FUNG KWAN HUNG AND ANOTHER v. GOLDEN EASE DEVELOPMENT LTD

HCMP 954/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 954 OF 2016

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DECISION

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1.  This is an inter partes summons dated 28 February 2017 for final judgment taken out by the plaintiffs (“the purchasers”) against the defendant (“the vendor”) seeking, inter alia, the following declarations: (1) that requisition no 2 in the letter dated 30 October 2015 from the plaintiffs’ solicitors (“RL”) to the defendant’s solicitors (“NLLC”) has not been satisfactorily and sufficiently answered; (2) that the defendant has failed to show good title to the property; and (3) that the vendor has wrongfully repudiated the provisional agreement and wrongly forfeited the deposits totalling $2.81 million paid by the purchasers to the vendor.

The facts

2.  The purchasers commenced proceedings by issuing an originating summons on 19 April 2016.  On 21 September 2016 DHCJ W Chan (as he then was) ordered that the proceedings be continued as if the matter had been begun by writ.  Pursuant to the order, pleadings (reflecting the parties’ respective earlier affirmation evidence) were duly filed.

3.  By a provisional agreement dated 19 August 2015 made between the purchasers and the vendor, the vendor agreed to sell to the purchasers (1) Flat 13B of Block II, (2) car park space no 88 (“the carpark”) and (3) the roof of Flat A and the roof of Flat B (collectively “the property”) at Oxford Court (豐林閣), 24 – 26 Braemar Hill Road, Hong Kong.  The purchase price was $28.1 million with completion scheduled to take place on or before 18 December 2015.

4.  The initial deposit of $50,000 was paid not when the provisional agreement was signed but on 28 August 2015.  A further deposit of $2.76 million was payable on or before 14 September 2016, that also being the date envisaged in the provisional agreement for the signing a formal sale and purchase agreement.

5.  NLLC provided a draft formal agreement to RL on 31 August 2015.  However, RL did not respond and instead, on 7 September 2015, requested that amendments be made to the provisional agreement, while the purchasers for their part negotiated with the vendor and obtained extensions of time for payment of the further deposit.  

6.  In their reply of 8 September 2015, NLLC informed RL that no undivided shares were attached to the roofs of Flats A and B (“the no undivided share point”).  

7.  The further deposit was paid on 23 September 2015. 

8.  On 27 October 2015, NLLC delivered the title deeds of the property to RL.  The deed of mutual covenant dated 16 June 1977 (“the DMC”) was made between Sin Hung Enterprises Company Limited (“the developer”), the management company and Li Ng May (who had purchased Flat 10 C of Block I from the developer on the same day).

9.  For present purposes, its salient terms are as follows:

(a)   The land and the buildings thereon were notionally divided into 1216 equal undivided shares.  One share was allotted to each car parking space, 15 shares to each of flat A or B in Block I, 18 shares to each flat A or B in Block II and 10 shares to each flat C in Blocks I or II.  No such undivided share was allotted, inter alia, to the roof of Flat A or the roof of Flat B, the exclusive use and enjoyment of which was reserved to the developer.

(b)   The owner of each equal undivided share was bound to observe and perform the covenants, provisions and restrictions contained in the DMC (and the second schedule).

(c)   Every owner of each 1216^th undivided share had the full right and liberty without reference to the owner or owners of any other undivided share or shares and without the necessity of making such other owner a party to the transaction, sell, assign, mortgage, lease, license or otherwise dispose of or deal with his share(s) together with the full right and privilege to hold use occupy and enjoy the roof or flat or car parking space or spaces held therewith subject to and with the benefit of the provisions of the DMC.

(d)   The covenants and provisions of the DMC were binding on the parties thereto and their respective executors and administrators, successors in title and assigns and the benefit and burden thereof annexed to every flat and car parking space and to the undivided share or shares held therewith.

10.  By an Assignment dated 19 August 1977 (“the 1^stAssignment”), the developer assigned 19⁄1216^th equal undivided shares together with the exclusive right to the use and enjoyment of Flat 13B and the carpark to Chik Kwong Yick and Choi Bo Suet (collectively “the 1^st Purchasers”), the vendor’s predecessors in title.   

11.  On 11 October 1977 (“the October 1977 assignment”), the developer (who was described as then owning 18⁄1216 equal undivided shares and the exclusive right to the use and enjoyment of Flat 4B) assigned the exclusive right to the use and enjoyment of the roof of Flat B to the 1^st Purchasers for $17,000.  There was no assignment by the developer on that occasion of any undivided share then still held by it.

12.  A similar assignment dated 7 November 1977 (“the November 1977 assignment”) to the 1^st Purchasers followed in relation to the roof of Flat A for $3000, again referencing the developer’s ownership of 18⁄1216^th undivided shares and the exclusive use of Flat 4A.

13.  The property was the subject matter of three subsequent assignments made on 12 January 1996, 21 September 2004 and 30 November 2004 respectively.  Title devolved on the vendor by the assignment dated 30 November 2004.

14.  The developer retained legal ownership of Flat 4B until 5 May 1979 when it was assigned to a person other than one of the vendor’s predecessors in title and the vendor.

15.  The developer was dissolved on 16 April 1991.

The requisition

16.  On 30 October 2015, RL raised, inter alia, requisition no 2, the gist of which was that the vendor does not have exclusive possession or title to the roofs of Flats A and B for it to convey to the purchasers because no undivided share was assigned together with the right to exclusive possession at the time the October and November 1977 assignments were executed.  The purchasers considered that as a result, neither the October nor November 1977 assignments could bind the other co-owners and their successors in title but operated merely at best as personal licences, binding only the immediate parties to those assignments.‌

The defence

17.  Mr Chain, counsel for the vendor, submitted that as the application is for final judgment under Order 14 and not an application made pursuant to Order 14A, the purchasers cannot succeed in obtaining final judgment unless they can show that the legal point is unarguable as different thresholds apply, depending on the application made.

18.  I accept the correctness of that submission: while a ruling under an Order 14A application is binding on the parties, in an Order 14 application, a decision against the purchasers is not and would not preclude them from re-arguing the point at trial as it remains undecided.  Thus they would have a second bite at the cherry (as it were) which would not be a fair outcome.

19.  Stripped to its essentials, the issue between the parties is whether as a matter of law an exclusive right to the use and enjoyment of a part of the building to which no undivided share had been allotted under the DMC is incapable of being assigned/transferred without any undivided share being also assigned by the assignor at the same time, and the fact that at the time of that assignment the assignor and assignee are co-owners of the land in question makes no difference.

20.  Mr Lau, counsel for the purchasers, referred the court to a number of authorities including Modern Sino Ltd v Art Fair Co Ltd [1999] 3 HKLRD 847 which was said to be factually on all fours with the present case and to support the proposition that a right to exclusive possession cannot be assigned on its own without being coupled with an undivided share.  In other words, exclusive possession can only be transferred along with an assignment of an undivided share.

21.  Before considering Modern Sino, some of the other authorities should be mentioned.  Lai Wing-ho & Anor v Chan Siu-fong [1993] 1 HKLR 319 was a case where two undivided shares had been allotted to the top floor and roof.  The vendor purported to assign to a purchaser (who was a stranger) exclusive use and occupation of the roof.  It was held that a co-owner cannot create or convey any right to exclusive possession of part only of the premises, being a right capable of subsisting as a legal estate in land and binding on his co‑owners as well as himself and that the most he could do would be to grant a licence binding on him personally and his personal representatives but not otherwise on his successors in title.

22.  The present facts are of course different from those in Lai Wing-ho because the roofs did not form part of the 18 shares assigned to each of Flats A and B.  

23.  Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 established that a developer entitled to a right of exclusive possession to certain parts of the building such as utility rooms and roof spaces to which no undivided share had been allotted could pass such a right to subsequent purchasers of undivided shares.  It is also clear that it is an undivided share that may carry a right to exclusive possession of a defined space and not the other way round.

24.  It should be noted that the purchasers in Jumbo King and Lai Wing-ho were strangers whereas in the present case the purchaser was a co-owner of the land in question.

25.  I now turn to Modern Sino.  It concerned a development of four houses designated as Houses 19, 19A, 19B and 19C (each of which was allotted 3 undivided shares) and an unknown number of car parks (but at least 7) to which no undivided shares were allotted (the “CPs”).  Part of the conveyancing history is to be found at p 853E–I of the judgment of Yuen J (as she then was).  It is supplemented by a land search of House 19 and CPs 6 and 7 conducted on 16 August 2017 (“the land search”) which is exhibited to an affirmation by the vendor’s solicitor shortly before the hearing and admitted into evidence.

26.  X and Y were the joint developers.  The first of the houses on the lot to be sold off was House 19C.  That took place in 1978 and would have preceded the deed of mutual covenant which, according to the land search, was dated 4 November 1978.  The developers (X and Y) retained the remaining 9 shares, exclusive possession not only of Houses 19, 19A and 19B but also the CPs.

27.  Of those 9 shares, 6 shares formed the subject matter of a deed of exchange entered into by X and Y in 1980 as tenants in common of 6 shares in the lot.  Pausing here, it is to be noted that the fate of the remaining 3 shares remains an unknown: they were not mentioned in the judgment of Modern Sino and the land search shed no light on the devolution of those 3 shares.

28.  By the deed of exchange (which dealt only with 6 of the undivided shares), X was assigned 3 shares together with exclusive possession of House 19A and Y was assigned 3 shares together with exclusive possession of, amongst other things, House 19 and CPs 1 and 2. On the same day as the 1980 deed of exchange, X assigned her 3 shares in the lot and exclusive possession of House 19A to Z. 

29.  It would appear that the “other things” assigned to Y must have included exclusive possession of CPs 6 and 7.  That is so because, according to the land search, on 6 November 1987, Y assigned 3 shares and exclusive possession of House 19 and CPs 6 and 7 to Colby Land Investments Corporation Limited.

30.  In 1988, some eight years after acquiring among other things CPs 1 and 2 by virtue of the deed of exchange, Y purported to assign to Z the exclusive right to use and occupy CPs 1 and 2 “to the intent that [CPs 1 and 2] shall attach and be appurtenant to” House 19A without also assigning undivided shares in the lot.  It was held that the purported assignment was ineffective.

31.  Mr Lau submitted that Modern Sino is factually indistinguishable from the present case in that both cases involve a bare assignment of an exclusive right to possession, divorced from any undivided shares.  Further, in so far as Jumbo King could be said to be distinguishable from the present case on the basis that the assignee in that case was not a co-owner but a stranger, Modern Sino shows that it makes no difference as at the time of the assignment, the assignee (Z in that case) was already a co-owner of the lot.

32.  However, Mr Lau’s reliance on Modern Sino is predicated on the assumption that Y still owned undivided shares in the lot at the time of the assignment of CPs 1 and 2 to Z. That follows from his reliance on Jumbo King and in that case,the fact that the vendor was a co-owner of the building was critical. If Mr Lau’s assumption were incorrect, factually, Modern Sino would be distinguishable from the present case.

33.  Mr Chain invited attention to the lacuna concerning the 3 missing shares mentioned in §27 above.  Whether Y was still the holder of any undivided share in the lot at the time of the assignment to Z is simply an unknown and one should not speculate as to which scenario is the more likely.

34.  On the facts of this case, on the purchasers’ line of reasoning, it is not evident how, once the 1^st Assignment had been executed, the developer (who still held undivided shares at the time of the October and November 1977 assignments) could ever transfer exclusive possession of the roofs[1] to a purchaser other than the 1^st Purchasers because no other co-owner (or a stranger for that matter) acquiring from the developer some undivided share, could gain access to the roofs to exercise the right of exclusive possession[2]. 

35.  In the case of the 1^st Purchasers, short of a further sale and purchase transaction between the developer and the 1^st Purchasers involving another undivided shares such as a car park (if such were still held by the developer), exclusive possession could never be transferred to them.[3]

36.  Modern Sino has been followed in subsequent decisions of Poon J (as he then was): see Goldenwick Ltd v Standard Chartered Bank (Hong Kong) Ltd [2008] 3 HKLRD 266 and King Prosper Trading Limited v Urban Renewal Authority, unreported, HCAL 56/2009, 17 December 2010.  Both those cases were predicated on the correctness of the proposition derived from Modern Sino but as the true factual situation underlying Modern Sino is unclear, they cannot assist. 

37.  In my view, the legal question presented in the present case requires mature consideration and is not one suitable for summary judgment.

Conclusion

38.  For those reasons, I do not consider Modern Sino to be dispositive of the issue arising in the present case.  It follows that the purchasers’ application for final judgment falls to be dismissed.

39.  It should be mentioned that the legal point was the focus of the oral submissions although in the pleadings, the vendor also raised issues as to whether, the purchasers by their conduct pleaded in the defence have disentitled themselves from objecting to title and/or are estopped from raising any requisition based on the no undivided share point.  Given my conclusion on the legal point, it is unnecessary to deal with the subsidiary point as the matter must go to trial.

40.  The purchasers’ summons is dismissed.  There is to be an order nisi that the vendor’s costs be paid by the purchasers forthwith, to be taxed if not agreed.