CHUNG CHING TING SHIRLEY AND ANOTHER v. CHEUNG KIN SHUM NIXON

DCCJ 4274/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4274 OF 2010

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BETWEEN

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J U D G M E N T

1.  This is the dispute between the owners of 2 adjoining plots of lands divided by a concrete wall. Part of the land owned by Chung and Chan, the 1^st and the 2^nd Plaintiffs, was and still is situated to the other side of the dividing wall and occupied as part of the land of Cheung, the Defendant. Chung and Chan now seek possession of that part of the land, injunction, and damages as well as mesne profits. Cheung resists. This is the application by Chung and Chan for summary determination of this action.

Background

2.  Subsection 2 of Section A of Lot No. 741 in Demarcation District No. 125, Yuen Long, New Territories (“the Land”) and the Remaining Portion of Section A of the same numbered lot (“the Adjacent Land”) are adjoining plots of land.

3.  By an Assignment dated 31 December 2003, one Super King International Limited (“Super King”) became the owner of the Land.  A 3-storey village type house with a garden was constructed on the Land and known as No.413 San Wai.

4.  As the developer, Super King sold and assigned the Land and the house erected thereon to 3 different parties. By way of separate Assignments all dated 3 January 2005:

(1) 1/3 undivided share of interest of and in the Land together with the exclusive right to possess the Ground Floor and garden of the house to Chan Wai Fan and Cheung Chan Keung;

(2) 1/3 undivided share of interest of and in the Land together with the exclusive right to possess the 1^st Floor of the house to Lui Wai Kuen;

(3) 1/3 undivided share of interest of and in the Land together with the exclusive right to possess the 2^nd Floor and the roof of the house to Lui Chi Lung.

5.  On the same day, the above parties entered into a deed of mutual covenant governing their co-ownership (“the DMC”) whereby the Land (and the property erected thereon) was notionally divided into the 3 undivided shares being assigned.

6.  By an Assignment dated 4 August 2005, Cheung acquired the Adjacent Land from one Tang Hon Man. Likewise, a 3-storey village type house with a garden has been constructed on the Adjacent Land, known as No.412 San Wai.

7.  3 years later, Chung and Chan acquired from the 3 owners mentioned above their respective undivided shares of interest of and in the Land.  By the respective Assignments all dated 31 July 2008:

(1) Chung became the owner of 1/3 undivided share of interest of and in the Land together with the exclusive possession of the Ground Floor of the house and the garden; and

(2) Chan became the owner of the other 2/3 undivided shares of interest of and in the Land together with the exclusive possession of the 1^st and the 2^nd Floor as well as the roof of the house.

8.  Another 2 years later, Chung and Chan started to take issue of their having been excluded from a portion of the Land that was and is situated to Cheung’s side of the dividing wall.  That portion of the Land was at all times and still is occupied by Cheung as part of his garden.

9.  In December 2010, Chung and Chan, as the owners of the Land, commenced the present action for possession of the portion of the Land in question, which is identified and coloured blue on the Ground Floor plan annexed to the Statement of Claim (“the Blue Portion”).

10.  Pausing here, I should explain the odd situation of the Blue Portion of the Land with reference back to the time when Super King disposed of the Land to the predecessors in title of Chung and Chan.

11.  The respective Assignments to the predecessors in title of Chung and Chan in January 2005 invariably provided that the assignment by Super King to them of the undivided shares of interest of and in the Land was made subject to the exception and reservation specified in the Second Schedule of the Assignments.  What was excepted and reserved to Super King was:

“the Space as defined in Clause 2(i)(c) of the Agreement for Sale and Purchase and shown on the Ground Floor Plan thereto and thereon coloured blue.”

12.  Likewise, clause 41 of the DMC provides that:

“the area shown on the Ground Floor Plan annexed hereto and thereon coloured blue is reserved unto the First Owner for its sole use, occupation and enjoyment to the exclusion of the owners of the Ground Floor (and the Garden appurtenant thereto), the First Floor and the Second Floor (and the Roof) of the said Building and the said Land respectively.”

13.  Clause 2(i) of the Sale and Purchase Agreements between Super King as the vendor and the predecessors in title of Chung and Chan as the purchasers, all dated 30 November 2004, reads as follows:

“The Vendor shall sell and the Purchaser shall purchase the Property TOGETHER with the right in common with the Vendor or other person or persons claiming through under or in trust for the Vendor …… And all the estate right title interest property claim and demand whatsoever of the Vendor in and to the Property EXCEPTING AND RESERVING unto the Vendor his successors and assigns other than the Purchaser the right to the exclusive use occupation and enjoyment of the Building SAVE AND EXCEPT:-

(a) the Property;

(b) such area and facilities (if any) as may be designed as common areas or common parts and facilities in the Deed of Mutual Covenant or are intended for common use; and

(c) the area shown on the Ground Floor Plan annexed hereto and thereon coloured blue (“the Space”).”

14.  The Space identified by the Sale and Purchase Agreements, the DMC and the Assignments is consistently the Blue Portion of the Land mentioned above.

15.  It could be seen that whilst the Blue Portion of the Land was expressly reserved to Super King, the portion was never treated separately in the allocation of the undivided shares.  Consequentially, upon the assignment to the predecessors in title of Cheung and Chan, Super King retained no share or legal interest in the Land.

16.  However, the Sale and Purchase Agreements stipulated what was supposed to be done upon completion of the sale and purchase so as to enable Super King to take the benefit of the reservation of the Blue Portion.  Clause 2 contained the following further provisions:

Clause 2(ii)

“The Purchaser undertakes to, upon completion of the sale and purchase of the Property herein, duly sign and execute any deed(s) or deed poll (as the case may be) to divide the Land into parts (consisting of the Space) in order to assign, vest or allocate the Space unto the Vendor or the assignee(s) or nominee(s) of the Vendor if the District Lands Office, Yuen Long (“DLO”) shall consent or approve such division.”

Clause 2(iii)

“To secure and ensure that the Purchaser shall comply with the undertaking given in Clause 2(ii) hereof above, the Purchaser do hereby irrevocably appoint and authorise each and all the Vendor and the Vendor’s directors for the time being as the lawful attorney of the Purchaser to act jointly or severally in the name of and on behalf of the Purchaser: - (a) apply to the DLO or any relevant government authority or department for any necessary consent or approval for division of the Land into parts (consisting of the Space) as to title vertically or otherwise by modifying the relevant condition(s) contained in the Building Licence; and (b) upon obtaining such consent or approval of the DLO, sign, seal, deliver and/or otherwise execute all relevant documents or instruments, deed(s) or deed poll for division of the Land as aforesaid or assignment, vesting or allocation of the Space unto the Vendor or the Vendor’s assignee(s) or nominee(s) or in such other manner as the Vendor shall in its absolute discretion determine.”

17.  However what was contemplated under clauses 2(ii) and (iii) of the Sale and Purchase Agreements was never carried out upon completion or at all.  The fact was that Super King was even wound up and dissolved by the orders of the court on 16 March 2005 and 12 July 2006 respectively.

18.  The above background is uncontroversial.

The dispute

19.  According to the Defence, the case of Cheung is essentially that he acquired the Adjacent Land in 2005 in its then “as is” state with the Blue Portion situated to his side of the dividing wall for his exclusive use and enjoyment.  This was said to be pursuant to the rights of Super King as reserved in the Sale and Purchase Agreements, the Assignments and the DMC mentioned above.  In the circumstances, Chung and Chan are said to have no right of use and enjoyment of the Blue Portion.

20.  The major dispute could be outlined as follows:

(1) whether and, if yes, how the interest and rights of the predecessors in title of Chung and Chan since January 2005 and those of Chung and Chan since July 2008 in the Land, the Blue Portion being part of it, was affected by the reservation in favour of Super King; and

(2) whether and, if yes, how Cheung came to possess interest or right in the Blue Portion that suffices to defeat the claim of Chung and Chan as its owners.

21.  The determination of the dispute entails the construction of the Sale and Purchase Agreements, the Assignments and the DMC mentioned above; as well as the consideration of their effect on the rights of the parties in the Blue Portion.

The present application

22.  Besides applying for summary judgment pursuant to O.14, r.1 of the Rules of the District Court, Chung and Chan also applies for the striking out of the Defence on the grounds that it discloses no reasonable cause of defence; it is frivolous and vexatious; or is otherwise an abuse of the legal process.

23.  Chung and Chan also posed the following questions for determination pursuant to O.14A, r.1 of the Rules:

“(A) Whether, upon a true construction of the 3 assignments all of 3^rd January 2005 when Super King International Limited (hereinafter called ‘the Developer’) assigned:-

(i) 1/3 undivided share of interest in Subsection 2 of Section A of Lot 741 in DD 125 (hereafter called ‘the said land lot’) to one Chan Wai Fan and one Cheung Chan Keung;

(ii) 1/3 undivided share of interest in the said land lot to one Lui Wai Kuen; and

(iii) 1/3 undivided share of interest in the said land lot to one Lui Chi Lung

and on and after the date of the said assignments, the Developer still retains any interest in the said land lot to take benefit of the express reservation of the piece of land coloured blue and annexed to the schedules to the said assignments (hereinafter called ‘the Blue Land’) as a matter of law.

(B) Whether, upon a true construction of the assignments all of 31^st July 2008 from the co-owners referred to in paragraphs (A)(i)-(A)(iii) above when the 1^st and 2^nd Plaintiffs acquired all the 3/3 share of interest of and in the said land lot, they have obtained unity of possession and ownership of the said land lot inclusive of that of the Blue Land as a matter of law.

(C) Whether, upon a true construction of the assignment of 4^th August 2005, when the Defendant acquired interest in the Remaining Portion of Section A of Lot 741 in DD 125 (hereinafter called ‘the adjacent land lot’), the Defendant has also acquired interest in the said land lot so as would enable him to take benefit from the express reservation of the Developer in the Blue Land.

(D) Whether, in the absence of any proprietary interest in the said land lot, the Defendant in his capacity as the owner of the adjacent land lot is, as a matter of law, entitled to take benefit from and under the express reservation of the Developer of and in the Blue Land.”

24.  In my view, the questions posed for determination fairly particularise the dispute that this court outlines above.

The principles

25.  Insofar as the application under O.14 is concerned, judgment may be given only in the absence of a credible defence or any other reason for the matter to be tried.

26.  Pursuant to O.18, r.19, the defence is liable to be struck out only if any of the grounds relied on is clearly and obviously made out.

27.  O.14A provides for the determination of questions of law or construction of any document arising in any cause or matter where such question is suitable for determination without a full trial of the action; and such determination will amount to final determination of the entire cause or matter or any claim or issue.  The court needs to have all the necessary facts before exercising the discretion to determine the question of law or construction without a full trial.

28.  The above principles are trite.

Upon the assignments by Super King in January 2005

29.  In relation to a multi-storey building, a right to exclusive possession cannot exist except as an incident to the common ownership in the land and the building.  Such exclusive right of enjoyment cannot be assigned on its own, but has to be assigned together with a part interest in the legal estate: see Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 231; Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd & Anor, FACV 1/2008 (8 September 2008).

30.  By virtue of the DMC, the Land (and the house erected thereon) was notionally divided into 3 undivided shares without separate allocation in respect of the Blue Portion of the Land. Upon the assignments of all 3 undivided shares to the predecessors in title of Chung and Chan in January 2005, Super King divested all its legal interest in the Land, the Blue Portion included.

31.  Super King retained no interest in land to take the benefit of the express reservation in respect of the Blue Portion.  It was not that Super King was unaware of the situation. This probably explains the incorporation of clauses 2(ii) and (iii) of the Sale and Purchase Agreements (above).  By them, Super King extracted the undertaking of the predecessors in title of Chung and Chan to give effect to the express reservation of the Blue Portion.

32.  The undertaking was contractual in nature.  Clause 2(ii) provided for the division of the Blue Portion from the Land on condition of the approval by the District Lands Office.  For such purpose, clause 2(iii) provided for the authorisation of Super King as the lawful attorney of the owners of the Land to take steps to obtain such approval from the Office. 

33.  However the contractual undertaking of the predecessors in title of Chung and Chan per se created no interest in any part of the Land in favour of Super King.  None of these provisions has been carried into effect, not even by Super King.  2 months after the assignment away of the shares in the Land, Super King was wound up by the court.  The situation has never changed ever since.

34.  The above analysis has been tested in Tang Miu Wan v Super King International Limited & Ors, DCCJ 1935/2004 (20 March 2006).  A judgment creditor of Super King obtained a monetary judgment and a charging order against Super King as the judgment debtor.  In issue was whether Super King retained a beneficial interest in the Blue Portion of the Land that could be subject to the charge.  The predecessors in title, as owners of the Land, including the Blue Portion, joined as the other defendants and applied for the discharge of the charging order.

35.  The learned Deputy District Judge (as he then was) concluded (at paras.31-33) that Super King retained no beneficial interest in the Blue Portion upon its disposition of all the shares in the Land in January 2005.  He further concluded (at paras.34-38), as a matter of construction of clauses 2(ii) and (iii) of the Sale and Purchase Agreements, that unless and until approved by the District Lands Office, there was no obligation on the part of the predecessors in title of Chung and Chan to divide the Blue Portion from the Land, let alone to assign the Blue Portion upon such division.  In the premises, Super King had no way of seeking specific performance to compel the predecessors in title of Chung and Chan to re-assign the Blue Portion to it.  As such, no beneficial interest in the Blue Portion was created by way of any trust in favour of Super King either.

36.  Being parties to that case, Super King of one part and the predecessors in title of Chung and Chan of the other part were bound by the court’s decision in respect of whether Super King retained any beneficial interest in the Blue Portion of the Land upon and after the assignment of the Land in January 2005.

Upon the assignment to Chung and Chan in July 2008

37.  Mr Sherry however argued that Chung and Chan acquired the Land (and the house erected thereon) with notice of the reservation; and should therefore be subject to the interest of Super King.  He borrowed assistance from the principle of passing of the burden of a covenant in Tulk v Moxhay (1848) 2 Ph 774.

38.  I find above that Super King retained no beneficial interest in the Blue Portion, notwithstanding the reservation and the contractual undertakings.  As a result, the predecessors in title of Chung and Chan owned the Land, including the Blue Portion, not being subject to any interest of Super King.  It follows that Chung and Chan, who derived their title from their predecessors in title, would not become in a position any worse than that.

Upon Cheung’s acquisition of the Adjacent Land in August 2005

39.  It is emphasized on Cheung’s behalf that he acquired the Adjacent Land on an “as is” basis with the pre-existing inclusion of the Blue Portion of the Land on his side of the dividing wall.  That might well be true; but the physical layout does not per se confer proprietary interest in the Blue Portion on Cheung.

40.  Cheung did not derive the title to his land from Super King or its successors or assigns.  There is no privity of estate or contract to put him in a position to take the benefit of the reservation (or any covenant) between Super King and the predecessors in title of Chung and Chan, let alone to enforce them.

41.  It is alleged that Cheung has acquired certain understanding of his right to use the Blue Portion at the time when he acquired the Adjacent Land.  That could only have been the representation by his predecessor in title (i.e., Tang Hon Man) or hearsay indication of Super King’s authorisation to the predecessor in title of Cheung to use the Blue Portion.

42.  However, even assuming that there had been such representation to Cheung of the right to use the Blue Portion, such representation would not have conferred on Cheung any interest or right in the Blue Portion that even Super King did not have after its assignment of the Land to the predecessors in title of Chung and Chan in January 2005.  Cheung’s recourse would be to hold his predecessor in title or whoever that had allegedly made such representation responsible.

The liquidators of Super King

43.  During the hearing, Mr Sherry submitted that it is in any event inappropriate for the court to determine the rights of the parties summarily as the liquidators of Super King might want to be heard.

44.  To begin with, the liquidators never have any claim of their own.  They could have only asserted the right of Super King.  But the fact was that Super King has never appealed the decision in DCCJ 1935/2004.  Nor is there even suggestion that the liquidators had been advised of a potential claim to the Blue Portion notwithstanding the decision of the court.

45.  The fact was that those acting for Cheung now were also the same solicitors for Super King in DCCJ 1935/2004 who argued about the survival of its interest and right in the Blue Portion, notwithstanding the assignment in 2005.  The liquidators would have known and acted accordingly, had Super King ever taken the stance that is now being advocated in the present action.

46.  Further, this action was commenced in December 2010.  The present application was taken out in February 2011.  Had Cheung been really concerned about the need for the liquidators to intervene on the basis of a potential claim by Super King (in liquidation), there would have been ample opportunity for Cheung to alert the liquidators about the same.

47.  In court, Mr Sherry conceded that this line of argument came about at a late stage.  I cannot help thinking that this is a recent salvage attempt.  More importantly, the suggested potential claim by the liquidators, if indeed made, would be tantamount to a collateral attack on the court’s decision in DCCJ 1935/2004 only now.  Super King is estopped from doing so, in the absence of any appeal against that decision since 2006.  So will the liquidators be.

Conclusion

48.  The questions posed under O.14A could and should be determined without the need for a full trial.  I answer them as follows:

(1) To question (A), the answer is no.

(2) To question (B), the answer is yes.

(3) To question (C), the answer is no.

(4) To question (D), the answer is no.

49.  Cheung fails to make out any valid basis for asserting any interest or right over the Blue Portion to defeat the title of Chung and Chan in the Land, that portion included.  There is no valid defence to the claim for possession.  In terms of the standard required for striking out under O.18, r.19, I say this is sufficiently clear and obvious.

50.  Chung and Chan are entitled to an order for possession of the Blue Portion.  Steps will have to be taken to give effect to that, in view of present the dividing wall.  Chung and Chan also pray for an injunction to restrain Cheung from interfering with their possession of the Blue Portion.  But considering the reality and the orders to be made, I see no justification or present need for such an injunction.

51.  Chung and Chan started to take issue about their exclusion from the Blue Portion in October 2010.  They seem to acknowledge that and hence claim mesne profits only from the deadline for the delivery up of vacant possession set in their letter of demand then.  That will be a matter of assessment.

Order

52.  I therefore make the following order:

(1) Cheung do deliver up vacant possession of the Blue Portion of the Land (defined as “the blue land” and identified in the Schedule to the Statement of Claim) to Chung and Chan;

(2) For the purpose of giving effect to (1) above, parties do have liberty to apply for directions if necessary; such directions should be agreed as far as possible;

(3) There be judgment that Cheung do pay Chung and Chan mesne profits in such amount and for such period to be assessed;

(4) There be a nisi order that Cheung do pay Chung and Chan their costs of this action up to and including this application; such costs shall be taxed, if not agreed, with certificate for counsel;

(5) The above nisi order as to costs shall become absolute in 14 days in the absence of application to vary.