HO CHING GROUP LTD v. TSANG PUI LIN AND OTHERS

CACV 129/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 129 OF 2013

(ON APPEAL FROM HCMP NO. 1496 OF 2012)

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J U D G M E N T

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Hon Cheung JA:

1. I agree with the judgment of Yuen JA.

Hon Yuen JA:

2. This is the plaintiff’s appeal from a judgment of Jeremy Poon J given on 20 May 2013.  The plaintiff (“the purchaser”) had issued a vendor and purchaser summons seeking a declaration that the defendant (“the vendor”) had failed to show and prove a good title to shop premises at the Ground floor of No.16 Lung Sum Avenue, Shek Wu Hui, Sheung Shui, New Territories.  The learned judge held that a good title had been shown and since the purchaser failed to complete, the vendor was entitled to forfeit the deposits paid and to be paid wasted conveyancing costs with interest and the costs of the proceedings.

3. The issue on the VP summons concerns a staircase that had connected the Ground floor to the Cockloft (also known as the Mezzanine floor) of No.16 (“the subject staircase”). 

Background

4. The background as revealed in the title deeds is as follows.  Four persons (“the original owners”) owned a piece of land known as Sections F and G of Lot 3840 in DD91.  They entered into a building agreement dated 6 December 1966 with a Mr Cheung for him to erect a building on the land.

5. A building was duly erected comprising of 2 “Chinese tenement buildings” known as No. 14 and 16 Lung Sum Avenue (then known as Lung Sam Road).  The Occupation Permit issued on 5 January 1968 permitted “4 shops each with cockloft store over for non-domestic use” on the ground floor, and 4 tenements per floor for domestic use on the 1^st and 2^nd floors.  It may be noted that the OP did not give the section numbers nor the street numbers for the building and it refers to 4 shops.  That was probably because the OP was issued for a row of buildings (No.14, 16, 18, 20 shown on the plans) but that is not material to this appeal.

- Approved building plans

6. According to the building plans approved on 14 May 1964 (“approved building plans”), there was a staircase leading from the street to the upper floors of No.16 (“the external staircase”).  There was no opening in this external staircase for access to the Cockloft of No.16. 

7. The plans showed an internal staircase inside the Ground floor of No.16 connecting it to the Cockloft of No.16.  This is the subject staircase. 

8. It is clear that as designed, the Cockloft was intended to be used by the occupier of the Ground floor as a “store over” the Ground floor shop, and thus the only means to access the Cockloft was through the shop on the Ground floor.

- DMC

9. On 1 October 1968 a Deed of Mutual Covenant was executed between the original owners and the first purchaser, a Mr Jim, who bought the 1^st floor of No.16.  This provided that each of the parties shall be entitled to use the

“... staircases ... and the common passages of and in the said building for all purposes connected with the proper use and enjoyment of the floor in the said building of which he is entitled to the exclusive use occupation and enjoyment and for the purpose of ingress to and egress from such floor”.

- Separate assignments of Ground floor and Cockloft of No.16

10. On 10 July 1969 there were 2 assignments - of the Ground floor of No.16 to a Madam Yip and separately, of the Cockloft of No.16 to a Madam Lam.  Both assignments were executed by the original owners as vendors and Mr Cheung, the builder, as confirmor and they were drafted by the same firm of solicitors. 

11. The text of the assignments was similar and to each was attached a plan of the premises being assigned, with “Right of Way” written only on the drawing of the external staircase.  The entirety of the Ground floor was coloured pink denoting exclusive possession given to the owner thereof, with no express grant of a right of way for the Cockloft owner to access her premises via the subject staircase inside the Ground floor.  However it is clear that – if the Cockloft remained as constructed according to the approved building plans – its owner would have enjoyed by way of necessity a “quasi-easement” right of way over the subject staircase to access her property (Kung Ming Tak Tong v Park Solid Enterprises Ltd (2008) 11 HKCFAR 403, para.43 et seq).

- Doorway created between Cockloft and external staircase

12. The absence of an express grant of a right of way over the subject staircase to access the Cockloft of No.16 – when both assignments were drafted by the same solicitors and were executed by the same vendors and confirmor on the same day – may well be due to the fact that at some unknown time prior to the assignments, a doorway had been created in the wall between the Cockloft and the external staircase, thereby enabling access to the Cockloft via the external staircase.  However no plans are available to show when the doorway was created. 

13. It is notable that the Ground floor and the Cockloft of No.16 have been in separate ownership ever since (a period of 43 years to the time when proceedings were commenced in 2012).

 - Removal of subject staircase

14. In any event, at some unknown time (at the latest by 1998 when the vendors acquired the Ground floor) the subject staircase had been removed.  Similarly no plans were available to show when this was done. 

15. The facts set out above show that for a period of at least 14 years out of the 43 years referred to earlier, the right of way has been physically “extinguished” by the removal of the subject staircase.  This fact, along with the Cockloft’s owner’s acquisition of the alternative means of access to the Cockloft through the external staircase, may amount to a “change of circumstance” which, according to some distinguished academic writers, have the effect of extinguishing an easement by operation of law, at least an easement created by necessity when that necessity has ceased (Gale on Easements, 19^th ed. para. 3-126; Gray and Gray, Elements of Land Law 5^th ed. paras 5.2.94-5.2.95; and see the discussion in Huckvale and anor v Aegean Hotels 58 P&CR 163, 170).  However the present case has not been argued along the lines of extinguishment by operation of law and I say no more about this interesting but controversial question.

Provisional Sale and Purchase Agreement

16. So much for the background.  On 6 March 2012 a Provisional Sale and Purchase Agreement (“PSPA”) was signed between the defendants as vendors and the plaintiff as purchaser of the Ground floor of No.16 for a consideration of $40m.

17. Clause 23 provided:

“There is a staircase inside the Premises as per attached floor plan. The purchaser acknowledges and accepts that the said staircase has been removed and shall not raise any requisition about the titles on the staircase”. (Emphasis added).

This has been referred to as “the staircase clause”. 

Requisition

18. On 14 March 2012 the title deeds were sent to the purchaser’s solicitors. 

19. On 22 March 2012 the purchaser’s solicitors raised requisition no.8 stating:

“‘the removed Staircase’ inside the Property was for the purpose of giving access to the occupier of the Cockloft (or Mezzanine Floor), please let us have documentary evidence showing that the owner of the said Cockloft has waived the right to use the removed Staircase”.

Answer to requisition

20. The reply from the vendors’ solicitors was that they were not obliged to answer that requisition, invoking the staircase clause.

Formal Sale and Purchase Agreement

21. The purchaser’s solicitors persisted in the requisition.  The correspondence between the solicitors for the vendors and the purchaser respectively has been encapsulated in para.4 of the judgment.

22. On 17 April 2012 the formal sale and purchase agreement (“SPA”) was executed between the parties.  The staircase clause was incorporated as clause 6 in a Rider to the SPA.

23. Completion was scheduled for 15 June 2012.

Position of current Cockloft owner

24. On 5 June 2012 the purchaser’s solicitors wrote to the current Cockloft owner asking if he would confirm that he would not use the subject staircase as access to the Cockloft.  The Cockloft owner had acquired the Cockloft 3 months before, on 9 March 2012.

25. On 11 June 2012 the solicitors for the Cockloft owner replied saying the proposal was unacceptable.  They also “put on record that there should not be any assumption or presumption that our client shall waive the right to use the said staircase”.  

Non-completion

26. On 15 June 2012 the purchaser failed to complete.  The next day the vendors forfeited the deposits paid in the total sum of $4m.

Proceedings

27. On 18 July 2012 the purchaser instituted this vendor and purchaser summons.  The matter was heard on 7 May 2013. 

Judgment

28. On 20 May 2013 the learned judge held that given that the subject staircase had been removed since (at the latest) 1998 and there has been no objection from the owner of the Cockloft, and no threat from the other owners of No.16 or the government to prevent the owner of the Cockloft accessing his property from the external staircase, any risk of litigation based on a right of way over the subject staircase was extremely fanciful (para.13) and therefore there was no encumbrance on the title of the Ground floor (para.15).

29. Further as a matter of completeness the judge recorded his understanding of the purchaser’s counsel’s acceptance that the effect of the staircase clause was to preclude the purchaser from raising any requisition on title arising from the subject staircase (para.16).

30. The judge also held that the existence of the right of way was not a latent defect (para.17).

31. The judge duly dismissed the purchaser’s claims and entered judgment on the vendors’ counterclaim for a declaration that they were entitled to forfeit the deposits and to be paid conveyancing costs of $31,767 with interest.  Costs followed the event.

Appeal

32. On appeal it was argued on behalf of the purchaser that the learned judge was wrong to find abandonment because abandonment of a right of way will not be lightly inferred and mere non-user will not of itself suffice.  It is said that this argument is fortified by the fact that the current Cockloft owner has, on enquiry, replied that the proposal that he would not use the subject staircase for access to his property was unacceptable.

- Abandonment of right of way

33. It is well-established law that abandonment of a right of way will not be lightly inferred and mere non-user will not of itself suffice.  It is clear from the judgment that the judge was well aware of this. 

34. In my view, the judge was entitled on the evidence to find as a fact that the predecessors-in-title of the current Cockloft owner had abandoned the right of way over the subject staircase.  The alteration of the Cockloft (the “dominant tenement”) by the creation of a door opening onto the external staircase was an act clearly indicating the firm intention of the then Cockloft owner that he and his successors-in-title would not thereafter make use of the right of way over the subject staircase.  This was followed by a lengthy and continuous non-user of the right of way since (at the latest) 1998 when the subject staircase had been removed, an act to which there has been no objection for at least 14 years.

35. Indeed, once the Cockloft door opening onto the external staircase was created, the user of the right of way over the subject staircase was no longer beneficial to the Cockloft owner.  The opening for the subject staircase would have taken up valuable floor area of the Cockloft that could be put to other use.

36. The letter from the solicitors of the current Cockloft owner did not disclose a real possibility that he would assert a claim (rightly or wrongly) for the reinstatement of the subject staircase.

37. Taking all these circumstances into account, I take the view that the judge was right to have found that the right of way had been abandoned.  Any risk of litigation based on the right of way was fanciful and accordingly it did not amount to an encumbrance on the title of the Ground floor.

- Construction of the staircase clause

38. It is therefore unnecessary to consider the other grounds of appeal but if I am wrong on the first ground, I would record my view that – irrespective of the judge’s understanding of the stand taken by the purchaser’s counsel at the hearing – the “staircase clause” was sufficiently clear to preclude the purchaser from raising a requisition based on a right of way over it and, it follows from that, from objecting to the vendors’ title (Nation Group Development Ltd v New Pacific Properties Ltd CACV160/1999 para. 13). 

- Prevailed over other terms and conditions

39. First it is important to note that the parties had agreed in clause 24 of the SPA that Part 9 (including the Rider containing the staircase clause) shall prevail over all other clauses in the agreement, including terms and conditions incorporated by reference. 

- Legal consequences

40. It was argued on behalf of the purchaser that although it was informed about the removal of the subject staircase, it was not informed of the legal consequences of the removal, relying on Regent Summit (Hong Kong) Ltd v Smart Business (Asia) Ltd CACV138/1998, unrep. para. 25, a decision of this court (Mortimer VP,  Godfrey and Rogers JJA) which affirmed a passage of Deputy Judge Cruden’s judgment in Giant River Ltd v Asie Marketing Ltd [1990] 1 HKLR 297, 313.

41. I agree with counsel for the vendors that one must be careful when reading the judgment in Giant River as the judge in that case was dealing with election and waiver as a matter of general law, and not the construction of a contractual term. 

42. In any event the circumstances of each case must be taken into account.  Regent Summit and Giant River were concerned with individual houses where the owners had made some alterations and additions to suit their own requirements.  This is important because whilst some alterations or additions in individual houses may require Building Authority approval, some may be exempted works.  A potential purchaser inspecting the property is none the wiser.  Therefore the mere fact that a potential purchaser is informed that alterations or additions had been done in an individual house would not preclude him from raising a requisition if he has not been told of the legal consequences of each of the alterations or additions.

43. In the present case however, we are dealing with a staircase in a tenement building which was shown in building plans.  It is only common sense that a staircase shown in building plans must lead somewhere. The purchaser’s director (who was provided with the plans showing the subject staircase before he signed the PSPA) said he thought the staircase led “to nowhere” (affirmation of Cheung Shun Yee, para. 7).  That is clearly misconceived because a staircase must of necessity go either up or down.  These plans expressly indicated the staircase going “up”.  Since there is no indication on the plan of an upper level within the Ground floor, it must mean the staircase led up to another floor.

44. When what is upwards of the staircase is in separate occupation (as would have been apparent from the street), every reasonable potential purchaser would be aware of the likelihood that  some right of the upstairs owner to use the staircase would be affected.  The fact that it did not occur to this particular purchaser is irrelevant. 

45. For these reasons I take the view that in any event, in the circumstances of the present case, it was not necessary for the vendors to have informed the purchaser of the legal consequences of the removal of the subject staircase.

- All objections to title arising from removal of staircase

46. Further in my view the wording of the staircase clause was sufficiently clear to preclude all requisitions arising from the removal of the staircase including the effect on the right of way. 

47. Moreover, as in the Nation Group case, it must preclude any objection to the vendors’ title arising from it because “the words ‘not to raise any requisition’ plainly refer to a requisition as to title.  If the purchaser is barred from raising objection on the particular aspect of title, it must follow that the purchaser cannot complain that the title offered was not a good title because of that aspect of which he was barred from raising objections” (para. 13). 

Order

48. For the reasons set out above, I would dismiss the appeal.  The parties have agreed that the costs should follow the event and that there should be certificate for two counsel.  Accordingly I would order that the respondents are to have the costs of the appeal with certificate for two counsel.

Hon McWalters J:

49. I agree with the judgment of Yuen JA.