GOODTEX LAND CO. LTD. V. LUNG KWONG EMPORIUM CO. LTD.

1993, No. MP2234

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is a vendor and purchaser summons. The plaintiff is the purchaser and the defendant is the vendor and I shall so refer to them.

2. The contract is a provisional agreement for sale and purchase made on 2nd June 1993. The property the subject matter of the contract is the Ground Floor and 1st Floor, No.83 Chung On Street, and the 1st Floor, No.85 Chung On Street, Tsuen Wan, New Territories. I am given to understand these are commercial premises occupied as a department store. The properties, although separate, share a common staircase.

3. The parties are agreed that the provisional agreement for sale and purchase was intended to operate as an immediately binding agreement to be in due course superseded by a formal agreement for sale and purchase. The purchase price was specified as HK$20,800,000, to be paid in the manner described in the provisional agreement for sale and purchase. Completion was to take place on 16th June 1993. (The parties have presumably agreed to postpone completion until after the dispute which has arisen between them and which I am now called upon to resolve has been determined.)

4. The history of part of the property agreed to be sold, that is to say, the Ground Floor and 1st Floor of 83 Chung On Street, differs from the history of the 1st Floor of 85 Chung On Street. The significant difference is that, in the case of 83 Chung On Street, there appears to be no deed of mutual covenant by which the rights of those interested in that property are regulated.

5. 83 Chung On Street was, prior to 1959, owned by one Colleen Hua. Colleen Hua appears to have decided to sell the property floor by floor (there was a total number of six floors including the ground floor). The sales took place between 1959 and 1961. The conveyances on sale were apparently all in the same form. The first conveyance on sale appears to have been one made on 8th September 1959, being a sale of the 3rd floor. I have not seen that conveyance on sale but I have seen a copy of the conveyance on sale of the 1st floor, which was made on 9th September 1959, and it is accepted that the terms of the conveyance on sale of the 1st floor may be treated as identical with the terms of the conveyance on sale of the 3rd floor.

6. I pause there. I have referred to the various floors in the building as the subject matter of the sales by Mr Colleen Hua. As a matter of conveyancing that is not strictly accurate. There is no way in which a floor of a building can be sold as such. An undivided share, or a number of undivided shares, in the land is expressed to be the subject of the sale; and together with that undivided share, or those undivided shares, is granted the exclusive use of the floor in question. Accordingly, I find in the conveyance of 9th September 1959 an assignment of:-

"ALL THAT one equal undivided sixth part or share of and in ALL THAT SUBSECTION THREE OF SECTION C OF LOT NO.2013 in Demarcation District No. 449 in Tsun Wan New Territories in the Colony of Hong Kong AND of and in the building thereon TOGETHER with the exclusive right and full privilege to the use possession occupation and enjoyment of the FIRST FLOOR of the said building AND TOGETHER ALSO..."

(and here follow other rights to which I need not refer).

7. This conveyance on sale must be treated as having operated to create an undivided sixth part or share in the land, as must all the other conveyances on sale made between 1959 and 1961. Each of them may safely be taken as having annexed to the undivided share thereby created the right to the exclusive use of the floor of the building specified in the conveyance on sale.

8. But a problem does arise and it arises as follows. The first conveyance on sale will give the purchaser the right, as I have said, to the use of one floor exclusively. But would it not also give to the first purchaser the right to use all the other floors in common with the assignor, since the right to exclude the first purchaser from the use of those other floors is not reserved expressly to the assignor? If the first conveyance on sale operated in this way, subsequent conveyances of other floors would always be subject to the right of the first purchaser (and perhaps other subsequent purchasers) to use the other floors. It is on this basis that the requisition on title which, in the present proceedings, the purchaser claims has not been satisfactorily answered, was raised by the purchaser's solicitors. It was raised in a letter of 15th February 1993 and is in the following terms:-

"We are in doubt as to whether your client has the exclusive right to the use and occupation of Ground Floor and the First Floor of 83, Chung On Street. We are most troubled by the fact that there was no deed of mutual covenant or other documents of a similar nature for Subsection 3 of Section C of Lot No.2013 in Demarcation District 449 (83, Chung On Street). As your goodselves may be aware, tenants-in- common have unity of possession unless the respective rights to possession of the different parts of the property were allocated to different shares of and in the land and the building erected thereon by way of a deed of mutual covenant or other documents of a similar nature or unless adequate provisions were set out in the first assignments to the different tenants-in-common.

The result of a lack of such provisions may be (a) a possible and justifiable challenge to the exclusive right to hold use occupy and enjoy the various flats because the original owner of the whole lot ("the Owner") had failed to except and reserve the right to the exclusive use of other flats not assigned, with the result that (i) the first assignee have the right to use, in common with the Owner and his subsequent assigns, all the other parts of the property; and (ii) the Owner no longer have the right to assign exclusive possession of the other flats to others; (b) havoc and dispute amongst the various owners as to rights of support, passage of electricity, gas, water and sewage, contribution for repairs of common areas and facilities and other matters touching the rights and obligations of the various owners."

I need read no further.

9. The answer given by the vendor's solicitors in a letter of 25th February 1993 was in the following terms:-

"We note your concern but feel that production of a deed of mutual covenant or equivalents as suggested by you is unnecessary. A deed of mutual covenant or the absence of it does not affect the title of the subject properties. Each assignment to different tenants-in-commons clearly defined their shares in the property, namely 1/6th share, and reserved the owner's right to exclusive use of other flats not assigned."

10. The purchaser maintains its objection to the title before me. The answer given by the vendor is that the right to exclude the first purchaser and all other purchasers is to be treated as impliedly reserved. While I accept that it is a strong thing to imply a reservation in a conveyance on sale, I have no doubt this argument is correct. The whole scheme of the conveyances on sale effected in 1952 to 1961 (and I apprehend I am entitled to look at the factual matrix in order to construe each of these conveyances) involves not only that a purchaser should obtain the exclusive use of the floor which is granted to him together with his undivided share but that he should be excluded from the use of the other floors. It is quite true that no such reservation or exclusion is expressed, but I have no doubt that as a matter of commercial necessity it does have to be implied. The conveyances on sale could not be made to work without such an implied reservation. Even if that be wrong, it is to be observed that the properties, so far as the evidence goes, have been enjoyed in accordance with the title for upwards of thirty years without any such problem as that which is now said to exist having reared its head. I am of the opinion that, although there is a theoretical risk that the argument for the purchaser might just possibly be correct the risk of it being successfully asserted is fanciful. It ought, accordingly, to be ignored. The purchaser will no doubt be stuck with the property it agreed to purchase notwithstanding that there is no deed of mutual covenant to regulate its rights and the rights of the other owners of 83, Chung On Street inter se. That is unfortunate, but I do not believe that it is enough to justify my holding that the title is in any way defective. The law will provide as and when necessary for what is to be done when any problem arises as between the co-owners. No question of a defect in title arises.

11. For these reasons, I propose to declare in favour of the title and to hold that the requisition raised by the purchaser has been satisfactorily answered. The parties have agreed that it is unnecessary for me to make any order as to the costs of these proceedings.