THE INCORPORATED OWNERS OF PO HANG BUILDING v. SAM WOO MARINE WORKS LTD

DCCJ 2259/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 2259 OF 2013

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DECISION

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Introduction

1.  There are two summonses calling for my determination. The first in time is the summons dated 18 October 2013 taken out by the Incorporated Owners of Po Hang Building (“IO”) for default judgment be entered against Sam Woo Marine Works Limited (“Sam Woo”) by reason of the latter’s failure to file its Defence within the prescribed time after failing to file its Notice of Intention to Defend.

2.  There is also a cross summons dated 7 November 2013 taken out by Sam Woo seeking to file and serve its Defence and Counterclaim out of time. This application is supported by an affirmation of Lai Chun Kwok (“Affirmation”) with a draft Defence and Counterclaim exhibited thereto (“Draft”).

3.  Both Mr Ng, counsel for the IO and Ms Chao, counsel for Sam Woo agree that this court is obliged to look at the merits of the defence put forward by Sam Woo when dealing with the two summonses: California Insurance Co Ltd & Ors. v Choung Suk Wah & Ors, unreported, HCA 172/2002, 19.9.2002 per Deputy Judge A Cheung (as the Chief Judge then was) at §20, cited with approval by Lam J (as he then was) in Lee Leung Nang v Karen Lee [2007] 3 HKLRD 615 at §2.

Issue

4.  Sam Woo has since 1992 been the registered owner of a shop (“Shop”) on the ground floor of Po Hang Building (“Building”) and there is a service lane (“Lane”) right outside the Shop. The central controversy between the parties arises from the unauthorized conversion to its own use the Lane by Sam Woo. Sam Woo says it has acquired a possessory title to the Lane by virtue of its adverse possession of the same since 1998. The IO denies this allegation of adverse possession. The IO further maintains that as a matter of law, even if Sam Woo can establish adverse possession of the Lane, which the parties agrees to be a common part of Building for the present purpose, the IO is nevertheless not barred from enforcing the relevant provisions in the Deeds of Mutual Covenants (“DMC”) and/or the Building Management Ordinance, Cap.344 (“BMO”). Hence, Sam Woo cannot possibly rely on its plea of adverse possession to defeat the claim of the IO.

5.  For the purpose of the summons of the IO, quite properly the IO has not filed any evidence. This Court should only consider the pleaded facts. For the summons of Sam Woo, the IO however also has not filed any evidence to deal with the Affirmation, meaning that there is no contrary evidence to rebut the allegation of continuous exclusive possession of the Lane with the intention to exclude all other owners of the Lane by Sam Woo since about 1998.

6.  Mr Ng agrees that for the purpose of these two applications, this court, being unable to resolve any factual disputes in the light of the matters pleaded in the Statement of Claim and those in the Draft, should approach the problem on the assumption that the plea of adverse possession is made out. Both parties are happy to confine their differences to a question of law, i.e., whether the IO is still entitled to enforce the relevant provisions in the DMC and/or the BMO if Sam Woo has acquired a possessory title to the Lane. Both parties agree this legal question can be determinative of the two summonses.

7.  On this legal issue, Mr Ng relies on the following three decisions of the Court of Appeal (differently constituted) (collectively “Three Cases”) and urges upon me that these are binding authorities on this court:

i.     Incorporated Owners of Man Hong Apartments v Kwong Yuk Ching [2001] 3 HKC 116 (“the Man Hong Apartments Case”);

ii.    Incorporated Owners of No 27A Chatham Road, Kowloon v Lee Kai Kong [2001-2003] HKCLRT 273 (“the Chatham Road Case”);

iii.   Incorporated Owners of Mountain View Mansion v Heart Cuisine and Ors. [2012] 4 HKLRD 628 (“the Mountain View Mansion Case”)

8.  Ms Chao also draws my attention to the foregoing three decisions but she relies on a more recent decision of the Court of Appeal in Wong King Lim v Incorporated Owners of Peony House [2013] 4 HKC 295, which, in her submission, “seems” to have overruled the Man Hong Apartment case and the Mountain View Mansion case to the effect that a dispossessed land is still subject to the terms and conditions of the DMC in relation thereto.    

9.  Whilst it appears that the specific legal issue could be resolved by way of an in-depth analysis of the foregoing authorities only, it is necessary to first go further into the essential background facts leading to these proceedings.      

Background Matters

10.  The assignment by which Sam Woo acquired title to the Shop in 1992 provides that the Shop was assigned to Sam Woo subject to and with the benefit of the DMC registered in the Land Registry by Memorial Number 2367937 (now UB2367937). In other words, Sam Wo has all along been a party to the DMC.

11.  Clause 3(n)(i) of the DMC provides as follows:

“3(n) The common parts services and facilities referred to in these presents shall include the following: –

(i)    The lavatories horse lobbies corridors exterior walls boundary fences and gates (if any) pavements transformer rooms carbon dioxide room main distribution rooms riser-ducts pump houses switch rooms electric-generator room lift machine rooms lift pits sumps tanks meter rooms vent duct store rooms entrances staircases landings passages and such parts which are not included in any part of the said building exclusively owned by one owner or several co-owners as specified in the First Schedule thereto.”

12.  Clause 10 of the DMC contains various covenants of each owner of the Building not to interfere with the use and enjoyment of the common parts of the Building by the co-owners.

13.  Sam Woo has enclosed the Lane by an iron fence with a metal gate. Sam Woo says the enclosure was made in 1998 while the IO says it was made in about 2010.

14.  Sam Woo is of the view that the enclosure of the Lane by Sam Woo also amounts to a breach of the BMO. Section 34I(1) and (2) of the BMO 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 upon him by the deed of mutual covenants in respect of the building.”

15.  Sam Woo claims adverse possession of the Lane. Its position as shown in the Draft is that even if the Lane is a common part within the meaning of the DMC, the IO ceases to have any titles, interests, and/or rights to enforce any claims including claims under the DMC in respect of the Lane by virtue of its continuous exclusive possession of the Lane to the extent that the title of the IO to the Lane has extinguished under sections 7 and 17 of the Limitation Ordinance, Cap. 347.

The Authorities

16.  I now turn to the authorities and I should first consider whether the Wong King Lim case has really changed the law. There, the Court of Appeal consisted of Yuen JA, Lam JA and Au J. Yuen JA (with whom Lam JA and Au JA agreed) gave the leading judgment. Her Ladyship reviewed the Three Cases and came to the conclusion that they did not assist the appellant IO in that case on account of their factual differences.

17.  First, Yuen JA considered the Man Hong Apartment case, which Mr Ng submits is all fours with the present case. Her Ladyship summarized the facts and the holdings as follows:

16.   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.

17.  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.

18.  Yuen JA pointed out that the appellant IO was never a party to the DMC in question and hence had never covenanted to use the lane only in common with the owners of the building. Her Ladyship went on to say that section 34I(2) of the BMO does not 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.

19.  Lam JA expressly confined his Lordship’s analysis to a squatter who has never been an owner or tenant of a unit in the building. His Lordship further pointed out (at §41) that the Man Hong Apartments Case presented a different situation in that it concerned encroachment of common parts by parties who owned a shop unit in the building there.

20.  It is plain that the Court of Appeal in the Wong King Lim case accepted that the fact the appellant was never an owner and hence a party to the DMC was a matter which distinguished their case from the Man Hong Apartments case. This is also the view of Deputy Judge Sakhrani (at §49) in Yeung Mau Cheung v Ka Ming Court, Castle Peak Road (IO) [2013] 4 HKLRD 211. As the learned deputy judge observed, the Man Hong Apartments case was actually distinguished in the Wong King Lam case. I cannot see how the former was overruled by the latter.

21.  Mr Ng referred to Solicitor (24/07) v Law Society of Hong Kong (2008) 11 HKCFAR 117 for the proposition that the departure of the Court of Appeal from its previous decisions should be wholly exceptional and should only occur rarely. It must be right and this is one of the cornerstones of the rule of stare decisis.

22.  I do not think the Court of Appeal in the Wong King Lam case started to embark on such a wholly exceptional and rare course given a proper analysis of the judgments of Yuen JA and Lam JA. There is nothing to suggest that her Ladyship and his Lordship began to doubt the correctness of the dicta of Mayo VP in the Man Hong Apartments case. In the light of the Court of Appeal’s clear awareness of the distinctive feature in the Man Hong Apartments case, Ms Chao is unable to convince me that the law has changed by her references to other passages in the judgment.         

23.  The net upshot is that the Man Hong Apartments case remains binding authority on this court. As the summary of Yuen JA set out in paragraph 17 hereof shows, the present case is all fours with the Man Hong Apartments case. Ms Chao is unable to convince me that it is distinguishable. This court should then adopt the reasoning of Mayo VP and come to the conclusion that Sam Woo is still bound by the DMC and the BMO whether or not it has acquired possessory title to the Lane as alleged.

24.  As regards the Chatham Road case, the facts there are quite different from those of the present case. The respondents were occupiers in occupation of the rooftop allegedly with the assistance of the registered owner of the floor immediately underneath the roof.  Worthy of note is that Cheung JA (at §22) followed the Man Hong Apartment case and held that whatever form the trespassing occupiers of the rooftop took in their occupation, they was bound by the DMC and for that reason, the incorporated owners plaintiff could enforce the BMO against the respondents.

25.  Yuen JA in the Wong King Lim case indeed relied on the said holding of Cheung JA and came to the following conclusion (at §24):

“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.  This again shows that Yuen JA in fact endorsed the dicta of Mayo VP in the Man Hong Apartments case, quite far from overruling the same.

27.  Now I turn to the Mountain View Mansion case, which was also a case of encroachment by a co-owner as opposed to dispossession by a squatter. There the presiding officer at the Lands Tribunal rejected the respondent’s allegation of adverse possession of a service lane since 1988. On this basis, his appeal was dismissed by the Court of Appeal, which did not see fit to interfere with the factual findings of the presiding officer. Yuen JA was aware of this and yet continued to consider the validity of some other passages in the judgment of the Court of Appeal knowing that they were only obiter.

28.  Her Ladyship explained the principle in Nisbet and Potts’ Contract [1905] 1 Ch 391 as applied by Cheung JA in the Mountain View Mansion case. Her Ladyship observed that in the said case, it was held that a squatter acquiring a possessory title through adverse possession and his successors in title were still bound by a restrictive covenant 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.

29.  Her Ladyship continued to explain the difference between land and title insofar as the enforceability of a covenant is concerned. In a nutshell, whilst the statue of limitations affects the right of the original owner and covenantor to sue the squatter to recover possession, it does not affect the right of the covenantee unless and until his right to enforce the covenant has been infringed.

30.  Her Ladyship then found that Nisbet and Potts’ Contract, when properly understood, did not assist the appellant incorporated owners as the respondent was not a party to the DMC and hence not bound by the covenants relating to the common part.

31.  In passing, it should be noted that in the present case, Sam Woo is a party to the DMC.

32.  While the Mountain View Mansion case may not assist the IO here because of the way it was actually determined, I do not agree that it was overruled by the Wong King Lim case. It was merely distinguished.

33.  In the result, given the striking similarities of the factual scenarios, the dicta of Mayo VP in the Man Hong Mansion case, with which I respectfully agree, apply with full force to the present case.

Conclusion and Orders

34.  In the premises, on the authorities, the plea of adverse possession can hardly assist Sam Woo. A breach of the DMC and/or the BMO remains a breach despite the allegation of adverse possession and the IO is entitled to take enforcement action against Sam Woo. The plea of adverse possession in other words cannot defeat the claim of the IO and does not provide Sam Woo with a viable defence.

35.  I therefore grant the application of the IO for default judgment and at the same time dismiss the summons of Sam Woo. This dismissal is of course without prejudice to any future claim of Sam Woo (if so advised) for declaratory relief based on its alleged exclusion possession of the Lane since 1998.

36.  Costs should follow the event and I order that Sam Woo do pay the IO costs of these two summonses, with certificate for counsel. For the avoidance of doubt, this costs order disposes of the reserved costs orders made by Deputy District Judge Ho on 8 November 2013, who adjourned the hearing of the two summonses on account of the skeleton and the list of authorities lodged on behalf of Sam Woo just the day before the said hearing. Ms Chao explained, and I accept, that it was due to late instructions but Sam Woo should bear the consequences.

37.  Lastly, it remains for me to thank Mr Ng and Ms Chao for their assistance.