WONG KING LIM v. THE INCORPORATED OWNERS OF PEONY HOUSE

CACV 3/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 3 OF 2012

(ON APPEAL FROM DCCJ NO. 2313 OF 2009)

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J U D G M E N T

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Hon Yuen JA:

1.  This is an appeal from a judgment of Simon Leung DJ declaring that the Incorporated Owners of Peony House (“the IO”) has ceased to have any right of action to recover possession of a strip of land (“the Lane”) by reason of s.7(2) of the Limitation Ordinance Cap. 347 (“LO”).  Although the appeal is concerned with a point of law, it may be helpful to set out some of the relevant background.

Background

2.  Peony House, Nos.2-6 Ka Shin Street (“the Building”) is bounded by 3 streets.  The front of the Building is on Tai Kok Tsui Road.  As one looks at the front, the street on the left of the Building is Ka Shin Street and the street on the right is Fuk Chak Street. 

3.  There is a piece of land running along the entire length of the back of the Building.  It can be described as comprising 3 horizontal parts.  The part nearest the back of the Building is an open yard.  After that, further away from the Building, is a wall (“the Wall”).  And after that, beyond the Wall, is the Lane.    

The Lane

4.  One may reasonably think that as it lies beyond the Wall, the Lane has nothing to do with the Building. It is closer to another building (No.8 Ka Shin Street).  And although there used to be 3 openings in the Wall, they had been sealed up with concrete sometime ago.

5.  It turned out, from an inspection of the title deeds, that the Lane was a common part of the Building.  It was described on the building plans as a scavenging lane. 

The plaintiff’s occupation of the Lane

6.1       The judge found that in 1987-1988 the plaintiff took over a 2-storey structure on part of the Lane.  He operated a business as a plumber, electrician and locksmith (“the shop”) from there.

6.2     The shop front was on Ka Shin Street (the street to the left of the Building) and the shop extended for about half the length of the Lane. The plaintiff installed an iron door at the Ka Shin Street entrance to the Lane, and also an iron gate at the Fuk Chak Street entrance to protect some equipment he stored behind his shop, thereby blocking off access to the Lane from the streets on both sides of the Building.

Sealing off the plaintiff’s structure from the rest of the Lane

7.1   Sometime in early 2008, the IO became aware that the Lane was situated within the lot on which the Building was erected.

7.2     In May 2008, the IO entered the Lane from the Fuk Chak Street side and sealed off the back of the plaintiff’s shop from the rest of the Lane by putting up a steel board. 

7.3     In September 2008 the IO installed a lockable steel gate at the Fuk Chak Street entrance to the Lane.   

Separation of the Lane into 2 portions

8.1       As a result of the IO's actions, access to the Lane from the left was controlled by the plaintiff through his shop, and access from the right was controlled by the IO through its lockable steel gate. 

8.2     The judge referred to the part of the Lane occupied by the Plaintiff’s shop as “the Front Portion”, and the rest as the “Rear Portion”, although it may be more appropriate to describe the former as the “Left Portion” and the latter as the “Right Portion” as one stands facing the Building entrance.   

Proceedings

9.  Such was the state of affairs when the IO sued the plaintiff in the Lands Tribunal, which proceedings were stayed pending determination of DCCJ2313/2009, in which

- the plaintiff claimed adverse possession over the entire Lane, as well as damages for the loss of his equipment removed by the IO when it entered into the Right Portion;

- the IO denied liability and sought a mandatory injunction requiring the plaintiff to remove his Shop from the Left Portion, as well as an injunction restraining him from occupying any part of the Lane.

Trial

10.  The witnesses at trial supported the plaintiff’s case that he had occupied the Lane to the exclusion of others since 1988.       

Leung DJ’s judgment

11.  The learned judge identified “the crux of the matter [as] whether [the plaintiff] has been in adverse possession of the Lane for not less than 20 years as a matter of fact with the requisite intention by the time when the IO sought to recover possession”.

12.  As a result of the learned judge’s findings of fact, he was satisfied that the IO had ceased to have any right of action to recover possession of the Lane. 

Section 34I BMO

13.  The learned judge considered that it was not necessary for him to consider a question of construction put forward at trial as to whether the IO could sue the plaintiff under s.34I of the Buildings Management Ordinance Cap. 344 (“BMO”) which provides:

“(1) No person may -

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners’ committee (if any);

(b) use or permit to be used the common parts of a building in such a manner as –

(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or

(ii) to cause a nuisance or hazard to any person lawfully in the building.

(2)   Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building.”

Notice of Appeal

14.  Put briefly, the IO’s argument on appeal is that adverse possession is not a valid defence to an action started by an IO for an injunction under s.34I BMO.  Its case is that so long as the subject property had been designated a common part, there could not be adverse possession at all, whether by a co-owner or a stranger to the DMC.

15.  1             That is a surprising proposition which should not be adopted unless the legislation admits of no other interpretation.  Take the case of a squatter whose structure straddles two pieces of land, “A” belonging to a single owner and “B” a common part of a piece of land managed by an IO. It would be curious if, after the required number of years, the squatter could succeed in an adverse possession claim in respect of that part of his structure on A, but not the part on B, even though the IO was throughout aware of the squatting and had done nothing to protect the rights of the owners of B.

15.2   In my view the purpose of s.34I BMO is to incorporate into every DMC a provision to enable the IO to regulate the use of common parts where there are no express provisions in the DMC.  It would be surprising if by a side-wind, the legislation has resulted in a change in the law with the surprising consequences set out above.  Counsel for the IO has not referred us to the Hansard or any briefing papers to the legislature to support his argument.  

Discussion

16.  Counsel for the IO sought to rely on three judgments of this court (differently constituted):

(1)   Incorporated Owners of Man Hong Apartments v Kwong Yuk Ching & ors [2001] 3 HKC 116;

(2)   Incorporated Owners of No.27A Chatham Road Kowloon v Mr Lee or Unlawful Occupier (Lee Kai Kong) & anor CACV2238/2001, unrep. 17 July 2002;

(3)   The Incorporated Owners of Mountain View Mansion v Heart Cuisine and ors [2012] 5 HKC 361.

Man Hong Apartments

17.  In the Man Hong Apartments case, the owner of a shop in a building occupied a passageway adjacent to the shop.  The passageway was a common part. The IO issued proceedings against the shop owner for breach of the DMC and of s.34I of the BMO.  The shop owner claimed that he and his predecessors in title had been in adverse possession of the passageway.

18.  This court (Mayo VP, Keith JA and Sakhrani J) held that the shop owner (and his predecessors in title) were parties to the DMC and therefore subject to obligations contained therein in respect of the property covered by it (ie the entire building).  That included a covenant that they would only possess the passageway in common with other co-owners, and not exclusively.  The right of the IO to enforce the covenants in the DMC was a right in equity, which right could only be defeated by a person who had bought the land for value and without notice.  Accordingly even if the shop owner (and his predecessors) had exclusive possession of the passageway for the required period of years, he could not defeat the equitable right of the IO to enforce the DMC against him because he had not bought the land for value and without notice.

19.  In my respectful view, when Man Hong Apartments is understood in the way set out above, it would be seen that it does not assist the IO in the present case.  Here the plaintiff was never a party to the DMC and had never covenanted to use the Lane only in common with the owners of the Building. 

20.  As for the IO’s argument under s.34I(2) BMO, the purpose of that subsection in my view is simply to enable the IO to take appropriate steps to stop private conversion of common parts as that restriction has been incorporated under s.34I(1).  It does not, in my view, create a new statutory cause of action which overrides a possessory title obtained by adverse possession just because the land happens to have been held by incorporated co-owners.

Chatham Road

21.   In the Chatham Road case, the subject property was the rooftop of a 14-storey building.  The respondents occupied the rooftop and they claimed to have been “assisted” by a person who was the director of a company which occupied the 14^th floor.

21.2   It is important to note that this was not a case where the respondents were asserting any rights in adverse possession.  They were simply trespassers on the rooftop (which was a common part).

22.  The IO issued proceedings under s.34I BMO to eject the respondents.  The presiding officer of the Lands Tribunal held that the IO could not rely on that provision as the trespassers, not being owners, were not bound by the DMC.

23.  This court (Woo and Cheung JJA and Chu J) pointed out that in s.34I BMO, the word “person” refers to any person who was exclusively occupying a common part.  The section was intended to empower the IO to take action against persons unlawfully occupying common parts. To say that they could only do so against co-owners would run against the legislative intent of empowering the IO to manage the common parts.

24.  In answer to the claim of the respondents that they had been “assisted” in their occupation of the rooftop by someone with some connection to the 14^th floor, Cheung JA said (para. 22):

“Furthermore, the Respondents’ defence was that since 1990 [only 10 years before the proceedings commenced in 2000] they had, by means of various connections, resided at the rooftop, which meant they had been residing there for more than 10 years. Whatever form they took in occupying the rooftop, they were bound by the DMC: see Incorporated Owners of Man Hong Apartments v Kwong Yuk Ching & ors [2001] 3 HKC 116. For this reason, even if section 34I were to be interpreted in the way the Presiding Officer Chow did, the Applicants [the IO] could still rely on that section as their cause of action against the Respondents.”

25.  In other words, even if an owner had permitted the trespassers to occupy the rooftop, that would not operate as a defence to the claim for trespass, because the owner as a party to the DMC was bound under the DMC to possess the rooftop only in common with the other owners, and had no right to permit the respondents to possess it exclusively.

26.  So understood, again this case does not assist the IO in the present case where the plaintiff was not bound under the DMC to possess the land only in common with other owners and not exclusively.

Mountain View Mansion

27.  In the Mountain View Mansion case, there was a service lane which was adjacent to a shop on the ground floor of a building.  The service lane was a common part.  According to the 2nd Respondent (“R2”), what happened was as follows:  

28.  R2 claimed that he had been in adverse possession of the service lane since 1988.  This allegation was rejected by the Presiding Officer.  R2 alleged in support of his case that in 1998 he had removed the shop wall (thereby extending the shop to include the service lane).  The Presiding Officer found that that had been done only in 2000.  Further even though R2 had installed a gate, that had only been done in 2003.  Accordingly the Presiding Officer rejected R2's case of adverse possession on the facts and granted an injunction against him from using the service lane. 

29.  The Presiding Officer’s rejection of R2's case of adverse possession was based on findings of fact (from which there cannot be an appeal from the Lands Tribunal).  This was recognized in para. 21 of the judgment where Cheung JA said:

“The Presiding Officer had in any event found that [R2] had failed to establish adverse possession in the service lane. If [R2] cannot establish possessory title, then unless he can show the incorporated owners had given consent to his occupation which clearly can be revoked, I just cannot see on what possible basis he [R2] can resist the claim.”

30.  That was sufficient for the appeal to be dismissed.  In other words, the other passages in the judgment were only obiter and are not binding on this court.  However in deference to the arguments, I will consider other passages in the judgment.

31.  After referring to Man Hong Apartments in para. 19, Cheung JA said (in para. 20):

“Further the principle in Nisbet and Potts’ Contract is clearly applicable because once the service lane is found to be a common part then whoever occupies it, be it another owner from the building or a trespasser who acquired a possessory title by adverse possession, he is bound by the terms of the DMC. The latter cannot be in a stronger position because his paper title is still subject to the covenants in the DMC and he cannot use the service lane to the exclusion of the owners in the building.”

32.  I will first examine the judgment in Nisbet and Potts’ Contract on which the above passage in Mountain View Mansion was based.  Nisbet and Potts’ Contract was a case where there were two neighbouring pieces of land.  There was a covenant restricting the user of one piece of land A (“the covenantor’s land”), with the neighbouring land B (“the covenantee’s land”) enjoying the benefit of that covenant.  A squatter dispossessed the covenantor of his land A.  Subsequently on a sale of A, the issue arose whether the covenant could still be enforced by the owner of B.

33.   It was held that the covenant could still be enforced by the owner of B, the covenantee’s land, against any subsequent owner of A, the covenantor’s land, as the owner of A was not a bona fide purchaser for value of the legal estate without notice of the covenant.  A restrictive covenant was binding in equity upon land to which a squatter had subsequently acquired a statutory title by adverse possession against the owner and covenantor, as the statutory extinguishment of the title of the dispossessed owner of the land did not have the effect of destroying the covenant, the equitable right of the covenantee not being in any way affected by the statute of limitations which had barred the original owner from recovering his land.   

33.2   It is important not to confuse land with title. Land A remained subject to the covenant in favour of land B, even though the title of the owner of land A had been extinguished by the squatter’s adverse possession.  Thus Collins MR held at p.402 that the whole (meaning the entirety of the) right the squatter acquires under the statute of limitations is the extinguishment of a title adverse to his own, and nothing else.  Put another way, the statute of limitations affects the right of the original owner and covenantor to sue the squatter to recover possession of land A. However the statute does not affect the right of the covenantee (the owner of land B), unless and until his right to enforce the covenant has been infringed.  Unless and until that happens, “it is a matter of absolute indifference to him [the covenantee, owner of land B] what person is the owner of the land over which that right exists [land A] until that land is used in some way incompatible with the assertion of that right [the covenant] on the part of the person entitled to it [the covenantee, owner of B]”.

34.  When Nisbet and Potts’s Contract is so understood, I do not see how it assists the IO in this case.  The owners of the Building had covenanted only with one another to possess the Lane in common and not exclusively.  The plaintiff was not a party to the DMC.  The learned judge found that as far as possession of the Lane was concerned, the plaintiff’ intention was to exclude all the owners (and the IO) of the Building.  Accordingly at the end of the relevant period under the Limitation Ordinance, the plaintiff extinguished the title to the Lane which was adverse to his own, ie the title of all the owners of the Building (and the IO).  By then it did not matter what were the restrictions imposed on the use of the Lane by the owners under the express provisions in a deed of mutual covenant, or by the IO under the incorporated provisions of s.34I BMO.  Once their title to the Lane was extinguished, the owners (and the IO) no longer had any right to it which they could enforce against the plaintiff, unlike in Nisbet v Potts where the statute of limitations had no effect on the covenantee (the owner of land B) who therefore retained his right to enforce the covenant binding land A, which was separate and distinct from the original owner and covenantor’s adverse title against the squatter.  It is important to note that in LLC v Allen [1914] 3 KB 642, at 660 the English Court of Appeal held: “ the doctrine in Tulk v Moxhay does not extend to the case where the covenantee has no land capable of enjoying, as against the land of the covenantor, the benefit of the restrictive covenant”.           

35.  I do not think therefore, with respect to the court in Mountain View Mansion, that Nisbet and Potts’ Contract or the obiter dictum in Mountain View Mansion assists the IO either.  I would dismiss the appeal with costs.

Hon Lam JA:

36.  I agree with the judgment of Yuen JA and her conclusion that this appeal should be dismissed.  In light of some of the authorities cited and in deference to the submissions by counsel, I wish to add a few words of my own with regard to the position of a squatter vis-à-vis incorporated owners.  As it will be clear from what I said below, I confine my analysis to a squatter who has never been an owner or tenant of a unit in the building. In other words, the squatter is a complete stranger and does not derive his title from a co-owner of the building.  As such, I am NOT addressing the issue of encroachment of common parts by a co-owner who, in a typical multi-storey building in Hong Kong, is bound by the covenants in a deed of mutual covenants. 

37.  Under common law, a squatter does not succeed to nor take over the title of the paper owner whom he has dispossessed, see Fairweather v St Marylebone Property [1963] AC 510.  As observed by Keith J in Chung Ping-kwan v Lam Island Development [1995] 2 HKLRD 228 at p.235, “the squatter’s possessory title was an independent title …” The title of the squatter stems from his possession of the land and it was defeasible by the paper owner’s title until the right of the paper owner against him has been extinguished under the Limitation Ordinance by dispossession for the requisite period of time.  In Fairweather, the majority of the House of Lords held that the paper owner’s title was only extinguished vis-à-vis the squatter.  It remains as a title as between the paper owner and his lessor and it could be surrendered, and upon such surrender the lessor’s right of possession started to accrue and basing on that right the lessor could recover the land from the squatter.  This outcome vividly demonstrates the proposition that a squatter does not acquire the title of the paper owner and the Limitation Ordinance does not operate as a statutory conveyance of that title to the squatter.  

38.  Thus, a squatter is a total stranger to the parties to the deed of mutual covenants.  But there are instances where persons other than immediate parties to a deed of covenants will be bound by the covenants.

39.  By reason of the equitable doctrine of Tulk v Moxhay (1848) 2 Ph 774, restrictive covenants which relates to use or enjoyment of land can “run with the land”.  The doctrine was explained by Farwell J in Re Nisbet and Potts Contract [1905] 1 Ch 391 at p.396-7,

“Covenants restricting the enjoyment of land, except of course as between the contracting parties and those privy to the contract, are not enforceable by anything in the nature of action or suit founded on contract. Such actions and suits alike depend on privity of contract, and no possession of the land coupled with notice of the covenants can avail to create such privity: Cox v Bishop. But if the covenant be negative, so as to restrict the mode of use and enjoyment of the land, then there is called into existence an equity attached to the property of such a nature that it is annexed to and runs with it in equity: Tulk v Moxhay. This equity, although created by covenant or contract, cannot be sued on as such, but stands on the same footing with and is completely analogous to an equitable charge on real estate created by some predecessor in title of the present owner of the land charged ...”

40.  This doctrine has been extended by section 41 of the Conveyancing and Property Ordinance Cap 219 which is in the following terms,

“(1) This section applies to an express covenant and a covenant implied by or under this Ordinance or any other law.

(2) This section applies to any covenant, whether positive or restrictive in effect -

(a) which relates to the land of the covenantor;

(b) the burden of which is expressed or intended to run with the land of the covenantor; and

(c) which is expressed and intended to benefit the land of the covenantee and his successors in title or persons deriving title to that land under or through him or them.

(3) Notwithstanding any rule of law or equity but subject to subsection (5), a covenant shall run with the land and, in addition to being enforceable between the parties, shall be enforceable against the occupiers of the land and the covenantor and his successors in title and persons deriving title under or through him or them by the covenantee and his successors in title and persons deriving title under or through him or them.

(4)(a) For the purposes of the enforcement of a covenant, the following remedies shall be available-

(i) proceedings for an injunction (including a mandatory injunction) or other equitable relief;

(ii) an action for money due under the covenant;

(iii) an action for damages (whether in respect of pecuniary or non-pecuniary kinds of damage).

(b) For the purposes of ascertaining the existence, nature and effect of a covenant, a court of competent jurisdiction may make a declaration relating to those matters.

(5) A positive covenant shall not, by virtue only of this section, be enforceable against-

(a) a lessee from the covenantor or from a successor in title of the covenantor or from any person deriving title under or through the covenantor or a successor in title of the covenantor; or

(b) any person deriving title under or through such a lessee; or

(c) any person merely because he is an occupier of land.

(6) A positive covenant is a covenant to expend money, do something or which is otherwise positive in nature.

(7) A covenant shall be enforceable under this section whether or not the covenant is between owners of the same land.

(8) A covenant shall not bind a person after he has ceased to have any estate or interest in the land affected by that covenant except in respect of a breach of that covenant committed by him before that cessation.

(9) A covenant in an instrument registered in the Land Registry under the Land Registration Ordinance (Cap 128) against the land affected by the covenant shall bind the successors in title of the covenantor and the persons deriving title under or through him or them whether or not they had notice of the covenant. (Amended 8 of 1993 s. 2)

 (10)     This section shall apply to covenants whether entered into before or after the commencement of the Conveyancing and Property (Amendment) Ordinance 1988 (31 of 1988).”

41.  Section 41 and  Re Nisbet and Potts Contract [1906] Ch D 386 (CA) was relied upon by Mayo VP in Incorporated Owners of Man Hong Apartments v Kwong Yuk Ching [2001] 3 HKC 116.  As my Lady pointed out, that was a case concerning encroachment of common parts by parties who owned a shop unit in the building.  We are dealing with a different situation.

42.  The scope of s 41 was examined by Lord Hoffmann NPJ in Sky Heart v Lee Hysan Co Ltd (1997-98) 1 HKCFAR 318 at p.341-2.  Referring to the principle that a restrictive covenant in gross will not run with the land and the rule in London Country Council v Allen [1914] 3 KB 642, Lord Hoffmann NPJ held that ‘covenantee’ in s 41(3) means a covenantee who still has an interest in the land for the benefit of which the covenant was taken.  Thus, whether for the purpose of s 41 or the equitable doctrine of Tulk v Moxhay, a covenant cannot be enforced by a person having no land to be protected by it.

43.  Applying that in the present context, upon adverse possession by the Plaintiff being established over the Lane, the Defendant IO ceased to have any interest over the dispossessed land to be protected by the covenants in the DMC. In this connection, I respectfully agree with the analysis of my Lady that the DMC was made to govern how the co-owners of the Building were to exercise their right of possession (as an incidence of their co-ownership), including the possession of the common parts.  Unlike what happened in Re Nisbet and Potts Contract, the covenants in the DMC was not made by an owner of an adjoining piece of land in favour of his neighbour.  The land intended to be affected by the DMC is the land subject to co-ownership.  The Plaintiff has never been a co-owner.  As explained, upon dispossession for the requisite period of time, the Plaintiff acquired an independent title whilst the Defendant IO ceased to have any right to enforce any claims, including claims based on the covenants, in respect of that portion of land.

44.  My Lady has already explained the rationale of Re Nisbet and Potts Contract.  I would only add that in contrast with the position of the covenantee in that case, the Defendant IO’s right under the DMC (and the deemed obligation under the DMC created by Section 34I) has been infringed from the very beginning of the dispossession by the Plaintiff over the portion of the land in question.  Thus, the basis of the judgment of Collins MR in that case (viz time should not start to run until the right of the covenantee is affected) has no application to our case.  The extinguishment of the title to the land under section 17 of the Limitation Ordinance Cap 347 encompasses the title to enforce the DMC in respect of that portion of the land.

45.  Section 34I of the BMO has to be construed against such common law background.  Section 34I(2) stipulates the legal consequence for a contravention of sub-section (1): the person in contravention shall be deemed to be in breach of an obligation imposed on him by the DMC in respect of the building.  If the DMC cannot be enforced against a squatter (by reason of the extinguishment of title on the part of the IO), Section 34I does not confer upon the IO any additional right of action.

46.  Insofar as the dicta at para 20 in the judgment of IO of Mountain View Mansion v Heart Cuisine [2012] 5 HKC 361 suggests otherwise, I respectfully beg to differ.  That paragraph fails to take account of the different nature of the covenants in Re Nisbet and Potts Contract and the covenants in a DMC.  It also fails to take account of the independent nature of the title of a squatter.  Further, as explained by Yuen JA, that was a case of encroachment by a co-owner as opposed to dispossession by a squatter.

Hon Au J:

47.  I respectfully agree with Yuen JA’s and Lam JA’s judgments.

Hon Yuen JA:

48.  Accordingly the appeal is dismissed with costs to be paid by the defendant to the plaintiff.  The plaintiff’s own costs are to be taxed in accordance with Legal Aid Regulations.