THE PUN TAK LAND INVESTMENT & AGENCY CO LTD v. THE INCORPORATED OWNERS OF LOK KWAN HOUSE

DCCJ 433/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 433 OF 2002

__________

__________

__________

JUDGMENT

__________

1. The Plaintiff in this action claims against the Defendant for a declaration of ownership and possession of the shop at entrance of Lok Kwan House, 2 Sun Sing Street, Shaukiwan, Hong Kong ("the suit premises").

2. The Plaintiff is the original developer of the building known as Lok Kwan House where the suit premises are located. The Defendant is the Incorporated Owners of the said Lok Kwan House.

3. The subject matter of dispute is the ownership of the suit premises which the Plaintiff named 'Flat K'. The Plaintiff claims that as the developer and original owner of the building, it has retained ownership of 'Flat K'. The Defendant, on the other hand, claims that the suit premises 'Flat K' has always been and is part of the common areas of the building.

4. In late November 2001, the Defendant under the order of the Building Authority demolished part of 'Flat K' by removing the door and entrance to 'Flat K'. Consequently, the Plaintiff is claiming further for damages for trespass and the loss of use of 'Flat K'. The Defendant counterclaims for damages for wrongful occupation by the Plaintiff and indemnity for the costs and expenses of demolition.

5. Mr. Chow, Counsel for the Defendant, conceded at the beginning of the hearing that the issue of jurisdiction of the District Court raised in the Defence is confined to the Plaintiff's alternative claim of adverse possession only.

The Plaintiff's title to the suit premises 'Flat K'

6. The Plaintiff claims it owns the title to 'Flat K' for it is part of the undisposed area belonging to the developer on the basis of :-

a) the exception and reservation in the assignments and it being part of the "remaining flats or shops of the said building"; and

b) the binding effect of the architect's plans registered in the Land Office ("the unapproved plans") referred to in the DMC;

c) alternatively, acquisition by adverse possession for over 20 years before November 2001.

d) proprietary estoppel and/or acquiescence.

The Conveyancing Issue

7. The Plaintiff claims its title to 'Flat K' had derived from its being the original developer and owner of the building 'Lok Kwan House' erected in or about 1956, completed in 1958. The Plaintiff sold all the domestic units in the upper and mezzanine floors but retained ownership of the undisposed areas including the mezzanine floor store facing New Road which it had subsequently converted into 6 shops Flats E, F, G, H, I and J.

8. The Plaintiff claims that as the original owner of the said building 'Lok Kwan House', when it assigned to all first purchasers the units in the said building, it had reserved to itself the remaining parts or areas of the said building. The reservation in each of all first assignments was in the following form :

"And excepted and reserved into the vendor and the owner or owners for the time being of the remaining ninety one equal undivided second parts or shares of and in the said Shaukiwan Inland Lot No. 633 the exclusive right to the use occupation possession rents and profits of the remaining flats or shops of the said building......."

9. It is the Plaintiff's claim that it sold the units of the said building subject to the aforesaid reservation and with reference to the first and second DMCs dated 6 November 1958 and 5 November 1959 which referred to the architect plans dated 3 April 1958 registered in the Land Office as memorial No. 284253. The 3 April 1958 architect plans registered in the Land Office designated as 'Flat K' the area on the right side of the entrance of the said building on 2 Sun Sing Street. The Plaintiff therefore claims it has specifically reserved to itself the interests to 'Flat K'.

The Approved Plans and the Unapproved Architect Plans

10. The Defendant on the other hand claims that the registered architect plans are different from the approved architect plans submitted to, approved and retained by the Building Ordinance Office of the Buildings Department. It claims that the registered architect plans were never approved by the Building Authority.

11. It is not disputed the approved architect plans (p.446 of the bundle) were received by the Building Ordinance Office of the then PWD on 28 May 1958, they were subsequently approved by the Building Authority on 4 June 1958. These were evidenced by the chop marks on the plans. On the other hand, the 'unapproved' architect plans registered at the Land Office do not bear any Building Ordinance Office chop mark. Copies of these plans are exhibited in P.1 (hereinafter referred to as "the unapproved plans").

12. 'Flat K' was marked on the area on the right side of the entrance to the building at 2 Sun Sing Street on the unapproved plans. On the other hand, in the approved plans, the same spot is marked 'a flower bed to be omitted'.

13. Consequently, Mr. Chow, counsel for the Defendant, submitted that any purported designation of 'Flat K' as a 'shop' would have been unlawful. Further, as the Plaintiff is the original developer and owner, it is neither an innocent party nor a bona fide purchaser but the wrongdoer who registered the unapproved plans and labelled them 'the architect's plans approved by the Building Authority' (see p. 390 Land Office registration record and p. 413 and 445), even though it is fully aware that they were never approved.

14. The Defendant referred to the correspondence with the Buildings Department and submitted that the 'Flat K' structure was an illegal structure (see p. 208 letter dated 21 March 2002), the letter dated 30 April 2002 (p. 228 of bundle) from the Buildings Department stated that the plan of the mezzanine floor approved on 4 June 1958 was the plan that the Building Authority relied on in the issue of occupation permit on 14 October 1958 (p.13 of the bundle). The letter from Buildings Department dated 3 June 2002 further specified that 'The Architect's plans regarding M/F registered under memorial no. 284253 dated 3 April 1958 were not the plans relied upon by the Building Authority in the issue of the Occupation Permit No. H268 on 14 October 1958'. (p. 228 of bundle)

15. Further reference is made to an order by the Building Authority under s. 24(1) to the Defendant ordering the Defendant to demolish the building works erected at the location of 'Flat K'. The copy of this order produced and shown to me bears no date (P.198 A and B). I am given to understand that the Defendant did carry out the demolition work in November 2001 in compliance with the order of the Buildings Department. In a later letter from the Defendant's solicitors to the Building Authority dated 20 February 2002 the date of the order was said to be in October 2001 (p. 204 of bundle). As the Plaintiff does not dispute the correspondence or the order, I shall assume the said Order was made in or about October 2001.

16. Mr. Chow submitted that the Plaintiff as the wrongdoer could not rely on the unapproved plans to persist those very legal wrongs that it brought about for its own benefit. The wrongs were twofold, they were the wrongful registration of the unapproved plans as approved plans at the Land Office and the wrongful continued use of the space earmarked as 'flower box to be omitted' as a shop in contravention of the occupation permit. Mr. Chow relies on the dictum of Permanent Judge Rebeiro of CFA in Kensland Realty Ltd. v. Whale View Investment Ltd. & Anor. [2002] 1 HKLRD 87 where he said at p. 122 F-G:-

"100. In deciding how the prevention principle is to be given effect in any particular case, it is necessary to identify with some precision, the relevant breach, the factual consequences flowing from such breach and what, if any, advantage the contract-breaker seeks to take on the basis of such consequences. The principle aims specifically to deny the contract-breaker those particular advantages."

17. Mr. Chow further queried the inconsistency of the inclusion of 'Flat K' in the description of the term 'remaining flats or shops' of the 1st and 2nd DMC and with the control card (p. 200 of bundle) which failed to record the existence of 'Flat K' on the mezzanine floor. By the same token, 'Flat K' had not been specified in any of the assignments when references were made to the exclusive right over the 'remaining flats or shops' by the Plaintiff. Mr. Chow submitted that 'Flat K', therefore, falls into the definition of 'common parts' for no undivided shares had been allocated to 'Flat K'.

Findings

18. S. 2 of the former Multi-storey Building (Owners Incorporation) Ordinance passed in 1970, now renamed the Building Management Ordinance Cap. 344 defines 'common parts' as "(a) the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner".

19. Ss. 16 and 17 of the Conveyancing and Property Ordinance Cap. 29 provides that:-

"16. What an assignment is deemed to include

(1) Unless the contrary intention is expressed in the assignment, an assignment shall operate to assign, with the land, all rights, interests privileges, easements or appurtenances in, over, belonging or appertaining to that land or at the time of the assignment used, held, occupied or enjoyed with that land and things attached to the land or permanently fastened to anything attached to the land.

(2) This section shall not operate to give to any person a better title than that assigned or any better title than that enjoyed by the assignor.

17. Assignment passes whole estate

Unless the contrary intention is expressed in the assignment, an assignment shall operate to assign all the estate, right and interest in the land assigned which the assignor has in that land and which he has the power to assign."

Clearly, the first time purchasers of Lok Kwan House were assigned only those estates, rights and interests described in their respective assignments.

20. The Plaintiff relies on the Court of Final Appeal case of Jumbo King Ltd. v. Faithful Properties Ltd. & Ors. [1999] 4 HKC 707 (1999) 2 HKCFAR 279. In that case, the purchaser contracted to purchase from the vendor four utility rooms and two flat roofs, it raised requisition as to the vendors' rights to assign those parts of the property which were not allotted undivided shares. The purchaser further objected to title on the ground that the utility rooms were common areas and the vendors did not have the right to exclusive possession of such areas. The purchaser rescinded the agreement and claimed against the vendors for the return of the deposit. The Court of Final Appeal (per Litton PJ and Lord Hoffman) held that (according to the headnotes) :-

" (1) There could not be a proprietary right to the exclusive possession of part of a multi-storied building except as an incident of common ownership in the land and building. Vendors were, at the time of the agreement, co-owners of the land. They all derived their title ultimately from the developer. In this case, so long as the developer had the right of exclusive possession to the utility rooms and the roof spaces, he was able to pass such right to subsequent purchasers of undivided shares, including the vendors here. It followed that any person who acquired an undivided share could acquire the exclusive use of any space in the building and exercise proprietary rights over such space (at 719H-720A).

(2) The vendors had the right to the exclusive use of the utility areas and the flat roofs. The fact the developer did not specifically name those areas when allotting undivided shares to various offices and spaces did not mean that he had not retained the right of exclusive possession over the spaces. The deed of assignment to the first purchaser and deed of mutual covenant (DMC), when read together, were clear; the developer had retained exclusive possession over the rest of the building that had not been sold to the first purchaser. Later dealings with the commercial part of the building were consistent with this view (at 718B-D)."

21. The Court of Final Appeal held that the vendor in that case who had purchased the interest of the commercial portion from the developer Mr. Hotung had acquired the developer's title to the part of the building reserved to him. Litton PJ held at p. 720 C to F:-

"As mentioned earlier, the proprietary right of a co-owner in a multi-storied building is the right to an undivided share in the land and building: Prima facie the owner is entitled to exert rights of possession to every part of the building, in common with his co-owners. This is what is meant by the expression 'unity of possession'. But by the deed of assignment and by the DMC the rights of exclusive possession to individual parts are marked out as between the co-owners. To use Ms. Eu's vocabulary: The true analysis is that an undivided share may 'carry' a right to exclusive possession of a defined space. Not the other way round. Here, so long as the vendors were owners of undivided shares in the land and building, deriving title from the developer, they were entitled to assert rights of exclusive possession to parts of the building, such as the utility rooms and the roof spaces. Their title to those units cannot be impeached."

22. In the present case, we are dealing with the Plaintiff who was the original developer of Lok Kwan House and who had sold the units in Lok Kwan House and on each of the assignments made reservations to itself areas except those marked as common areas; and in the memorial registered in the Land Office, it is specified in the following or similar form:-

"the Vendor thereby assigned unto the Purchaser ALL THAT the estate right title and interest of and in the said one equal undivided ninety second part or share of and in ALL THAT piece or parcel of ground situate at Shaukiwan Hong Kong and registered in the Land Office as SHAUKIWAN INLAND LOT NO. 633 And of and in all messuages erections and buildings thereon then known as "Lok Kwan House" Together with the exclusive right to the use occupation possession rents and profits of FLAT of the FLOOR of the said Lok Kwan House which flat was more particularly shown and marked on Plan No. of the Building Plans of the said building a copy of which was registered in the Land Office by Memorial No. 284253 and thereon coloured Pink Together Also with all right of way (if any) And all other rights privileges easements and appurtenances thereto belonging And all the estate right title interest property claim and demand of the Vendor therein and thereto excepted and reserved as in the said Conditions were excepted and reserved And excepted and reserved unto the Vendor and the owner or owners for the time being of the remaining Ninety one equal undivided ninety second parts or shares of and in the said Shaukiwan Inland Lot No. 633 the exclusive right to the use occupation possession rents and profits of the remaining flats or shops and the roof of the said building TO HOLD the same unto the Purchaser absolutely SUBJECT to and with the benefit of the said Conditions and a Deed of Covenant registered in the Land Office by Memorial No. 285500 and to the payment of one ninety second share of the rent and the premium for the grant of the new Crown Lease of the said premises and the performance of the terms and conditions in the said Conditions reserved and contained covenants by the Vendor for title right to assign quiet enjoyment."...

23. In each of the assignments, the developer (Plaintiff) made similar reservations and exceptions to itself, consequently, the Plaintiff would have retained to itself exclusive possession of areas remaining unsold as shown in the unapproved architect plans registered in the Land Office referred in the assignments. This exception and reservation is further preserved and specified in the second schedule of each assignment under para. 1 (b) (see p. 326 of the bundle).

24. The Plaintiff executed the 1st DMC with 36 named purchasers. It specified in the First schedule the names of each owner of units in Lok Kwan House and the unit(s) they have exclusive enjoyment and occupation of (p. 22-33). In the First Schedule of the 2nd DMC dated 15 November 1959, it specified the next 20 purchasers each holding one share of the remaining 56 equal undivided 92 shares in the said Lok Kwan House.

25. In the judgment of the CFA in the Jumbo King case, the Court of Final Appeal held that all owners past and present derived their title from the original developer; their interests are subject to the developer's reserved interests. Applying the Jumbo King case to the present action, the developer having retained reserved and excepted interests and interests in undivided shares in Lok Kwan House, has the right to the exclusive use of such areas undisposed of which have not been designated as common areas in Lok Kwan House in the two DMCs, with reference to the unapproved plans registered in the Land Office.

26. The Lord Hoffman in the CFA in the Jumbo King case further held on p. 728H to 729D that:-

"A covenant which will run with the land must be made between owners of land, including owners of undivided shares in the same land: see s. 41 (2) of the Conveyancing and Property Ordinance (Cap. 219). It must also relate to the land, but since the owner of any undivided share has a share in the whole building, a covenant concerning the occupation of any part will relate to his land. Thus both requirements were satisfied in this case. Mr. Hotung was entitled, as against anyone bound by the first DMC, to the exclusive occupation of the parts of the building in question. He had the same rights, in respect of the parts within the commercial portion, against anyone bound by the sub-DMC. He could therefore assign those rights to Target and covenant with Target, as owner of 204,587 shares, that it should have exclusive occupation of those parts. In my opinion, if an owner in common of some undivided share in a building has the right, under a covenant with him as such owner, to occupy a specific part of the building, there is no conceptual objection to his assigning the right to occupy together with any undivided share. Thus Mr. Hotung, who was entitled to occupy the roof spaces, utility rooms and so forth under covenants made with him as owner of 719 out of 720 shares (in the case of the first DMC) and as owner of 474,601 out of the 482,000 shares (in the case of the sub-DMC) to which occupation of the commercial portion was attributable, was entitled to assign those rights of occupation to Target together with 204,587 of those shares, notwithstanding that they had not previously been "attached" to any particular number of his undivided shares.".

27. S. 41 (2) and (3) of the Conveyancing and Property Ordinance provides that:-

" (2) This section applies to any covenant, whether positive or restrictive in effect-

(a) which relates to the land of the covenantor;

(b) the burden of which is expressed or intended to run with the land of the covenantor; and

(c) which is expressed and intended to benefit the land of the covenantee and his successors in title or persons deriving title to that land under or through him or them.

(3) Notwithstanding any rule of law or equity but subject to subsection (5), a covenant shall run with the land and, in addition to being enforceable between the parties, shall be enforceable against the occupiers of the land and the covenantor and his successors in title and persons deriving title under or through him or them by the covenantee and his successors in title and persons deriving title under or through him or them."

28. The Defence argued that 'Flat K' is part of common areas and therefore not an area subject to reservation by the Plaintiff. Mr. Chow submitted that as the Plaintiff's title is based on the reservation in the assignments and the unapproved plans, the Plaintiff's case would fall apart without the unapproved plans and further the description of "remaining flats or shops" does not bear the meaning contended by the Plaintiff.

29. Mr. Chow relied on the dictum of Lord Hoffman in Jumbo King where he said "I have some doubt about whether the principle for construing reservations applied to a DMC. The grant is the assignment of the undivided share. The DMC is, as its names says, mutual." (p. 726 C-D of the judgment). Mr. Chow further submitted that if 'Flat K' were meant to be an individual unit, the DMC would have mentioned 'Flat K'.

30. I do not accept Mr. Chow's submission that if 'Flat K' were not specifically referred to in the DMC, it would fall into 'common areas'. Under the assignments, the Plaintiff reserved to itself all remaining unsold and undisposed of parts of the building. The unapproved plans made easy identification of the individual flats. By marking out the area of 'Flat K' in the registered unapproved plans, individual owners could not have mistaken 'Flat K' as part of the 'common areas' referred to in the two DMCs. In the words of Lord Hoffman when referring to the DMC in Jumbo King "such a covenant is binding contractually between the parties and runs with the undivided shares in the land so as to ensure for the benefit of and be binding upon successors-in-title." (p. 725G-H)

31. Even though the unapproved plans referred to and accepted by the contractual parties had not been approved by the Building Authority and they were not identical to the approved plans so far as the right corner of the entrance area of the building at 2 Sun Sing Road is concerned, they were nevertheless binding on the owners/purchasers who derived their interests from the developer and from the documents of title. Furthermore, the two DMCs are binding on them under s. 41 (2) and (3) of the Conveyancing and Property Ordinance. Therefore, in spite of the inconsistencies between the approved and unapproved plans, the control card etc. it is not opened to the individual owners to insist that 'Flat K' forms part of the common areas though for many years they had failed to realise was an unapproved shop area. The Defendant had in fact collected management fees from 'Flat K' for some years.

32. Mr. Chow further submitted that the Plaintiff was the wrongdoer by registering the unapproved plans naming them the 'architect's plans approved by Building Authority'. He relied on the principle of law that "a person is not permitted to take advantage of his own wrong" the dictum of Ribeiro PJ in the CFA case of Kensland Realty Ltd. v. Whale View Investment Ltd. & Anor. [2002] 1 HKLRD 87 at p. 115.

33. The circumstances of the Kensland Realty Ltd. case are different from the present case. Ribeiro PJ's dictum on the prevention principle was with reference to where the vendor in that case delayed in giving directions to the purchaser's solicitor on how it wished to have the cheques split for the completion of a property sale, subsequently refused to complete when the cheques tendered arrived 6 minutes late. The Kensland 'prevention principle' operated to prevent a party who was in breach of an obligation owed to the other party under a contract, from asserting rights or claiming benefits, which arose as a consequence of the breach of the contract.

34. I fully accept the prevention principle that a person should not benefit from his own wrong, but in the present case, it does not assist the Defendant in its contention that 'Flat K' forms part of the common areas. The reservation and exception in the assignments clearly put 'Flat K' out of the common areas so far as the individual owners and the Defendant are concerned.

35. The Plaintiff has quite rightly abandoned its claim for remedies over the demolition of the shop structure at 'Flat K' at the beginning of the trial for its has no chance of succeeding. It was the Building Authority that would not permit an illegal structure to be erected or to remain unless its prior approval had been obtained.

36. On the other hand, based on the authority of Jumbo King, even though under the two DMCs 'Flat K' was not specifically named as an area allotted any share and based on the exceptions and reservations specifically made in the assignments to the Plaintiff's purchasers, the Plaintiff has retained exclusive ownership of all areas undisposed of and unsold by the Plaintiff. 'Flat K' described in the unapproved plan registered in the Land Office falls into this category.

Proprietary Estoppel

37. The Plaintiff relies further on proprietary estoppel of its occupation of 'Flat K' and the acquiescence of the Defendant of the Plaintiff's occupation. As I have found the developer/Plaintiff has reserved its rights over areas including 'Flat K', there is no need for me to go into this issue.

Adverse Possession

38. No evidence had been adduced by the Plaintiff to support the basis of its claim of adverse possession of 'Flat K'. The witness called by the Plaintiff Mr. Hung Chiu Shun joined the Plaintiff Company as the managing clerk of the Plaintiff's Rental Department in the 1960's. 'Flat K' was already let out to tenants by that time. Mr. Hung's evidence indicated that the Plaintiff had been collecting rent from tenants of 'Flat K' and that it had been paying management fees to the Defendant and rates to the Rating and Valuation Department. However, no evidence on the circumstances of entry into possession was adduced.

39. Mr. Chow referred to the case of Incorporated Owners of Chung King Mansions v. Shamdasani [1991] 2 HKC 342 and the query posed by the authors of The Student's Guide to Hong Kong Conveyancing by Sihombing and Wilkinson p. 462 where it said :-

"At Common Law, a party is not permitted to assign, lease or agree with himself for the sale and purchase of land, the rationale being that he could not sue himself where a dispute to arise."

40. Mr. Chow submitted that the Plaintiff has an interest in the undivided share of the common parts, and as a co-owner of the common parts could not be in adverse possession against itself.

41. It is certainly illogical and defies common reasoning for anyone to be able to obtain a possessory title against oneself. Further, based on my findings on the conveyancing issue above, it is unnecessary for me to make a finding on this aspect.

42. Under Order 15 rules 16 and 17 of the District Court Rules, the District Court is empowered and has the jurisdiction to make a declaratory order, though the order is discretionary.

43. Based on the authority of the Jumbo King case, I am satisfied that the suit premises are part of areas reserved by the developer to itself along with the remaining unsold units. In the words of Lord Hoffman in the Jumbo King case, "A Covenant which will run with the land must be made between owners of land, including owners of undivided shares in the same land (S. 41 (2) Conveyancing and Property Ordinance Cap. 219). It must also relate to the land, but since the owner of any undivided share has a share in the whole building, a covenant concerning the occupation of any part will relate to his land." As the Plaintiff satisfies both of the requirements, it is entitled against anyone bound by the two DMCs to the exclusive occupation of the parts remained unsold and retained by it. Its right to exclusive possession of the suit premises, however, is subject to its ownership of the mezzanine floor store or any other units which had been allotted shares in the 92 shares of Lok Kwan House. The Defendant, which derived its authority from the DMCs, is bound by the DMCs. It must accept the Plaintiff's right to the suit premises.

44. On the other hand, the suit premises, not having been recognised and approved as a shop by the Building Authority is incapable of being allotted a share in the building and is not registrable as such. For the Building Authority had clearly disallowed the creation of a 'flower bed' in the suit premises let alone a shop. I am not satisfied; therefore, the Plaintiff is entitled to be declared the registered beneficial owner of 'Flat K'. Nevertheless, the Plaintiff is entitled to the possession of the suit premises based on reasons given above. I allow an order in terms of C and F of the Plaintiff's prayer.

45. When faced with enquiry and a demolition order from the Buildings Department, the Defendant was forced to take action of demolition, which the Plaintiff should have performed due to its breach of S. 24 (1) of the Buildings Ordinance. For this reason, I reject the Plaintiff's claim for damages and for restoration and reinstatement of the suit premises, for the 'Flat K' structure was an illegal structure, which should not be there in the first place. I dismiss prayers 1 and 2 of the Defendant's counterclaim, and grant an order of indemnity under prayer 3 of the Defendant's counterclaim for costs and expenses in its compliance of the Buildings Department's order.

46. Interests - Interests at 1/2 judgment rate on Defendant's costs and expenses in complying with the Buildings Department's order of demolition from date of demolition to date of judgment, thereafter at judgment rate until full payment.

47. Costs nisi - As I allowed 1/3 of the orders sought by the Plaintiff, I would allow 1/3 of the Plaintiff's costs. As to the Defendant's counterclaim, on the basis that the Defendant succeeds in recovering indemnity for the costs of demolition, I shall allow the Defendant to recover 1/3 of its costs in the counterclaim. The aforesaid costs are to be taxed if not agreed with certificate for counsel.