignment, including therein a statement as to receipt of the purchase price. Its correctness, as required by the Ordinance, is duly attested. Its registration is, in terms of the Ordinance, a means whereby the title deed in immovable property may be easily traced and ascertained."

53. Mrs Clough leaned heavily on Lyus and Another v. Browse Developments Limited and Others [1982]1 WLR 1044 and Ashburn Anstalt v. Arnold [1989]1 Ch 1. In Lyus, the plaintiffs paid a deposit to a company for the building of a house on a certain plot. The company became insolvent before the house was completed and the bank exercised its power of sale under a Legal Charge executed before the date of the plaintiffs' contract with the company, not then insolvent. The bank had, of course, no liability for completing the plaintiffs' contract but voluntarily sold the plaintiffs' plot to the 1st defendant "subject to and with the benefit of" the plaintiffs' contract. The 1st defendant contracted to sell the land to the 2nd defendant. It was held that by the 1st defendant's acceptance of the land under the sale from the bank with a clear intention of giving effect to the plaintiffs' contract, the 1st defendant and, in turn, the 2nd defendant became a constructive trustee to the extent of the plaintiffs' benefit under the contract. Lyus shall be more closely examined later with Ashurn Anstalt v. Arnold.

54. In Ashburn, an occupier under an agreement was held by the English Court of Appeal to be a tenant and therefore under a special section in the Land Registration Act 1925 he had some overriding interest over the freehold purchaser of the same land. It was held in the alternative that if no tenancy had been created, on a mere contractual licence which could not bind the leasehold purchaser even with notice, the conduct of the owners would have given rise to a constructive trust.

55. From these two decisions, certain principles emerge : first, no contructive trust should be inferred from slender materials. See Ashburn page 26 D/E. Generally speaking, a constructive trust arises out of an existing trust or other .fiduciary relationship. See page 192, Shell on Principle of Equity, 28th edn. In Ashburn at page 22 E - F, in delivering the judgment of the court Fox L.J. had this to say :

"The constructive trust principle, to which we now turn, has long been established and is proved to be highly flexible in practice. It covers a wide variety of cases from that of a trustee who makes a profit out of his trust or a stranger who knowingly deals with trust properties, to the many cases where the courts have held that a person who directly or indirectly contributes to the acquisition of a dwelling house purchased in the name of and conveyed to another, has some beneficial interest in the property. The test, for the present purposes, is whether the owner of the property has so conducted himself that it would be inequitable to allow him to deny the claimant an interest in the property."

Lyus is a case on even more peculiar facts of its own : a caution was registered by the plaintiffs in the Land Registry to protect their contract with the insolvent company for building their house. Although the bank chargor had priority, the bank's sale to the 1st defendant was made expressly subject to the contract. The 1st defendant therefore had "the fullest actual knowledge of the plaintiffs' contract". See page 1051 D. The bargain could have expressly made a trustee of the 1st defendant for the plaintiffs' building contract rights. That was not done, but it was held to be enough, for raising a constructive trust, merely to have a provision "under which some sufficiently defined", even though not fully defined, "beneficial interest in the property was to be taken by another". See pages 1052 G and 1053 A. Initially, the bank in Lyus case was not bound by and was then in fact free from the plaintiffs' contract. The clear intention of the parties involved was highlighted by Fox L.J. in the later case of Asburn, supra p.p.24H to 25A :

"There was, therefore, no point in making the conveyance subject of the contract unless the party intended the purchaser to give effect to the contract." (Emphasis added)

Moreover, the 1st defendant's solicitors in Lyus had given an assurance to the bank's agent that the 1st defendant "would take all reasonable steps in its power to make sure that the interest of the contractual purchasers were dealt with quickly and to their satisfaction." See Lyus, supra. p. 1048 D. The English Court of Appeal in Ashburn expressed the view that it was, in every case, a question of "What is the reasonable inference from the known facts?" See Ashburn, supra. p.23 D. A licence is not even an interest in land. "Fundamentally a licence is a permission to do what would otherwise be a trespass". Megarry & Wale on the Law of Real Property, 5th edn., p.789. At common law, a licence could be revoked at will notwithstanding an agreement to the contrary, and remedy lay only in damages. That was so until equity successfully intervened. See Asburn, supra. p.16E/F - F/G. At p.p.2E, 8D/E, 13D-F, 14D, 15H & 16E/F. The English Court of Appeal in Ashburn decidedly rejected the general preposition that in the absence of special circumstances, a mere contractual licence to occupy premises indefinitely could give rise to a constructive trust, and it distinguished Binions v. Evans, [1972]Ch.359 on facts. In Binions, where a widow was given by trustees of an estate a tenancy at will in a cottage, rent free for life. The sale of the cottage to the purchasers was made subject to such a tenancy and at a reduced price. The majority held the widow to be a tenant for life, but Lord Denning M.R. favoured a constructive trust. The purchasers were even given a copy of the agreement made with the widow. Their Agreement for Sale and Purchase was made subject to the same agreement and they paid a lower price in consequence. In Ashburn at page 23 G/H, the decision in Binions was explained :

"In the circumstances, it was a proper inference that on the sale to the (purchasers), intention of the estate and the (purchasers) was that the (purchasers) should give effect to the tenancy agreement of the widow."

At p.25 B - E, Binions was contrasted with In re Sharpe, [1980]1 W.L.R. 219 where an aunt provided a loan for the purchase of the house, and when the purchasers wrote to her before entering into the contract for sale and purchase to enquire as to her rights, if any, she did not reply. Obviously the facts in In re Sharpe did not call for an imposition of a constructive trust in equity.

"The Court will not impose a constructive trust unless it is satisfied that the conscience of. the estate owner is affected. The mere fact that that land is expressed to be conveyed 'subject to' a contract does not necessarily imply that the grantee is to be under an obligation, not otherwise existing, to give effect to the provisions of the contract." See Asburn, supra. p.25 H to p.26 A.

56. Sui Ying clearly intended a sale of the surface of the Main Roof to Wong. In the Hong Kong style conveyancing, that was clearly sought to be and was implemented. See in particular the word "sold" in Clause 18(a) of the 1969 DMC. If, indeed, surface of the Main Roof had not been effectually assigned to Wong without the 4/100th undivided shares or some portion thereof, Sui Ying would have become a constructive trustee for what it should have included in the purported sale. I have held that the sale of the Main Roof was validwithout these 4/100th undivided shares, and, as I have said earlier, constructive trust does not arise for my consideration. These defendants are pursuing the covenants in their claims against Sui. Ying as vendor.

57. As for the plaintiff, applying the law above stated, on the assumption that there is room for a resulting trust to arise, the test is whether the plaintiff has so conducted itself that it would be inequitable to allow it to deny the lst defendant an interest in the property. See Ashburn p.22 F. As Fox L.J. put it at p.27 C :

"In general, we should emphasise that it is important not to lose sight of the question; 'whose conscience are we considering?' It is the plaintiff's, and the issue is whether the plaintiff has acted in such a way that, as a matter of justice, a trust must be imposed on it."

58. In considering that question, it is important to bear in mind "the true bargain". Was "the absolute character of the conveyance ... (fraudulently) set up for the purpose of defeating the beneficial interest"? See Bannister v. Bannister [1988]2 A.E.R. 133 at p.136D.

59. The plaintiff here displayed no bad faith in its endeavours to implement what it regarded as a good purchase. Little is known for seriously suggesting that more could have been done by Mr Luk, solicitor for the vendor Sui Ying. The plaintiff has, through Mr Gilboa and Miss Winnie Lai, explained all the circumstances culminating in a less than full enquiry. But it cannot be said that the plaintiff or its legal advisers wilfully shut their eyes to the interest of the lst defendant as in the case of Duke of Manchester v. National Westminstered Bank Ltd. [1987]1 Ch. 264, p.277 per Mcgerry V.C. These explanations from the plaintiff were not, to me, successfully challenged. I accept them. After all, the problem over the roof must be of "secondary importance" compared with the purchase price of $68M, particularly in the agreeable circumstances the plaintiff found itself. There was no evidence whether the price was in any way reduced on account of the Main Roof occupation. The nature of the occupancy was a matter of speculation. The 1988 Agreement and Assignment were only made subject to binding and valid subsisting rights. Such a provision could equally be consistent "with an intention merely to protect the grantor against claims by the grantee". See Ashburn, supra. p.26A. The proper and reasonable inference from the known facts that I have found is that there was no intention on the part of the plaintiff to give effect to any right inconsistent with its unencumbranced interest over the Main Roof. There was no evidence for any inference to be reasonably drawn that the bargain between the vendor Sui Ying and the plaintiff "included a stipulation under which some sufficiently defined beneficial interest in the property was to be taken by (or reserved to) another". See Ashburn, supra. p.23B. No court will impose a constructive trust unless it is satisfied that the conscience of the purchaser is affected. On the evidence and facts in the case and for the reasons I have given, I am not satisfied that in any case a trust could or should be imposed upon the plaintiff in the 1988 transaction.

60. I therefore find in favour of the plaintiff against the defendants. The plaintiff is to have possession, mesne profits to be assessed and costs. I shall entertain any application for a stay, if made.

61. I have ordered evidence of the main action to be taken as evidence of the Third Party proceedings. It was agreed between Mrs Clough and Mr Merry that damages were to be assessed. Mr Chain has applied to reopen the Third Party's case. Evidence led could affect the plaintiff and hence the matter would have to be adjourned until the return of Mr Merry and until this court could conveniently resume. The application to reopen these Third Party proceedings for the purpose of adducing some evidence from the Building Ordinance Office has now been denied.

62. As for the Third Party proceedings, Mrs Clough for the 1st and the 2nd defendants is relying on the express covenant for quite possession in the 1970 Assignment by Sui Ying to Wong. Covenant touching and concerning land runs with it. See Megarry and Wade 5th edn. p.p.161 and 765. As late as the 2nd December 1981, Sui Ying, through its then solicitors, wrote to the 1st defendant acknowledging its "exclusive right to use the surface of the Main Roof", and requested for reimbursement of $41,893, being a paid contribution towards installation of a new transformer room and other ancillary equipment.

63. As for the 2nd defendant, Mrs Clough relied on section 39 of the Conveyancing and Property Ordinance, Cap. 219. I hold the link-up as a valid one.

64. Alternatively, counsel raises the question of derogation of grant if the 4/100th shares must go with the user right over the surface of the Main Roof. See Megarry and Wade p.p.848 and 849. In Harmer v. Jumbil (Nigeria) Tin Areas, Limited, [1921]1 Ch 200, at 225, it was said that the principle of derogation merely "embodies in a legal maxim a rule of common honesty". Mr Chain sought to meet Mrs Clough's alternative argument of derogation by relying on the reservation in the 1988 Agreement and Assignment for "all other subsisting rights", allegedly including the defendants' existing right of user over the Main Roof. I have held that that provision has no such legal effect.

65. The user right over the surface of the Main Roof granted by 1988 Agreement and Assignment, so I have determined, did not need to be complemented by any further undivided shares than the 24/100ths for the 9th-11th Floors. I agree with Mrs Clough's submission that as a co-owner, the 1st defendant and its predecessors-in-title had an inherent right in common to use the Main Roof in addition to the right to use the surface of the Main Roof expressly granted by the 1970 Assignment. Such granted right of user, insofar as it may be regarded as a licence, was contemplated to be used in conjunction with the co-owner's proprietary right over the Main Roof. In that sense, it was likewise a licence coupled with a proprietary interest. In the final analysis Mrs Clough must also be correct that come what may, the 1st defendant and its predecessors-in-title had a right of the nature of an irrevocable contractual licence. See Chitty 26th edn. para. 924. Therefore, insofar as it be of the nature of a licence, it is irrevocable, and insofar as it is a property right exclusively reserved to Wong and his successors-in-title, the concepts of covenants for quiet possession and derogation would spring into operation for their benefit, including that of the 1st defendant (see Citty on Contracts (1989) 26th edn. p.924 "The Rights of Co-owner"; 45 Halsbury's p.639 para. 1399), and, under section 39 of the Conveyancing and Property Ordinance, of the 2nd defendant. Suffice it for me to hold that the claim based on the covenant for quiet possession and enjoyment succeeds.

66. Mr Chain further contended that if there was ever non-registration which had adversely affected these defendants, Wong and his successors-in-title must themselves wholly shoulder the responsibility. I have held that the right of user has not been registered or validly registered, but in Wright v. Dean [1948]1 Ch 686 at p.p.693-4 and p.696, are found the sound propositions that no contractual obligation would be inferred to register under the Land Registration Ordinance and that there is no duty "to mitigate possible damage by registering" the 1970 Assignment. If indeed Sui Ying had intended the 1st defendant or its predecessors-in-title to register the right to use the surface of the Main Roof for their own protection or for the protection of Sui Ying, it would have been encumbent upon Sui Ying to expressly insert a stipulation to that effect in the 1970 Assignment or 1969 Agreement for Sale and Purchase. See 37 Atkin's Court Forms, 2nd edn., paragraph 17 at p.317 and 318. This Mr. Chain's submission also fails.

67. As to damages, it should be assessed from the date of writ. See 42 Halsburys Laws of England, p.p. 226-7 para. 354. Strictly speaking, the alternative derogation damages would stem from the date of the 1988 Assignment, i.e. 20th July 1988. But Mrs Clough was content to accept damages to be assessed on the basis of value of the user right over the surface of the Main Roof as at the date of the writ, the 31st October 1988. Damages for breach of covenant for quite possession flowed from the date of the writ when possesssion was sought to be recovered. The covenant is a future contract, and damages are to be measured by the loss to the covenantee when his right is interferred with. See para. 354 at p.227 42 Halsbury's Laws of England, 4th edn. The defendants have not claimed value of any improvements which they have made. The defendants further claim against the Third Party an indemnity in terms of the first part of paragraph 9(2) of the Third Party Amended Statement of Claim and for other relief together with costs in defending the action. See Vol 37, Atkins, 2nd edn, p.317, para. 17. No question of demolition or removal of the structures on the Main Roof need be considered.

68. In conclusion, I allow the plaintiff's claims against both defendants for possession, mesne profits and costs. Mesne profits are to be assessed by a Master. The 1st and 2nd defendants succeed in their claim for a declaration in prayer (1) of the Amended Third Party Statement of Claim and in prayers (2), (3) & (4) and costs of the Third Party proceedings. All these damages are likewise to be assessed by a Master and at the same time.