THE INCORPORATED OWNERS OF CHEONG WANG AND CHEONG WAI MANSION v. HKSAR

HCMP 3230/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3230 OF 2000

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J U D G M E N T

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1. These proceedings concern a building in a development at Castle Peak Road, Kwai Chung which was completed in 1978, the developer being Loong Kee Company Ltd (Loong Kee), and consisted of two blocks called Cheong Wang Mansion and Cheong Wai Mansion respectively. As is usual in such developments, the buildings were notionally divided into 1620 equal undivided shares allotted to each unit in the building according to the list in the third schedule of the deed of mutual covenant (DMC). In the DMC the developer, Loong Kee, described therein as the "First Owner", reserved to itself, under clause 19, exclusive rights in relation to the outside walls of the building, and the yard on the ground floor between the blocks. The relevant clauses read as follows:

"19. The First Owner and all persons authorised by it shall have the exclusive right :-

(a) to display paint or affix any sign notice or board on or along the exterior walls of the said buildings and no owner of any part of the said buildings shall display paint or affix anything in or paint or decorate the corridors staircases landings entrances or any other part of the said buildings in common use.

(b) .............

(c) The exclusive right and privilege to hold use occupy and enjoy to the exclusion of the other owners and co-owners all that portion of the yard on the ground floor of the said buildings which said portion is coloured pink on the ground floor plan annexed hereto and to use the same for such purpose as the First Owner and all persons authorised by it may deem fit Subject to such rules and regulations (as to time of use and otherwise) as may be imposed by the Manager of the said buildings from time to time and to such consent (if any) as to its user as may be required from the appropriate Government Authorities."

2. Loong Kee then proceeded to sell the units in the building, and it is not in dispute that they were all eventually sold, with none being retained by them. In 1982 at an extraordinary general meeting the shareholders of Loong Kee resolved that the company be wound up, a Mr Wong Shang Jen was appointed liquidator, and the company was eventually dissolved.

3. The question now before the Court is to whom did the rights reserved by Loong Kee devolve, either before or following its dissolution, no assignment of them having been made prior to that? This is a matter of some importance to the plaintiff, as they need to execute work involving the walls and the yard and are not satisfied that they have the right to do so, having, as they maintain, no proprietary interest in them. The originating summons also included the roofs of the buildings for consideration, but this was withdrawn at the commencement of the hearing.

4. The primary case of the plaintiff is based on section 292 of the Companies Ordinance, Cap 32, which provides that all property and rights vested in or held on trust for a company immediately before its dissolution shall be deemed to be bona vacantia and shall belong to the Government, and they maintain that the rights granted by the DMC were still held by Loong Kee prior to its dissolution. They seek a declaration that this is the case, so that the Government may then assign the rights in those parts of the building to them for them to manage. Alternatively they seek a declaration as to whom those rights belong. The case of the defendant is simply that once all units of the building, and thus all the equal undivided shares, were sold and Loong Kee no longer owned any part of them, any rights they had reserved under the DMC were extinguished and reverted to the common owners of the buildings.

5. The first matter to be addressed is the nature of the "rights" themselves. Mr Lau for the plaintiff says that both the right to affix notices to the walls, and the right to occupy and use the yard, are in the nature of easements, or what Lord Hoffmann NPJ, in Jumbo King Ltd v Faithful Properties Ltd & ors. in the Court of Final Appeal, reported in [1999] 3 HKLRD 757, described as "quasi-easements".

6. The question of the ownership of the various parts of multi-storey buildings and the system of tenure has been considered in a number of cases over the years in Hong Kong, and most recently in Jumbo King Ltd both in the Court of Appeal and the Court of Final Appeal. In the former court, reported at [1999] 3 HKLRD 231, Godfrey JA described the system at p. 243, as follows:

"Hong Kong land law is based on English land law; but, in relation to multi-storey buildings in multi-occupation, Hong Kong has developed a method of regulating the rights and duties of a multiplicity of owners among themselves. This involves each owner becoming what is called in English land law a "tenant in common" of the land on which the building is erected; each "tenant in common" is treated as having a quantified but undivided share in the land, and as being entitled, as an incident of his ownership of that undivided share, to the exclusive use of his unit in the building. A right to such exclusive use (as an interest in land) can be created only as an incident to the ownership of an undivided share in the land : see Lai Wing-ho v. Chan Siu-fong [1993] 1 HKLR 319."

7. In effect, the whole building is owned by those to whom shares have been allocated, including the common areas, but with exclusive rights to occupy and use the unit to which those shares relate, and there can be no right to any exclusive use except as an incident to the ownership of an undivided share in the land. It is this joint ownership of the whole property which prevents any right to use a particular part being an easement, as one cannot have an easement over one's own property, but such a right was considered by Lord Hoffmann to be in the nature of an easement, and thus his description of it as a quasi-easement.

8. However, an easement must necessarily be owned by a dominant property over a servient property, and cannot exist in limbo, nor be owned by a party who has no interest in a dominant property. It follows that Loong Kee, while still owning units in the building, may well have held the rights set out in the DMC as quasi-easements, but once they had alienated all those units and had no further proprietorial rights in any part of the building, any rights in the nature of an easement attached to their ownership of the units must have been extinguished. The view that an exclusive right of the use of land can exist only as an incident to the ownership of a share in the land, whether as a quasi-easement or otherwise, was confirmed by Yuen J in Modern Sino Ltd v Art Fair Co. Ltd [1999] 3 HKLRD 847 where, at p. 854, she says:

"It is clear from Lai Wing Ho & Another v Chan Siu Fong [1993] 1 HKLR 319 (as affirmed in the Court of Appeal in Jumbo King Ltd v Faithful Properties Ltd & Others [1999] 3 HKLRD 231) that a right to exclusive use of land (as an incident in land) can be created only as an incident to the ownership of an undivided share in the land."

And further:

"The Court of Appeal judgment in Jumbo King Ltd v Faithful Properties Ltd & Others [1999] 3 HKLRD 231 did not challenge the decision in Lai Wing Ho & Another v Chan Siu Fong [1993] 1 HKLR 319. In Jumbo King Ltd v Faithful Properties Ltd & Others, no shares were allocated to certain parts (e.g. the flat roofs), but the developer had reserved exclusive possession to himself at a time when he still had shares in the land together with exclusive possession of certain units. When the developer assigned his shares, he gave exclusive possession to the purchaser of, not only those units, but also the flat roofs. That was valid under the law as the exclusive possession of the flat roofs was being passed as an incident to the ownership of shares in the land."

9. Here there was no transfer of any of the rights reserved to Loong Kee upon assignment of the shares that they still held, and it must follow that such rights fell away as being incapable of existence other that as an incident to the ownership of any of such shares.

10. The rights purportedly granted to Loong Kee under the DMC relate to, firstly, the right to affix notices to the walls, and secondly to the right to exclusive use of the yard. The second I have already dealt with above, and, as Mr Merry has pointed out, the first cannot be more than a personal licence to use the walls for display purposes, there being no suggestion of ownership which must therefore have remained under the common ownership throughout, together with the responsibility for maintenance and upkeep. The only question is whether that licence survived the dissolution of Loong Kee, not having been assigned to any other party. I do not think it did. It was a licence personal to the developer and ceased to exist once the grantee also ceased to exist.

11. In conclusion therefore, either the rights granted by DMC were incident to the ownership of undivided shares in the land and accordingly reverted to common ownership when Loong Kee no longer held any such shares, or were a licence personal to Loong Kee which ceased to exist at the latest upon its dissolution. In either event, it is clear that both the walls and the yard have, at least since that dissolution, been common areas under the ownership of all the owners of shares in the land and under the management of the plaintiff.

Costs

12. Mr Lau has argued that, whatever the Court's finding here, there should be no order as to costs, and, indeed, no costs are claimed in the originating summons. His reasoning is that the plaintiff has not sought to impose any liability on the Government but has merely sought guidance. He also points out that the case is partly for the benefit of the Government, as there are other similar cases under consideration. This is conceded by the acting senior solicitor in the Legal Advisory and Conveyancing Office of the Lands Department who swore the defendant's affidavit in this matter, in which she says that the questions raised are of wider importance than this case and that at least five other cases have arisen with similar issues.

13. Mr Merry contends, however, that costs should follow the event. He points out that the originating summons did seek to place liability for the maintenance, repair and management of the areas involved on the Government, although this was not pursued at trial, and that the plaintiff has throughout the correspondence prior to proceedings rejected the arguments put forward by the defendant, which I have now found to be correct, and treated this as a genuine dispute and contentious litigation. He says that the fact that it may be seen as a test case does not mean that the usual rule that costs follow the event should not be followed here.

14. I think that must be right. The plaintiff chose not to accept the arguments put forward by the Government, and apparently also chose not to seek counsel's advice on the matter before instructing Mr Lau for this trial. Had they done so, they may well have received advice that the defendant's view was correct, and these proceedings would not have been necessary. They cited impecuniosity. This may well be a reason not to take certain steps prior to proceedings which they felt they could not afford, but it cannot be a reason affecting an award of costs against an unsuccessful party.

15. There will accordingly be an order that the plaintiff pay the costs of the defendant to be taxed.