LEAD TRADERS LTD v. LUCKY LAND ENTERPRISE LTD AND ANOTHER

LDCS 11000 of 2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO.11000 OF 2011

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R U L I N G

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1.  The Respondents, by way of summons dated 7 April 2011 and 15 April 2011 (“these Summons”) respectively, is asking for a preliminary point of law to be determined under Rule 18 of the Lands Tribunal Rules and for the Applicant’s application in these proceedings be dismissed.  Or alternatively, for the Notice of Application to be struck out under Order 18 rule 19 of the Rules of High Court on the ground that it discloses no reasonable cause of action, frivolous and vexatious and/or is an abuse of the process of the Tribunal.

2.  There is also an application by the Applicant to amend the Notice of Application by way of summons dated 28 April 2011.  Counsel for the Respondents indicated that should the Tribunal find against them on these Summons, they accept the Applicant should be entitled to the amendment sought.

3.  The point of law raised in these Summons is whether Unit A and Unit B on the 3^rd Floor (“the 3^rd Floor”) of No. 168 Portland Street (“the Building”) shall be regarded as two units for the purpose of Land (Compulsory Sale for Redevelopment)(Specification of Lower Percentage) Notice (L.N. 6 of 2010) issued on 12 January 2010 (“the Notice”). 

Background

4.  The Building has 6 floors.  The 1^st Respondent has been the owner of the 3^rd Floor of the Building since 1995.  The Applicant started acquiring the units in 2003 and is now the registered owner of the rest of the floors, representing 83.33% undivided shares of the Building. 

5.  On 8 March 2010, the 1^st Respondent’s architect submitted an application to the Buildings Department for approval of works to partition the 3^rd Floor of the Building into 2 units, i.e. Unit A and Unit B.  Approval was granted on 25 March 2010.  A Sub-Deed of Mutual Covenant and an assignment was executed on 19 March 2010 and registered with the Land Registry on 31 March 2010.  As a result, the 1^st Respondent and the 2^nd Respondent appeared on the Land Registry records as at 31 March 2010 as the registered owner of Unit A and Unit B respectively, each holding approximately 8.33% of the undivided shares in the Building (“the Sub-division”).

6.  In fact, no partition works had commenced and approval of the Buildings Department was revoked on 8 July 2010.  On 15 July 2010, the 1^st Respondent’s architect submitted application for renewal of consent to the Buildings Department and a further consent was given by the Buildings Department on 12 August 2010.

7.  The Applicant filed a Writ of Summons and a Statement of Claim in the District Court on 14 July 2010 (“DCCJ Proceedings”) against the Respondents contending that the subdivision work constituted breaches of the DMC and seeking an injunction requiring the Respondents to dismantle the subdivision.  The Respondents took out these Summonses with the Lands Tribunal in April 2011. The DCCJ Proceedings is adjourned pending the result of this hearing.

The Notice

8.  The Land (Compulsory Sale for Redevelopment) Ordinance Cap. 545 (“the Ordinance”) enables persons who own a specified majority of the undivided shares in a lot to make an application to the Tribunal for an order for the sale of all the undivided shares in the lot for the purposes of redevelopment.  Section 3(1) of the Ordinance required an acquisition of not less than 90% of the undivided share in a lot before an application can be made.

9.  Section 3(5) of the Ordinance empowers the Chief Executive to specify a percentage lower than the percentage mentioned in Section 3(1) of the Ordinance by notice in the Gazette.  Pursuant to Section 3(5) of the Ordinance, the Notice was gazetted on 22 January 2010 and tabled at the Legislative Council meeting on 27 January 2010.  It came into operation on 1 April 2010.  Section 3 of the Notice lowered the threshold for compulsory sale from 90% to 80%.

10.  For easy reference, the relevant provisions of the Notice are copied herein.   

Section 2  Interpretation

“unit” means any premises that are described by reference to a specified number of undivided shares in a lot in any instrument registered in the Land Registry.

Section 4  Specification of classes of lot

(1)The following classes of lot are specified for the purposes of section 3 ---

(a)    a lot with each of the units on the lot representing more than 10% of all the undivided shares in the lot;

(b)   …

(2) For the purposes of the class of lot referred to in subsection (1)(a), if ---

(a) a unit in a building is subdivided into 2 or more units on or after 1 April 2010; and

(b) the subdivision does not involve ---

(i)  any alteration to the size of any common area of the building; or

(ii) any change in a person’s liability in relation to the common area and facilities of the building under the common law or any enactment, those units are regarded as one single unit.

11.  It is common ground that the Applicant is relying on the threshold set out in the Notice to support its application for compulsory sale.  This case turns on whether, because of the Sub-division, there are 2 units each holding less than 10% of all the undivided shares in the lot and takes this case out of the ambit of Section 4(1)(a) of the Notice.

The Respondents’ Case

12.  For the sake of these Summons, the Respondents agreed for this Tribunal to decide on the matter with the following assumptions :-

(a) physical subdivision works undertaken after 1 April 2010 were indeed in breach of the Deed of Mutual Covenant (“DMC”);

(b) physical subdivision works undertaken after 1 April 2010 were  in breach of the Occupation Permit (“OP”);

(c) the legislative purpose of Section 4(2)(a) of the Notice was to prevent subdivisions on or after 1 April 2010 with the intent of defeating the lowering of threshold effected by the Notice;

(d) the purpose of the creation of the 2 units by the execution and registration of documents completed by 31 March 2010 was indeed to circumvent the anticipated lowering of the threshold effected by the Notice.

13.  It is the Respondents’ contention that the Applicant cannot rely on the Notice which is only applicable if every unit in the lot represented more than 10% of the undivided shares.  Judging from the definition of “unit” in Section 2 of the Notice, with the registration of the relevant instruments with the Lands Registry on 31 March 2010, the 3^rd Floor was divided into 2 units each representing 8.33% of the undivided shares.  Section 4(1)(a) of the Notice is not satisfied. 

14.  Since the Sub-division occurred before 1 April 2010, Section 4(2) of the Notice cannot be engaged.  The legislation had chosen not to include anything done before 1 April 2010.  The definition of “unit” in the Notice only concerns instruments registered with the Land Registry with nothing touched upon physical subdivision.  The physical state of the premises has no bearing on the issue and whether the physical subdivision violated the DMC or the OP is irrelevant.

15.  When it comes to the construction of the Notice, the wordings of the legislation is unambiguous and the clear words chosen should not be ignored or distorted.  If the clear words are not enough, such legislation should be strictly construed and if there is any doubt, it should be resolved against the party seeking to expropriate private property (Methuen-Campbell v Walters [1979] 1 QB 525).  To accept the Applicant’s contention that the Subdivision has to involve physical work and must be lawful, it involves consideration of an additional requirement not provided in the Notice.

16.  The suggestion that the Respondents have attempted to escape the effect of the Notice is beside the point.  The intention of the Notice is to prohibit subdivision after 1 April 2010.  “If a man so conducts his affairs that he places himself outside the operation of an Act of Parliament, he cannot be said to be either evading it, or defeating it.  He has done nothing that is unlawful, and he has done nothing that calls for adverse comment from the Court” (as per Romer LJ in In re George Inglefield Limited [1933] Ch 1 at page 26).

17.  It is beyond argument that before 1 April 2010, there were already 2 units in the lot each representing less than 10% of the undivided shares and the Notice does not apply.  The Applicant’s application must fail and should be dismissed or struck out.

The Applicant’s Reply

18.  The Applicant contended that the Sub-division is not a valid one since it’s against the DMC and the OP.  Registration of the instrument was just a product of the Sub-division and must involve physical work to be done to the property.  So, it was incorrect to ignore the physical aspect of the Sub-division. 

19.  Without physical work done, it was not a genuine Sub-division and was just an attempt by the Respondents to evade the purpose and provisions of the Notice and the Ordinance.  The objective of the Notice was to address the deadlock situation where the majority owner could not proceed to a compulsory sale because the remaining unit accounts for more than 10% of the undivided shares in the lot.  The clear purpose of the Notice was that the compulsory sale application by the majority owner should not be defeated by artificial or non-genuine subdivision of the remaining unit.

20.  It is the duty of a court to further the legislative aim and the court will prefer a construction which advances this object rather than one which attempts to find some way of circumventing it.  According to the Legislative Council Brief prepared by the Development Bureau in January 2010, it is evident that the Government in outlining the policy objective of the 10% requirement in the Notice was also at pains to emphasise the need for the subdivision to be “genuine”.  The simplistic construction which the Respondents seek to advance will be against the established objective of the Notice and would produce an absurd result.

21.  Given there is no valid Sub-division, these Summons taken out by the Respondents should be dismissed.

Discussion

22.  The sole issue turns on the interpretation of Section 4 of the Notice.  Having heard counsels on the issue, I accept the submissions of the Applicant and found that the sub-division mentioned in Section 4(2)(a) of the Notice has to be genuine and valid. 

23.  It would be absurd to adopt the Respondents’ interpretation and accept a paper subdivision without actual work done.  It is the physical subdivision which requires the undivided shares to be split.  Otherwise, just an assignment of interest will do.  So the registration of the instrument with the Lands Registry must be for the purpose of reflecting the fact that there is a split of the undivided shares by way of physical subdivision.   If the physical sub-division is something not allowed and in breach of the DMC and OP, the sub-division cannot be regarded as a valid one.

24.  To read this interpretation into the legislation is not adding to it an additional requirement, but rather in furtherance of the intention of the legislation.  In construing a legislation, the courts are entitled to take into account Hansards and other explanatory materials to ascertain the intention of the legislation. 

25.  It is clear from the Legislative Council Brief that “in defining this class of lot, we have taken care to prevent abuse by the owner of the un-acquired ‘last but one’ unit who sub-divides his unit into smaller units which will then each account for less than 10% of the undivided shares of the lot, thus relegating the lot outside the definition of this class of lot.  We cannot simply exclude all sub-divided units registered with the Land Registry after the commencement of the Notice from this class of lot because there are genuine sub-division of units that will continue to take place after the commencement of the Notice and these genuinely sub-divided units should be considered units in their own right for the purpose of this class of lot.  The most common genuine sub-divisions happen with commercial premises such as arcades. … This is very different from the internal sub-divisions which we would like to exclude.” (at paragraph 12).

26.  It is further said that “while we aim to prevent abuse by owners who choose to sub-divide existing units internally to undermine the proposed relaxation, we take the view that those sub-divided units that are already in the records of the Land Registry before the commencement of the Notice should be recognized for the purpose of application under this class of lot.  As these sub-divided units pre-date the Notice, there must be a genuine reason for the sub-division.  Hence it is not equitable to exclude them from this class of lot.” (at paragraph 13).

27.  Reading from these quoted paragraphs, it is clear that the genuineness of the sub-division before and after 1 April 2010 had been emphasized. Any sub-division done by way of an assignment only cannot be considered a valid sub-division envisaged by the legislation.  To interpret the Notice by allowing a non-genuine sub-division by way of an assignment only to be caught by it is in total ignorance of the intention of the legislation.  To allow any sub-division by way of assignment only to be valid under the Notice, this is defeating the whole purpose of the Notice.

28.  In this case, what the Respondents had done was to circumvent the anticipated lowering of the threshold effected by the Notice by way of a sham sub-division.  The Sub-division should not be considered as a genuine one under the Notice.

29.  The argument that the Respondents were only avoiding from being caught by the Notice and not evading or defeating it is unsustainable.  Since the physical sub-division was against the DMC and OP, it cannot be a lawful sub-division.  Since the sub-division was not a genuine one and with the sole purpose of evading and defeating the Notice, the Respondents’ act clearly deserved some adverse comment from this court and should not be condoned.

Conclusion

30.  I found the answer to the question posed in paragraph 3 above should be ‘No’ and the application for striking out is unsubstantiated.

Order

31.  It is ordered that :

(a) Paragraph 1(b) and 2 of the Summons taken out by the 1^st Respondent be dismissed;

(b) Paragraph 1(b) and 2 of the Summons taken out by the 2^nd Respondent be dismissed;

(c) Leave granted for the Applicant to amend the Notice of Application as prayed;

(d) Leave granted for the Respondents to file and serve the Notice of Opposition, Mediation Certificate and Mediation Response on or before 24 August 2011;

(e) Cost order nisi that costs of the amendment application be in the cause;

(f) Costs order nisi that the Respondents do pay the costs of these Summons to the Applicant with certificate for one counsel, to be taxed if not agreed on party and party basis at High Court Scale. 

(g) Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.