EAST SURPLUS INVESTMENT LTD v. TINCHO INDUSTRIAL CO LTD AND ANOTHER

DCCJ 3417/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3417 OF 2010

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JUDGMENT

Introduction

1. At all material times, the Plaintiff was, and still is, the registered owner of the exterior wall (“Exterior Wall”) of Kaiser Estate, 3^rd Phase, Nos 9, 11 & 11A Hok Yuen Street, No 18 Man Lok Street, Kowloon (“Building”).

2. The 1^st Defendant was, and still is, the registered owner of Shop P of the ground floor of the Building (“Shop P”). The 2^nd Defendant was the tenant of the 1^st Defendant at the material times.

3. The Plaintiff brings this action against the 1^st and 2^nd Defendants for the alleged trespassing by them into the Exterior Wall which circumscribed Shop P and seeks an order that the 1^st and 2^nd Defendant do restore the Exterior Wall to the Plaintiff.

4. The 2^nd Defendant has not been actively participating in this action since or about October 2011. In fact, its defence was struck out pursuant to an Order made by the Master on 15 November 2011. It continues to be absent in this trial.

5. The 1^st Defendant does not dispute that the Plaintiff is the registered owner of the Exterior Wall, nor does the 1^st Defendant object that it has been in possession of the relevant part of the Exterior Wall. Further, it admits that it and/or its tenant has done the following work to the Exterior Wall of Shop P (collectively “the said Alterations/Additions”):

(1)changed part of Exterior Wall from brick wall into roller shutters;

(2)replaced part of the Exterior Wall with marble stones; and

(3)displayed advertisements or signboards at the roller shutters.

6. However, the 1^st Defendant avers that the Plaintiff’s predecessor-in-title had approved and/or encouraged the 1^st Defendant to do the said Alterations/Additions. Thus, by reason of proprietary estoppel or an oral contract as evidenced by part performance, the 1^st Defendant has obtained an exclusive right to use and possess the relevant part of the Exterior Wall, of which the Plaintiff (as successor-in-title) has notice. As such, the Plaintiff is estopped from denying such rights of the 1^st Defendant.

7. It also needs to be noted that the 1^st Defendant had a counterclaim against the Plaintiff and sought a declaration for exclusive possession of the Exterior Wall of Shop P. But its counterclaim was provisionally struck out pursuant to an order made by a Master on 11 October 2011. No appeal in respect of this order or any attempt to revive the counterclaim was taken by the 1^st Defendant.

8. By an updated agreed list of issue in dispute dated 24 April 2012 duly signed by Counsel for the Plaintiff and Counsel for the 1^st Defendant, the core issues for determination in this trial are:

(1) Whether the 1^st Defendant has been the owner/tenant/licensee of the Exterior Wall in question;

(2) Whether such ownership/tenancy/licence, if any, is enforceable against the Plaintiff;

(3) Whether the Plaintiff is entitled to compensation of the market value of the Exterior Wall as per the valuation report up to 31 May 2012 at the sum of $798,194.

9. On these issues, the Plaintiff has called its director (Mr Leung Wai Cheung) (“Mr. Leung”) and 2 estate agents (Mr Sum Wood Cheung Samson [“Mr Sum”] and Ms Yeung Sui Hung Iris) to give evidence. The 1^st Defendant’s only witness is its director, Mr So Tin Cho (“Mr So”).

10. In addition, a single joint surveyor (Mr Keith Siu of RHL Appraised Limited) was appointed to assess the average monthly rental loss of the Plaintiff (in case the Defendants were found to be trespassers). His report dated 6 January 2012 (“Single Joint Report”) was adduced as evidence without calling him to give evidence in the trial.

Undisputed Background Facts

11. At all material times, the Exterior Wall of the Building accounts for 1 of the 5,000 shares of the Building and is capable for sale and purchase in the property market.

12. In 2009, the Exterior Wall was owned by Wise Elite Holdings Limited which was in compulsory liquidation. Pursuant to an order of the court, Messrs Bruno Arboit and Simon Richard Blade of Baker Tilly Hong Kong Business Recovery Limited (“Liquidators”) were appointed the joint and several liquidators.

13. The Liquidators, by a tender notice, put the Exterior Wall out on market for sale. In the Form of Tender, it was said that the completion date shall be 30 October 2009.  Further, a schedule setting out all the licences granted in respect of the Exterior Wall (“Licences Schedule”) was attached to the Form of Tender. The Licences Schedule did not show that there was any tenancy or licence granted in respect of the Exterior Wall of Shop P.  

14. The Plaintiff, through the introduction and advice of Mr Sum, decided to buy the Exterior Wall as part of its investment. It made a firm offer of $650,000 on 22 October 2009 for purchasing the Exterior Wall.

15. On or about 30 October 2009, the Plaintiff was told that its tender was accepted. An agreement for sale and purchase of the Exterior Wall was thus signed by the Plaintiff on 11 March 2010 followed by an assignment dated 22March 2010.

16. The 1^st Defendant signed an agreement to purchase Shop P on 22 October 2009 followed by an assignment of 10 December 2009.

17. It can thus be seen that the 1^st Defendant acquired Shop P prior to the Plaintiff’s execution of the assignment to purchase the Exterior Wall.

18. On the other hand, it was the 1^st Defendant’s intention to divide Shop P into 5 smaller shops for renting out. A separate entrance/exit would thus need to be built for each sub-divided shops, which would involve work at the Exterior Wall of Shop P. The 1^st Defendant knew that approval for such work would be required from the owner of the Exterior Wall.

19. As such, the 1^st Defendant tried to acquire the ownership of the Exterior Wall by submitting a tender in respect of the Exterior Wall but was not successfully.

20. By an email dated 2 November 2009 (“Email”), the 1^st Defendant, through its estate agent, wrote to the Liquidators seeking approval to change part of the Exterior Wall which circumscribed Shop P into 5 roller shutters. A total of 3 plans and 3 photos showing the location and layout of the roller shutters (“Attached Plans/Photos”) were attached to the Email. The Email reads as follows:

“有關九龍紅磡鶴園街11號凱旋工商中心3期地下P舖

圖中紅色線為磚牆， 將會改為捲閘門口。為配合工序，請盡快回覆。” (my italics)

21. By a letter dated 12 November 2009, the Liquidators gave their approval to the 1^st Defendant to change the Exterior Wall of Shop P to roller shutters (“Approval Letter”) as follows:

“We refer to the email from Ray Chan of Target Property Agency Company dated 2 November 2009 [the Email].

We do not have any objection against your proposal to change the exterior wall of the Property [Shop P] to roller shutters. However, please note that this does not represent any approval relating to the relevant authorities’ approval which may or may not be required.

Please prepare a cheque in the amount of HK$5,500 (HK$5,000 for the renovation deposit and HK$500 for the administrative charge which is non-refundable payable to ‘Wise Elite Holdings Limited (in Liquidation)….” (my italics)

22. The 1^st Defendant duly paid the said sums of $5,500. And upon completion of the sale and purchase of Shop P, it commenced works at the Exterior Wall of Shop P, details of which were set out in a quotation prepared by the 1^st Defendant’s contractor, Luen Yue Decoration Design & Engineering.

23. On 31 December 2009, the 1^st Defendant signed a tenancy agreement to rent the whole of Shop P to the 2^nd Defendant, who did not need 5 roller shutters or entrances/exits. Thus, on the 2^nd Defendant’s request, the 1^st Defendant allowed the 2^nd Defendant to put up advertisement boards to seal up the roller shutters which were already installed by the 1^st Defendant, leaving just one entrance/exit for the 2^nd Defendant to use.

24. On or about 23 April 2010, the renovation deposit of $5,000 was returned to the 1^st Defendant upon completion of the said Alterations/Additions.

25. On 29 June 2010, which was about 3 months after the completion of the sale and purchase of the Exterior Wall, the Plaintiff, through its solicitors, wrote its first demand letter to the 1^st Defendant demanding it to remove or dismantle all signboards and advertisements put up at the Exterior Wall of Shop P. This was followed by 2 more demand letters to which the 1^st Defendant and/or the 2^nd Defendant did not make any positive response. The Plaintiff thus issued a Writ on 6 October 2012.

26. The 1^st Defendant rented out the whole of Shop P to a new tenant pursuant to a tenancy agreement dated 30 November 2010.

27. Up to the date of the trial and including the date of inspection by the single joint expert (ie 4 Janaury 2012), advertisements and signboards are still being displayed by the new tenant of the 1^st Defendant at the Exterior Wall of Shop P.

Proprietary Estoppel: The Legal Principles

28. Although the 1^st Defendant has put up two defences in this case, namely proprietary estoppel and contract as evidence by part performance, Mr Poon, Counsel for the 1^st Defendant, has rightly agreed that the main defence of the 1^st Defendant is in fact proprietary estoppel, for if this defence of proprietary estoppel was to fail, the defence of oral contract as evidence by part performance must also fail.  

29. For this reason, I shall in the judgment below focus mainly on the defence of proprietary estoppel.

30. Both Counsel have in their submission provided me with abundant authorities on the legal principles of proprietary estoppel, but I do not intend to repeat each of them here. Suffice for me to say that I have considered all the authorities. And for the purpose of this judgment, I venture to briefly summarize the relevant principles in the following.

31. Proprietary estoppel contains 3 essential elements:

(1)The owner of the land induces, encourages or allows the claimant to believe that he has or will enjoy some right or benefit over the owner’s property [“assurance/encouragement”]. The assurance or encouragement needs to have been sufficiently clear and unequivocal. The assurance from the owner must always be certain as to the existence or inevitability of the claimant’s entitlement to the land, but need not be absolutely precise in relation to the nature or quantum of that entitlement;

(2)In reliance upon this belief, the claimant acts to his detriment to the knowledge of the owner [“reliance”]. The reliance by the claimant must be reasonable in all the circumstances;

(3)The owner seeks to take unconscionable advantage of the claimant by denying him the right or benefit which he expected to receive [“detriment”]. The detriment suffered by the claimant would need to have been sufficiently substantial to justify the intervention of equity.

See: The Law of Real Property, 7^th ed, Megarry & Wade, at p698; Elements of Land Law, 5^th ed, at para9.2.40; and Thorner v Major & Others [2009] 1 WLR 776 at p781.

32. The owner’s assurance or encouragement can be by words or conduct. His conduct may either be active or passive.

33. Examples of active encouragement include a request that the claimant should act in a particular manner; a written or oral assurance that the claimant would have certain rights over the owner’s land; giving consent to the claimant to undertake construction work either on the owner’s land or on his own land in a manner which would in some way affect the owner (See The Law of Real Property (supra) at p706).

34. Passive encouragement or acquiescence occurs when the owner stands by and allows the claimant to act to his detriment knowing that he mistakenly believes that he has or will obtain an interest in or right over the owner’s land. Mere inaction by the owner in the face of an infringement of his rights cannot amount to acquiescence because it does not induce the claimant to act.  It is unlikely that the owner’s conduct will be regarded as unconscionable unless he was aware of (1) his proprietary right; (2) the claimant’s expenditure or other detrimental acts; and (3) the claimant’s mistaken belief that he had or would acquire an interest in or over the owner’s land (See The Law of Real Property (supra) at pp707-708).

35. What is the subjective intention of the owner of the land is irrelevant. What matters is whether his words and acts would reasonably have conveyed to the claimant an assurance that the claimant would obtain or enjoy some rights over the owner’s land.

36. The mere fact that the claimant acts to his detriment in the expectation of acquiring rights over the owner’s land is not sufficient and will not raise an equity in his favour unless the owner has encouraged the expectation: The Law of Real Property (supra) at p706.

37. The burden of proof lies on the claimant to establish its equity right over the owner’s land.

38. With these legal principles in mind, I shall in the below consider each of the issues in turn.

Issue (1) : Whether 1^st Defendant is owner/tenant/licensee of relevant part of the Exterior Wall

Overview

39. The crux of this issue, in my view, is whether the 1^st Defendant can establish the essential elements of assurance/encouragement, reliance and detriment which give rise to proprietary estoppel.  

40. It also needs to be pointed out at this stage that in his final submission, Mr Poon submits (and in fact it is also the evidence of the 1^st Defendant) that the 1^st Defendant has obtained an interest in the Exterior Wall of Shop P in form of an ownership, but not tenancy or licence right. 

The 1^st Defendant’s Evidence

41. The 1^st Defendant relies on the evidence of its director, Mr So. It is his evidence that the Liquidators had given approval to the 1^st Defendant to do the said Alterations/Additions by way of the Approval Letter. The 1^st Defendant complied with the request of the Liquidators to pay $5,500 and performed all the said Alterations/Additions according to the Attached Plans/Photos.  When the said Alterations/Additions were completed, the renovation deposit was returned in full to the 1^st Defendant which meant that the works done by the 1^st Defendant to the Exterior Wall of Shop P had met the approval of the Liquidators and/or its successor.

42. However, when confronted by Mr Lam for the Plaintiff that the Approval Letter of the Liquidators did not say that the approval covered replacing the Exterior Wall by marble stones or displaying advertisements or signboards at the Exterior Wall, Mr So then changed to say that the approval was also given by the Liquidators over the telephone.

43. Further, Mr So argued that since the Liquidators had already given approval to the 1^st Defendant to install roller shutters at the Exterior Wall of Shop P, the roller shutters thus became the doors to Shop P to which the 1^st Defendant owned. Therefore, he took the view that there was no need to seek the Liquidators’ further approval to hang up advertisements and signboards at the roller shutters of Shop P.

44. It is also the evidence of Mr So that although the Liquidators did not expressly say that the Exterior Wall of Shop P would be given to the 1^st Defendant (“俾咗幅牆你”), they did not say that they would take back the Exterior Wall, either. The fact that they let the 1^st Defendant dismantle and renovate the Exterior Wall of Shop P made him think that the Liquidators (on behalf of the owner of the Exterior Wall) had already given up its ownership to the Exterior Wall so that the 1^st Defendant would own the Exterior Wall of Shop P to the exclusion of the owner or any other 3^rd party.

Assurance/Encouragement

45. I should begin by noting 2 points from the Approval Letter. First, the Approval Letter, in its plain and ordinary meaning, does not entail any approval given by the Liquidators allowing the 1^st Defendant to replace the Exterior Wall with marble stones or to display advertisements and signboards. Secondly, there is no express representation or promise given by the Liquidators in the Approval Letter that the 1^st Defendant would obtain some interest in the Exterior Wall of Shop P in form of ownership then or in the future.

46. To overcome this difficulty, Mr Poon for the 1^st Defendant says in his final submission that there is no need for an assurance to exist as an actual promise; an assurance may exist as a matter of implication and inference from indirect statements and conduct (See Crabb v Arun District Council [1976] 1 Ch 179 and Thorner v Major (supra)). He submits that applying an objective test, the representation or encouragement of the Liquidators was reflected in the Approval Letter, its request for renovation deposit and administrative charges and the return of the renovation deposit upon completion of the said Alterations/Additions. Viewed again objectively, he submits that it must be implicit that the Liquidators must have assured the 1^st Defendant of its use of the Exterior Wall of Shop P undisturbed and that the 1^st Defendant would be given the exclusive right to use the Exterior Wall free of charge and in perpetuity, even after the change of ownership of the Exterior Wall to the Plaintiff.

47. With the greatest respect to Mr Poon, I do not think this argument can sustain. First, it is pertinent to point out that even in his own witness statement, Mr So did not say that the Liquidators made any representation (express or implied) that they would abandon the ownership of the Exterior Wall of Shop P to the benefit of the 1^st Defendant.

48. In fact, during cross examination, Mr So admitted that no one (including himself) was and should be in a position to guess what the Liquidators thought. And, in my view, it would be inherently implausible and against common sense that the Liquidators would, having decided to sell the Exterior Wall and informed the Plaintiff of the acceptance of the firm offer on 30 October 2009, have given any express or implied assurance to the 1^st Defendant that it would obtain some interest over the Exterior Wall of Shop P.

49. Putting the Approval Letter, the payment and return of the renovation deposit as whole to the highest, I take the view that they merely show that the Liquidators had given their approval to install roller shutters at the Exterior Wall of Shop P.  It would have gone too far for the 1^st Defendant to say that such an approval would amount any representation, express or implied, on the part of the Liquidators and/or the Plaintiff’s predecessor-in-title that they thy would abandon the ownership of the Exterior Wall to the 1^st Defendant for good and at nil consideration (the said $500 mentioned in the Approval Letter cannot be regarded as consideration because it was and meant to be administrative charge only).

50. The cases of Crabb v Arun District Council (supra)and Thorner v Major (supra) quoted by Mr Poon can be distinguished from the facts of our case.

51. In Crabb, the defendants had done positive acts by building a gate at point B subsequent to an agreement made at a site meeting between the plaintiff and the defendants. But later the defendants removed the gate at point B, causing the plaintiff’s land totally landlocked. Such features of doing positive acts by building or landlocking of the 1^st Defendant’s land, ie Shop P, are lacking in our case.

52. In Thorner v Major, the relationship between the parties was “familial and personal, and neither of them…had much commercial experience”; whereas the relationship between the Liquidators and the 1^st Defendant in our case does not involve any familial or personal relationship.

53. As such, I am unable to find that there is a clear and unequivocal assurance from the Liquidators to the 1^st Defendant that the latter would obtain ownership of the Exterior Wall of Shop P.

54. Mr Poon further submits that it is irrelevant whether the Liquidators knew or not of the 1^st Defendant’s belief that it would by the said Alterations/Additions own the Exterior Wall of Shop P. What is relevant, Mr Poon argues, is the knowledge of the Liquidators as to what the 1^st Defendant thought. He also relies on Luo Xing Juan Angela v The Estate of Hui Shui See & Others (2009) 12 HKCFAR 1 in which Ribeiro PJ commented at para 57 of the judgment that in a claim of proprietary estoppel, the meaning of the words or conduct constituting the promise or assurance has to be understood “in the light of the parties’ particular relationship” and that one should put focus not simply on the actions of the promisor but “the proper interpretation to be placed on those actions given the shared background and knowledge of the parties”.

55. I readily agree with the learned PJ’s observation and comment. It is a common ground that Mr So (being the person in charge of the 1^st Defendant) has over 10 years of experience as a property investor. It is also a common ground that the discussion of work relating to the Exterior Wall of Shop P was done in a commercial context. It is not in dispute that the 1^st Defendant had made a tender submission to buy the Exterior Wall (though the evidence does not show how much the 1^st Defendant had offered). That said, it must also be the shared knowledge of the Liquidators/predecessor-in-title and the 1^st Defendant that the Exterior Wall of Shop P had commercial value and that it would be sold to a new owner in imminent future (Mr Poon in fact concedes this in para 20 of his final submission).

56. In the light of such shared background and knowledge, it is inherently improbable and incredible that the 1^st Defendant could reasonably have held the belief that by giving $500 administrative charge to the Liquidators and carrying out the said Alterations/Additions on the Exterior Wall of Shop P, it would own the relevant part of the Exterior Wall to the exclusion of its owner and in perpetuity.

57. Such belief, if really held by the 1^st Defendant, is starkly against common sense as well as against business sense.

58. Further, as rightly submitted by Mr Lam, if the 1^st Defendant did hold such belief that it would own the Exterior Wall of Shop P, it stopped at being its own wishful hopes only. It is never the evidence of Mr So that he had made known this alleged belief of the 1^st Defendant to the Liquidators or the Plaintiff’s precedessor-in-title. Mr Lam relies on Brinnand V Ewens (1987) 19 HLR 415 and says that the Liquidators or the Plaintiff’s predecessor-in-title could not have encouraged a belief of which they did not have any knowledge.

59. I agree with the above argument of Mr Lam. I am of the view that that there is no evidence before me, either direct or indirect, that the Liquidators or the Plaintiff’s predecessor-in-title knew or had any reason to know that the said Alterations/Additions done by the 1^st Defendant was being done with the view that the ownership of the Exterior Wall of Shop P would be abandoned by them and/or granted to the 1^st Defendant. It thus follows that any alleged belief which the 1^st Defendant may have had that it was acquiring an interest in the relevant part of the Exterior Wall could not have been encouraged by the Liquidators or the Plaintiff’s predecessor-in-title.

60. To conclude this part, I am not satisfied that the 1^st Defendant has successfully proved the element of “assurance/encouragement” from the Liquidators/predecessor-in-title of the Plaintiff, nor am I satisfied that the 1^st Defendant could reasonably hold the belief, if it really so held, that it would own the Exterior Wall of Shop P under the facts and circumstances of this case.

61. At this juncture, it needs to point out that there is no need for me to consider if the 1^st Defendant has obtained some interest in the Exterior Wall of Shop P by way of a tenancy or licence, for this is clearly not the evidence of Mr So nor the submission of Mr Poon.

62. For the above findings alone, the 1^st Defendant’s defence of proprietary estoppel must fail.

63. But for completeness and just in case I was wrong in the above analysis, I shall continue to consider, but briefly, the other 2 elements of “reliance” and “detriment”.

Reliance

64. It is the evidence of Mr So that but for the approval or assurance given by the Liquidator, the 1^st Defendant would not have commenced the said Alterations/Additions.

65. One should always bear in mind that the background of this case is in a commercial context where both the Liquidators/Plaintiff’s predecessor-in-title and the 1^st Defendant were dealing with each other at arm’s length.

66. The learned authors of The Law of Real Property (supra) draw the following difference on the element of reliance in a family and commercial situation (at p713):

“It seems that in cases of estoppel, where the aim is to prevent unconscionability, the court is loathe to penalize those claimants whose actions are not motivated solely by a desire to acquire O’s [owner] land or some interest in it. Such an approach is understandable in family and similar relationships where equity would not want to reward only those who act for themselves in contrast to those who might act for the benefit of others. It is unlikely, however, that this generous approach can be stretched to cover more distant relationships, including those of a commercial nature, where the parties can be expected to be more astute to protect their own interests. In such cases, proof by O that C [claimant] had a domiant motive for his action, irrespective of reliance on O’s encouragement, may be sufficient to defeat the claim of estoppel.” (my italics)

67. That said, I would simply repeat my analysis in paras 55 – 60 in this judgment. I say further that there is simply no reasonable basis for the 1^st Defendant to arrive at or to have acted in the belief that by doing the said Alterations/Additions (some of which did not even have the approval from the Liquidators), it would have obtained the ownership of the Exterior Wall of Shop P.  It is rather my view that the dominant motive of the 1^st Defendant to do the said Alterations/Additions must be to enhance the marketability of Shop P in the rental market rather than due to the alleged reliance on the Liquidators’ alleged assurance/encouragement.

68. Due to the above analysis, I find that the 1^st Defendant is not able to satisfy the element of reliance under the defence of proprietary estoppel.

Detriment

69. It is the evidence of Mr So that the 1^st Defendant spent $198,000 on the said Alterations/Additions upon the faith of expectation arising from the Liquidators’ assurance/encouragement. He relies on the quotation given by its contractor.

70. However, under cross examination, Mr So agreed that some of the items in the quotation did not relate to the said Alterations/Additions of the Exterior Wall, such as painting work, fire service installation and work relating to the toilet.

71. In addition, renovation done largely for the enjoyment of the claimant does not amount to detriment on its own: Lam Ping Hing v Yeung Leung Wai, DCCJ 2673/2008.

72. The evidence is abundantly clear that the Liquidators gave an approval to install roller shutters at the Exterior Wall only, but nothing more. It follows that even if the element of assurance/encouragement could be established, the 1^st Defendant, putting its case to the highest, has suffered some detriment relating to the roller shutters only (which Mr Lam has fairly conceded in case the element of assurance/encouragement could be established). It certainly has not suffered detriment as much as the alleged sum of $198,000.

73. However, since the burden of proof lies squarely on the 1^st Defendant, all I can say is that the 1^st Defendant fails to satisfy me with adequate evidence that the alleged detriment suffered by it could possibly be sufficiently substantial to justify the intervention of equity.

74. To conclude this issue, I find that the 1^st Defendant has failed to prove the requisite elements of proprietary estoppel and this defence must fail.

75. It follows that (and Mr Poon has conceded) the defence of an oral contract as evidence by part performance must also fail.

Issue (2) : Whether such ownership/tenancy/licence, if any, is enforceable against the Plaintiff

76. I shall now proceed to briefly deal with issue (2) on the assumption that the 1^st Defendant was successful on issue (1).  

77. Though issue (2) covers the scenarios of a tenancy or a licence, it needs to be repeated that this is no longer the argument of the 1^st Defendant in this trial. The 1^st Defendant chooses to proceed with its case solely on the argument that it has acquired interest in the Exterior Wall of Shop P in form of an ownership by way of proprietary estoppel.

78. I think I can readily understand why the 1^st Defendant takes the above stance. First, the existence of a tenancy or a licence, if any, is not pleaded in the defence. Secondly, the evidence does not show that rent or licence fee was ever paid. Thirdly, it is trite law that a mere contractual licence does not bind a third party such as the successor-in-title: Ashburn Anstalt v Arnold [1988] 1 Ch I at 15H; Wellmake Investment Ltd v Chan Yiu Ting [1996] 2 HKLR 44 at 46J – 47A; and Snell’s Equity, 32th ed, at p403 para 12-031.

79. That said, Mr Poon has quoted a number of cases such as Plimmer v The Mayor, Councillors & Citizens of the City of Wellington (1884) 9 AC 699; Inward v Baker [1965] 2 QB 29; Hong Kong Kam Lan Koon Limited v Realray Investment Limited, HCA 15824/1999 in his final submission on this issue. However, they are all cases on “irrevocable licence coupled with an equity” which cannot possibly be relied on by the 1^st Defendant, for the simple reason that this is never the pleaded case or the evidence of the 1^st Defendant (see also para 52 of Mr Poon’s final submission).

80. The crux of this issue (2), on the face of it, seems to concern whether the Plaintiff (as successor-in-title) had actual or constructive notice of the alleged equity right of the 1^st Defendant over the Exterior Wall of Shop P (if could be established) and whether the alleged equity right should be exhausted upon the assignment of ownership of the Exterior Wall to the Plaintiff.

81. Both Counsel expand much in their final submission on why the Plaintiff had (or did not have) notice of the 1^st Defendant’s occupation of the Exterior Wall before 20 March 2010 (the date when the assignment was executed). There is no need for the purpose of this judgment to repeat their arguments here. It is suffice to say that both Counsel seem to take 20 March 2010 as the watershed in time to decide if the Plaintiff had notice of the 1^st Defendant’s alleged interest over the Exterior Wall of Shop P.

82. However, I take a different view. I think the time to decide if the Plaintiff had notice of the 1^st Defendant’s alleged interest over the Exterior Wall should be set at the juncture when the firm offer made by the Plaintiff was accepted by the Liquidators, ie 30 October 2009, for the reason that the sale of the Exterior Wall in this case was not under a normal conveyancing scenario; it was a sale and purchase under a tender whereby once the firm offer was accepted by the Liquidator/predecessor-in-title, the Plaintiff must buy and the Liquidator must sell (this is not disputed by the 1^st Defendant).

83. It is undisputed that the Plaintiff was notified of the tender result on 30 October 2010. This must also be the date (and I so find) that the 1^st Defendant knew that its tender submission was not accepted and that a purchaser whose bid was successfully (ie the Plaintiff) would be the new owner subject to completion of formalities, such as execution of the conveyancing documents. I say so because according to the Form of Tender, the date of completion was clearly stated as 30 October 2010.

84. Further, Mr Poon has also referred to this date of 30 October 2010 in his final submission (see his para 20).

85. The 1^st Defendant then by way of the Email of 2 November 2009 sought approval from the Liquidators to install roller shutters at the Exterior Wall of Shop P, to which the approval was given on 12 November 2009 in the Approval Letter.

86. The picture has thus becomes clear: at the time when the Plaintiff was confirmed as the purchaser and bound to purchase the Exterior Wall, the said Alterations/Additions had not yet commenced. Any alleged possession or occupation of the 1^st Defendant over the Exterior Wall has not come into being, let alone to mention the 1^st Defendant’s alleged interest over the Exterior Wall. 

87. Under such circumstances, the Plaintiff should not and could not be regarded as having any notice to any alleged interest of the 1^st Defendant over the Exterior Wall as at 30 October 2009. It is a bona fide purchaser without notice of the 1^st Defendant’s alleged interest and right, if any.

88. Further, it is noted that just 3 days after 30 October 2009, the 1^st Defendant wrote the Email to seek the Liquidators’ approval on the roller shutters, in the full knowledge that the Liquidators were simply trustees for the time being and that the Exterior Wall was already so to speak “sold” to the new owner (ie the Plaintiff) under a tender exercise subject only to formalities such as execution of conveyancing documents. Under such circumstances, I hold the view that it is dubious, if not wrong, for the 1^st Defendant to have consulted or sought approval from the Liquidators, but not from the new owner (ie the Plaintiff), on any work to be done over the Exterior Wall of Shop P. As such, I cannot see that the 1^st Defendant has come with a clean conscience and thus any equity interest it allegedly claims to have over the Exterior Wall must not sustain.

89. In any event, the 1^st Defendant’s allegedly equity interest over the Exterior Wall cannot stand against the Plainitff, who is a bona fide purchaser without notice. 

Issue (3) : Whether the Plaintiff is entitled to compensation

90. Given my above findings, there is no doubt that the Plaintiff should be entitled to compensation. 

91. Pursuant to the previous directions given by the Master below, the Single Joint Report was prepared to advise on the average monthly rental loss of the Plaintiff if 1^st Defendant and/or 2^nd Defendant had trespassed the Exterior Wall or any part thereof.

92. Mr Poon argues that since the rental figures now set out in the Single Joint Report were not available when the 1^st Defendant’s expectation was created, these figures should not be taken to calculate the damages of the Plaintiff, if any. Mr Poon is adamant in saying that the correct evaluation should be in term of the then market value of the Exterior Wall when the expectation of the 1^st Defendant was created. I take this to mean more likely than not the date of the Approval Letter, ie 12 November 2009.

93. With respect, I have difficulty in following this argument of Mr Poon. There remains no need for me to emphasize that the average monthly rental loss is provided by the single joint expert commissioned by the parties jointly, in which the expert has set out carefully and clearly how he arrived at such rental figures. I can see no reason for me to depart from what the expert has opined.

94. Further, it lacks logic to frozen the rental value of the Exterior Wall at any one point of time, for it is inherently implausible and against common sense that such rental would remain status quo as time goes by, but not follow the general rental trend of the comparables in the market.

95. In his final submission, Mr Lam for the Plaintiff says that “the most logical and easiest way to define the end of the equity (if any) must be that once the Exterior Wall has been assigned (ie 22 March 2010) or at the very latest the Plaintiff demanded the 1^st Defendant to vacate (ie 29 June 2010).

96. Although I have found that no proprietary estoppel has arisen in this case, it remains unexplained by the Plaintiff why it made its first demand to the 1^st Defendant to vacate the Exterior Wall only towards the end of June 2010, whereas even according to Mr Sum’s (its estate agent) evidence, he (and thus the Plaintiff) was aware of the said Alterations/Additions as early as April 2010.

97. It is not fair under the circumstances to require the 1^st Defendant to make compensation from the date of the assignment. A fairer calculation must be from the date of the demand by the Plaintiff (ie 29 June 2010).

98. According to the Single Joint Report, the total average monthly rental loss from 29 June 2010 to the date of this judgment is $705,400 [($28,500 x 2/30) + ($28,500 x 9) + ($31,500 x 12) + ($34,500 x 2)]. The average monthly rental after 1 June 2012 until 30 June 2013 is at the uniform rate of $34,500 per month. I accept these figures and will adopt them in assessing the damages of the Plaintiff.

Conclusion

99. For the reasons set out above, I will enter judgment in favour of the Plaintiff against the Defendants in the following terms:

(1)That the 1^st and/or 2^nd Defendants be restrained, whether by its directors, officers, servants or agents or tenant, from using, permitting, causing and/or suffering the Exterior Wall or any part thereof to be used and/or occupied and/or trespassed without the consent of the Plaintiff;

(2)That the 1^st and/or 2^nd Defendants do forthwith dismantle and remove all the objects added to the Exterior Wall and reinstate the Exterior Wall into its original state and condition;

(3)That the Plaintiff be awarded damages from 29 June 2010 to the date of this judgment in the sum of $705,400 and thereafter at the monthly rate of $34,500 until the Exterior Wall is reinstated into its original state and condition per paragraph (2) above;

(4)That there be interest on the said sum of $705,400 at judgment rate from the date of the Writ to the date of this judgment and thereafter at judgment rate until full payment;

(5)That there be a costs order nisi that the 1^st and 2^nd Defendants do pay the Plaintiff’s costs of this action (including all reserved costs orders, if any), with certificate for Counsel, to be taxed if not agreed. If no application is made to vary the costs order nisi, it will become absolute within 14 days from the date of this judgment.

100. Lastly, I thank both Counsel for their assistance rendered in this action.