THE INCORPORATED OWNERS OF THE LORNA VILLA v. CHAN YAN WAH AND ANOTHER

HCA 9695/1993

Headnote

Conveyancing - Reservation of right to exclusive possession - Approaches to construction - Inability to transfer right to exclusive possession - Trespass over common area - Proprietary estoppel requirements not met - Relief - Demolition posing risk to stability of illegal structures on upper floors - Conditional Order.

HCA 9695/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9695 OF 1993

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J U D G M E N T

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1. The Defendants jointly own Flat D on the Ground Floor of a block of flats known as The Lorna Villa, on Argyle Street in Kowloon. The Lorna Villa is a 12 storey building with 4 flats to a floor, known as Flats A, B, C and D respectively. It also has a basement which houses car parking spaces and, on the ground floor, it has, among other facilities, a swimming pool. By virtue of sections 18(1)(c) and 18(2)(g) of the Building Management Ordinance (Cap. 344), the Plaintiff corporation brings the present Action on behalf of the registered owners of that building, other than the Defendants.

A. The Plaintiff's case

2. The Plaintiff complains that the area occupied by the Defendants' flat has been extended so as to enclose two separate portions of the common area, wrongfully excluding all the other co-owners from its use. The first such portion is enclosed by solid external walls and a solid roof covering an area of about 13 square metres. Internally, it has been partitioned into a kitchen, a utility room and a storage room. The structure so erected was referred to at the trial as "Structure A". The second such portion, extending over some 64 square metres, has been enclosed by walls projecting from the original external walls of the Flat to one of the Lot's boundary walls. Part of the area so enclosed has been roofed over and divided from the rest of the enclosure by a sliding gate. The area not roofed over has been turned into what was described at the trial as a private garden. The structure erected over this area was referred to at the trial as "Structure B". I shall refer to the areas now occupied by Structure A and Structure B together as "the disputed areas".

3. The Plaintiff complains that ouster by the Defendants of their co-owners from the disputed areas constitutes a trespass on the land commonly owned. Moreover, the conduct of the Defendants and their predecessor-in-title, one Madam Au Yeung Yuk Chun, in erecting the said structures and in excluding other co-owners from those common parts, is said to constitute breaches of the relevant Deed of Mutual Covenant.

4. The said structures are also alleged to involve building works unauthorized by plans approved by the Building Authority and thus to constitute illegal structures erected in breach of the Buildings Ordinance. Furthermore, the structures are said to take the site coverage beyond the limits laid down by the Government Conditions of Sale for the Lot, constituting a breach of those Conditions and entitling the Government to re-enter.

5. The Plaintiff seeks a declaration that the disputed areas are indeed part of the common area and an order permitting it to cause the structures thereon to be demolished or, alternatively, a mandatory injunction requiring the Defendant to demolish the same.

B. The Defendants' case

6. The Defendants claim to be entitled to exclusive possession of the disputed areas, contending that they validly acquired such rights when the land was assigned to them by Au Yeung Yuk Chun.

7. Alternatively, if the disputed areas are found to be part of the common areas, the Defendants contend that the Plaintiff is estopped as a matter of proprietary estoppel from complaining about their occupation of such areas. In the pleadings and in the evidence led, the Defendants had originally advanced a wider case, relying also on the doctrines of waiver, acquiescence and promissory estoppel. However, in final submissions, Mr. Kenneth C.L. Chan, appearing for the Defendants, confined this aspect of their case to one of proprietary estoppel.

8. The Defendants also seek to resist the remedy of a mandatory injunction, at least, in the unqualified form originally sought by the Plaintiff. They point to the fact that co-owners of Block "D" Flats on the floors above the Defendants' flat have erected unauthorized structures above and similar to Structure A. This, they contend, makes it impossible to order demolition of Structure A without also requiring demolition of the unauthorized structures on the upper floors. As I mention below, this is an issue which has to some extent been overtaken by the indications given by the Plaintiff as to their willingness to demolish the other illegal structures.

C. Rights to exclusive possession of the disputed areas

9. The first issue which I have to determine is whether the Defendants ever validly acquired the right to exclusive possession of the disputed areas.

(i) The first assignment

10. The developer of the Lot was a Mr Peter Leung. On 1st December 1973, he executed an assignment of the first unit as Vendor (with Mai Lok Enterprises Limited acting as confirmor) to one Hui Ming as Purchaser.

11. By this first assignment, Peter Leung conveyed to Hui Ming 11/528th parts or shares of and in Kowloon Inland Lot No. 9850, with exclusive possession of Flat A on the 9th Floor and Car Parking Space No. 20, as shown coloured pink on the accompanying plan. The exceptions and reservations clause provided as follows:-

"Excepting and Reserving unto the Vendor and the other owner or owners for the time being of other undivided parts or shares of and in the said premises hereby assigned the exclusive right to hold use occupy and enjoy the remaining flats and car parking spaces of the said Building and the roof thereof ......."

12. Peter Leung therefore reserved to himself and other owners exclusive possession of three areas, namely, the flats other than that being assigned to Hui Ming, the other car parking spaces and the building's roof. The clause says nothing about reserving or excepting any part of the open spaces on the ground floor of the Lot.

13. The parties also executed the Deed of Mutual Covenant on the same date. By Clause 1, the parties effected a mutual grant in the following terms:-

"Each of the parties hereto for himself and his executors administrators and assigns hereby grants unto each of the other parties hereto his or their respective executors administrators and assigns full right and privilege to the exclusive use occupation and enjoyment and the rents and profits of the part of the said building and the said premises set out in the Second Column of the First Schedule hereto opposite to the respective names of the Grantees as set out in the First Column of the said First Schedule to the Intent that each of the parties hereto shall be entitled to the exclusive use occupation and enjoyment and the rents and profits of the part of the said building and the said premises so set out opposite to his name as aforesaid."

14. In the First Schedule, Hui Ming's name appears in Column 1 and opposite his name, in Column 2, are the words: "Flat A on the 9th floor and car parking space No. 20 (11/528th shares)". Then, underneath Hui Ming's name in Column 1, Peter Leung's name appears, opposite which, in Column 2, are the following words:-

"Flats A, B, C, and D on the Ground to twelfth floors (save and except Flat A on the 9th floor) 47 flats (10 shares each) 470/528th shares

Car Parking Spaces 1-48 ( both inclusive)(save and except Car Parking Space No. 20) 47 Car Parking Spaces (1 share each) 47/528th shares."

15. The DMC goes on to provide, by Clause 3(b), that :-

"Each owner shall hold his part of the said building and the said premises subject to and with the benefit of the following rights privileges and obligations namely .......

Full right and liberty to use the open yards grounds and swimming pool of the said premises (except any part thereof allotted to any owner) for the purpose of recreation only."

16. By Clause 4(k)(iii), the Manager (the Incorporated Owners not having been formed at the date of the Deed of Mutual Covenant) is given power, among other things:-

"to remove any structure or installation in the said building which is illegal or contravenes the terms of this deed and to demand and receive from the owner by whom such structure or installation was erected or installed the costs and expenses of such removal."

17. By Clause 4(p)(i), the DMC provides that :-

"The common parts services and facilities referred to in this deed shall include the following:-

(i) The lavatories entrances yards staircases landings and passages which are not included in any part of the building exclusively owned by one owner or several co-owners as specified in the First Schedule hereto."

18. By Clause 10 of the DMC, so far as material, each party to the Deed covenants with the others as follows:-

"(j) Not to place anything in or to occupy to the exclusion of the other owners of the said building or any part of the said building intended for common use and not to use such parts of the said building otherwise than for access to and from his flat.

(n) Not to erect or put up any temporary or permanent structure or object outside his flat."

19. Although Mr Chan has sought to argue to the contrary (as further discussed later), in my view the effect of the abovementioned provisions was that, when Peter Leung executed the first assignment and the DMC on 1 December 1973, the only parts of the development expressly reserved for his exclusive use were the other flats, the other car parking spaces and the roof. Moreover, the ground floor open spaces, which I construe to fall within the expression "open yards" in Clause 3(b) and the word "yard" in Clause 4(p)(i) of the DMC, appear to have been allocated as part of the common areas available for use by all co-owners.

(ii) The assignment by Peter Leung to his wife

20. About a year after the first assignment, Peter Leung executed an assignment dated 21 November 1974, assigning to his wife, Madam Au Yeung Yuk Chun, 11/528th undivided parts or shares of and in KIL No. 9850:-

"Together with the exclusive right and privilege to hold use occupy and enjoy to the exclusion of the Vendor and the other owner or owners for the time being of other flats of the said building First All That Flat D on the Ground Floor of the said Building which said flat is shown on the said plan and thereon coloured Pink Secondly All Those Car Parking Spaces Nos. No. 1 [sic] on Basement, 48A, 48B, 48C, 48D, 48E, 48F, 48G, 48H, 48I, 48J, 48K, 48L, 48M, 48N and 48O on Ground Floor and Thirdly All Those Open Spaces and Open Spaces under Staircases of the said building which said open spaces and open spaces under staircases are more particularly delineated on Basement Plan and Ground Floor Plan annexed hereto and thereon coloured Pink ......."

21. Such assignment was expressed to be subject to and with the benefit of the DMC dated 1 December 1973.

22. What Peter Leung therefore purported to do was to assign to his wife not only the right to exclusive use of Flat D on the Ground Floor, but also exclusive possession of the disputed areas. That he also purported to assign to her exclusive possession of car parking spaces on the Ground Floor and spaces in the Basement gave rise to a controversy forming part of the background against which the Defendants have sought to develop their case on estoppel. Otherwise, the effect of his purported assignment of the other car parking spaces and the basement areas does not arise for consideration in the present Judgment.

(iii) The assignment by Au Yeung Yuk Chun to the Defendants

23. Au Yeung Yuk Chun is the Defendants' immediate predecessor-in-title. By an Assignment dated 28 August 1986, she conveyed as Vendor to the Defendants as Purchasers, 10 equal undivided 10/528th parts or shares of and in Kowloon Inland Lot No. 9850 and :-

"The exclusive right to hold use occupy and enjoy All That Flat D on the Ground Floor of Lorna Villa (which said flat is more particularly delineated on the Plan annexed hereto and thereon coloured Pink) including the open spaces as shown and coloured Green on the said Plan."

24. Once again, that Assignment was expressed to be subject to and with the benefit of the DMC.

25. The "open spaces" shown coloured Green on the Plan are the disputed areas. It follows that Au Yeung Yuk Chun purported to assign to the Defendants not only exclusive possession of Flat D on the Ground Floor, but also exclusive possession of those areas. However, unlike the assignment executed between Peter Leung and herself in 1974, the present assignment did not purport to confer rights over any purported ground floor car parking spaces or basement open spaces.

(iv) Did the Defendants acquire rights to exclusive possession of the disputed areas?

26. In my judgment, it is clear that Au Yeung Yuk Chun did not validly convey to the Defendants the right to exclusive possession over the disputed areas.

27. The Court of Appeal's decision in Leung Chiu Lam Paul & Anr v Poon Loi Cheung Desmond (Unreported) Civ App No 84 of 1998 (15 September 1998) is directly in point. The developer in that case had, on 1 February 1974, executed the 1st assignment of a unit in the development without allocating to himself any right of exclusive possession over a particular basement space either in the Assignment or in the Deed of Mutual Covenant executed on the same date. Subsequently, in executing the 2nd assignment some 6 weeks later, the developer purported to confer on the 2nd assignee, a right to exclusive use of that basement space. The issue before the Court of Appeal was whether the developer could validly do so, such issue having been raised in a vendor and purchaser summons in relation to a subsequent sale.

28. Godfrey JA (with whom Rogers JA and Nazareth VP agreed) stated as follows:-

"The right of the developer to dispose of this basement space must depend on a reservation by the developer of the right to do what he did, which was to grant the exclusive use of this basement space to the 2nd assignee. ....... If a vendor wishes to reserve something in his own favour, he has to do so expressly and clearly, otherwise his grant will be construed against him and he will not be held entitled to claim any such reservation. This is just such a case. There is nowhere near sufficient clarity about the alleged reservation to justify the conclusion that the developer succeeded in reserving this basement space to itself."

29. In consequence, the Court of Appeal held that the vendor had failed to answer the purchaser's objection to title. Having failed expressly and clearly to reserve exclusive possession of the basement space to himself when executing the 1st assignment and the deed of mutual covenant, the developer had been unable to pass a right of exclusive use to the 2nd assignee, who in turn, was unable to pass on such right to subsequent purchasers.

30. Applying this principle to the first assignment and the DMC in the present case, Peter Leung neither expressly nor clearly reserved to himself the right to exclusive possession of the disputed areas. Therefore, his purported assignment of such right to his wife was invalid and she in turn was incapable of validly conferring such right on the Defendants.

31. Mr. Chan's contrary argument involves construing the Deed of Mutual Covenant in the present case as having successfully reserved the right to exclusive possession over the disputed areas in favour of Peter Leung. The argument is based on Clause 3(b), which I have already set out above. Mr. Chan contends that such Clause should be read as an exceptions and reservations clause reserving to the developer the right in future (that is, subsequent to the date when the 1st assignment and the DMC were signed) to allot parts of the open spaces on the ground floor for the exclusive use of later assignees.

32. In other words, he argues that when, by Clause 3(b), the developer conferred on each owner:-

"Full right and liberty to use the open yards grounds and swimming pool of the said premises (except any part thereof allotted to any owner) for the purpose of recreation only"

33. What the parties intended by the words in brackets was that such "right and liberty" should be subject to and defeasible by the developer later allotting exclusive use of any part of the "open yards grounds and swimming pool" to subsequent assignees. This, Mr. Chan argues, was what Peter Leung's assignment to his wife Au Yeung Yuk Chun achieved when he subsequently allotted to her exclusive use of the disputed areas. In support of his argument, Mr. Chan sought to rely on the Court of Appeal's decision in Jumbo King Ltd. v. Faithful Properties Ltd. & Others [1999] 2 HKC 507.

34. In my judgment, such a construction is quite unacceptable.

35. If Mr. Chan's construction is correct, it must mean that when executing the 1st assignment and the DMC, the developer intended to retain the whole of "the open yards grounds and swimming pool of the said premises" to his own exclusive possession. Only then could he validly thereafter, from time to time, transfer to subsequent assignees rights to exclusive possession over portions of such areas then designated by him.

36. To my mind, this is an argument that runs entirely counter to the wording of Clause 3(b). Such wording is designed to effect a grant to each owner of rights and privileges over common areas and not to reserve to the developer a power to exclude them from enjoying such rights and privileges. When Clause 3 begins with the words: "Each owner shall hold his part of the said building and the said premises subject to and with the benefit of the following rights privileges and obligations", it indicates that the rights and privileges so conferred (and also any obligations imposed) are to be enjoyed or observed as rights and obligations incidental to and concurrent with each owner's tenure of his property rights. It is not a clause which aims to give them only a temporary licence to use "the open yards grounds and swimming pool", subject to exclusion by the developer. This is reinforced by the fact that the clause expressly gives to each owner "Full right and liberty" to use the areas and facilities in question, and not some transient licence to do so at the developer's pleasure.

37. In my view, the words in the brackets "(except any part thereof allotted to any owner)" refer to those parts allotted for exclusive possession as at the date of the 1st assignment and the DMC, and do not confer a power to make subsequent allocations.

38. If a reservation to deal in futuro with the ground floor open spaces was intended, one would expect to find this provided for in the clauses which expressly deal with exceptions and reservations. As I have already mentioned, no such reservation is to be found in the relevant clause in the Assignment. Nor are the open spaces mentioned in the DMC's Schedule, as set out above.

(v) The Jumbo King decision

39. It is my view that the Court of Appeal's decision in Jumbo King Ltd. v. Faithful Properties Ltd. & Others [1999] 2 HKC 507 does not come to the Defendants' rescue.

40. In that case, the Court was concerned with a building described in a schedule to the applicable deed of mutual covenant as consisting of "two separate self-contained parts". The lower floors were for non-domestic use and the upper floors (extending from the 5th to 16th floors) were for domestic use.

41. The first assignment executed during 1968 by the developer was in respect of one of the domestic units on the 6th floor. By the DMC executed at the same time, the developer reserved to himself (by way of mutual grant executed with the 1st assignee) exclusive use occupation and enjoyment of, inter alia, "offices" on the various non-domestic floors. Such reservation did not expressly mention any utility rooms.

42. It appears that the developer initially retained ownership of the non-domestic portions. However, in 1981, he decided to sell those parts of the building and, after sub-dividing the equal undivided shares representing property in such non-domestic floors (referred to as "the Commercial Portion"), he assigned to a purchaser 7399 equal undivided 720,000th parts or shares in the land together with rights to exclusive possession over defined areas in the Commercial Portion. At the same time, the parties executed a sub-deed of mutual covenant. Clauses in that sub-deed provided that the developer was entitled to exclusive use occupation and enjoyment, inter alia, over "the entirety of the first, second, third and fourth floors of the Commercial Portion including all shops and office units therein". Such areas included the utility rooms which were material to the Court of Appeal's decision.

43. The question which arose, in connection with contracts for sale entered into in 1997, was whether the developer validly possessed the right to exclusive use of areas including the relevant utility rooms as claimed in the sub-deed, or whether, on the contrary, he had failed to reserve such rights to himself in 1968 so that he could not subsequently claim or confer such rights in later assignments. The purchasers had refused completion, because, among other reasons, they considered the vendors unable to give exclusive possession of the utility rooms as contracted, since such rooms, not being "offices" reserved to the developer's exclusive possession, had become part of the common area.

44. The Court of Appeal unanimously held that, on the true construction of the original DMC, the developer had retained rights to exclusive possession of the utility rooms so that he had validly transferred them to purchasers subject to the provisions of the sub-deed made in 1981.

45. In my view, there is detectable in the judgment of Godfrey JA, a certain change of approach to reservations of exclusive use, when compared with his judgment in Leung Chiu Lam Paul & Anr v Poon Loi Cheung Desmond (supra). In the Jumbo King case, Godfrey JA (at p. 522) stated as follows:-

"(The vendors) do not seek to show a title to the exclusive use of the utility rooms, etc, divorced from their interests in their undivided shares. They seek to show that the right to such exclusive use is one which the developer was entitled to and did grant as an incident to the grant of those interests.

They cannot do this unless the developer himself is to be treated as having been entitled to exclusive use of the utility rooms, etc. The developer cannot be so treated if he has granted the exclusive use of the utility rooms, etc to others; nor if he has designated the utility rooms, etc as 'common areas' (in which case all the owners of all the undivided shares, or at any rate of the undivided shares in the commercial portion are entitled to the non-exclusive use of such areas). But the developer can be treated as entitled to the exclusive use of the utility rooms, etc if the relevant assignments and deeds of mutual covenant are to be read as granting to the developer, himself retaining undivided shares, rights, incident to his ownership of those shares, for the exclusive use of the utility rooms, etc to the exclusion of the other owners of undivided shares. And if he can be so treated, he can, when disposing of his own shares, confer on the grantee under such a disposition, as an incident to that grant, the exclusive use of the utility rooms, etc to which he was himself entitled."

46. His Lordship went on to hold that the developer had been perfectly entitled to make a subsequent grant of exclusive use of the utility rooms. He stated (also at p. 522):-

"The utility rooms, etc were never designated as common areas and this is, in my judgment, the short and correct answer to this objection to the title ......."

47. Godfrey JA therefore held that the developer had successfully reserved to himself exclusive possession of the utility rooms in the original DMC. The apparent change of approach arises from the fact that, instead of placing on the developer the burden of showing an express and clear reservation of the right in the original DMC, his Lordship appears to have held that the developer had retained the right to exclusive use because he had not expressly designated the utility rooms, etc to be part of the common areas. This would appear to involve a reversal of the burden laid down in the Leung Chiu Lam Paul case.

48. The approach of Rogers JA (with whom Mortimer VP agreed) was slightly different. His Lordship held (at p. 525) that "utility rooms" were clearly outside the meaning of the word "offices" so that if one were confined to "the bare wording" of the mutual grant clause (and its Schedule) the developer could not be held to have retained rights to exclusive use of the utility rooms.

49. However, Rogers JA stressed that under the DMC the building had to be regarded as made up of two separate self-contained parts. He held that in providing that the first assignee should "hold his part of the said building" with the benefit of rights and privileges over the common area to be used "for all purposes connected with the proper use and enjoyment thereof", the DMC had primarily intended to deal only with such parties' mutual rights and obligations in relation to the domestic portion. He stated as follows (at pp. 526-7):-

"....... even if one were to assume that ....... the (1st purchaser) and signatory of the deed of mutual covenant, were to have the benefit of, for example, the liberty to pass and repass over all the passages in the building, that would be limited to proper use which in the context of the basement to fourth floors would be non-domestic use. Hence, the owner of a flat in the domestic part of the building, would have no right of access to any of the non-domestic floors except for legitimate non-domestic use. The basement to fourth floors consisted entirely of shops and offices and areas which were apparently ancillary thereto, as for example ....... utility rooms. Since (the developer) had under the deed of mutual covenant the right to the exclusive use occupation and enjoyment of the shops and offices on these floors, the only people who would have access to those shops and offices and the entrances, staircases ....... and so forth on those floors would be either (the developer) or any person having legitimate business in and, therefore, invitees to those places. Even if a utility room is not an office or part of an office, it seems to me that in the context in which it is used in the deed of mutual covenant, it is ancillary to the offices, or perhaps more accurately, the non-domestic floors of which the offices are the only relevant part. In effect, therefore, as between the parties to the deed of mutual covenant, (the developer) enjoyed the right to exclusive use and occupation of, amongst other things, the utility rooms on the second and third floors."

50. Accordingly, as a matter of construction, the absence, in the original DMC, of an express reservation over the relevant parts of the Commercial Portion did not lead to the conclusion that the developer had intended to allot the residue of the non-domestic areas as part of the common area. On the contrary, as I understand the decision, since the developer had, in the original DMC, reserved the right to exclusive use of the shops and offices in the Commercial Portion and had also restricted use of common areas to "proper purposes" construed as aforesaid, the DMC should be construed as impliedly reserving to the developer, exclusive use of the areas ancillary to such shops and offices, including the utility rooms.

51. It therefore appears that, like Godfrey JA, Rogers JA did not insist on the reservation of rights to exclusive use being made expressly as had been required by the Court of Appeal in the Leung Chiu Lam Paul case.

(vi) Conclusion regarding rights to exclusive use of the disputed areas

52. As I have stated above, notwithstanding the difference of approach discussed, the Jumbo King decision does not come to the Defendants' rescue. Without Jumbo King, the Defendants' argument fails at once since they are unable to point to any express and clear reservation of exclusive use of the disputed areas in the DMC or in the first assignment by Peter Leung.

53. Applying the less strict approach of Jumbo King, the Defendants may be allowed to advance a construction, relying on all the other provisions in the DMC and/or first assignment, aimed at establishing an implied reservation by Peter Leung of exclusive use of the disputed areas. Mr. Chan has advanced such a construction based, as I have said, on Clause 3(b) of the DMC. For the reasons I have given, I have rejected that argument as untenable and, as stated above, I consider that by Clauses 3(b) and Clause 4(p)(i) of the DMC, the spaces in question were allotted to common area.

54. Accordingly, adopting either approach, I have come to the conclusion that Peter Leung did not validly retain a right to exclusive use of the disputed areas, that Au Yeung Yuk Chun therefore did not acquire such a right from Peter Leung and so was in turn unable to pass any such right to the Defendants. The disputed areas therefore form part of the common area which all the co-owners of The Lorna Villa have a common right to use, incidental to their respective rights as owners of undivided shares in the land.

55. Since, by erecting Structure A and Structure B, the Defendants have excluded or ousted their co-owners from the land, the Defendants' conduct amounts to a trespass as against their co-owners, represented by the Plaintiff: see Clerk & Lindsell on Torts, 17th Ed., §17-23. Accordingly, subject to any equitable defences that the Defendants may have, the Plaintiff is prima facie entitled to an injunction to restrain the trespass (and in the present case, to injunctive relief aimed at removing the trespassing structures): see Patel v. Smith [1987] 1 WLR 853.

D. Breach of covenants in the Deed of Mutual Covenant

56. Given my finding that the disputed areas form part of the common area, it follows that the Defendants are in breach of both Clauses 10(j) and 10(n), set out above. As no separate relief or independent defence arises from this finding, it is unnecessary to dwell further on it.

E. Proprietary estoppel

(i) The principles

57. As Lord Templeman put it in A.-G. of Hong Kong v. Humphreys Estate (Queen's Gardens) Ltd. [1987] AC 114 at 121, the doctrine of proprietary estoppel is one whereby: "....... a litigant who is led to believe that he will be granted an interest in land and who acts to his detriment in that belief is enabled to obtain that interest."

58. The modern starting point is the decision in Ramsden v. Dyson (1866) L.R. 1 H.L. 129 in which Lord Kingsdown said, at p. 170:

"If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation, created or encouraged by the landlord, that he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without obligation by him, lays out money upon the land, a court of equity will compel the landlord to give effect to such promise or expectation."

59. Various formulations of the principle are to be found in the cases including Willmott v. Barber (1880) 15 Ch.D. 96, Inwards v. Baker [1965] 2 Q.B. 29, Holiday Inns Inc. v. Broadhead (1974) 232 E.G. 951, Crabb v. Arun District Council [1976] Ch. 179, Taylors Fashions Ltd. v. Liverpool Victoria Trustees Co. Ltd. (Note) [1982] Q.B. 133 and Habib Bank Ltd. v. Habib Bank A.G. Zurich [1981] 1 W.L.R. 1265.

60. Mr. Chan relied on the formulation of the ingredients for this estoppel taken from Willmott v. Barber (supra), as set out by Liu JA in Bestkey Development Ltd. v. Incorporated Owners of Fine Mansion [1999] 3 HKC 275 at 282 as follows:-

"The five ingredients of a proprietary estoppel were conveniently set out in Willmott v. Barber (supra) per Fry J. Firstly, the plaintiff must have made a mistake as to his legal rights; secondly, the plaintiff must have expended some money or must have done some act on the faith of his mistaken belief; thirdly, the defendant, the possessor of the legal right, must know of the existence of his own right which is inconsistent with the right claimed by the plaintiff; fourthly, the defendant, the possessor of the legal right, must know of the plaintiff's mistaken belief of his rights; fifthly, the defendant, the possessor of the legal right, must have encouraged the plaintiff in his expenditure of the money or in the acts which he has done, either directly or by abstaining from asserting his legal right."

61. The plaintiff referred to in the quotation is someone who has no rights in law but is seeking to establish equitable rights as a result of a proprietary estoppel. To apply that quotation in the present case, we must transpose the parties since in our case, the Defendants seek to raise a proprietary estoppel as a defence against the Plaintiff's claim to eject them from the disputed areas.

(ii) Findings on proprietary estoppel

62. In my judgment, on the evidence, the Defendants' reliance on this head of defence is quite hopeless.

63. For the reasons I shall shortly come to, I find that the Defendants were never mistaken as to their legal rights in relation to the exclusive use of the disputed areas. It follows that although they did expend money on decorating Structure A and Structure B, I find that they did not do so on the faith of any such mistaken belief. It also follows that the Plaintiff did not know of any such mistaken belief. I also find that far from encouraging the Defendants to spend any money on Structures A or B, the Plaintiff actively tried to dissuade them from doing so.

64. As the evidence is quite voluminous on these points, I shall confine myself to some of the more glaring parts of the evidence.

(iii) No mistake as to their legal rights

65. The 1st Defendant gave evidence. He has experience in the construction, decoration and estate agency businesses. He said that when he first viewed the property, he was much attracted to it but admitted that he realised that Structure A was an illegal structure. He also admitted that he was told by Au Yeung Yuk Chun and her secretary that there was then pending litigation between the Plaintiff and Au Yeung Yuk Chun. However, he denied knowledge that such litigation concerned any claims by the Incorporated Owners that the disputed areas were part of the common area. He said that, so far as he knew, as advised by his solicitors, the litigation concerned only Au Yeung Yuk Chun's asserted rights to car parking spaces on the Ground Floor.

66. I am unable to accept that the 1st Defendant's knowledge was so limited. The evidence shows that on 9 May 1986, he instructed Messrs. Ng & Shum to act for himself and his wife in the transaction. Messrs. Shea & Co were acting for Au Yeung Yuk Chun.

On 2nd June 1986, Ng & Shum wrote to Shea & Co as follows:-

"So far as the Deed Poll is concern [sic], we have no comment on it provided that it does not affect the open space intended to be assigned herein subject to paragraph 23 of the said agreement with our proposed amendment to the effect that our client do not claim any compensation of whatever nature from your client in case of any dispute with the Incorporated Owners but not give an undertaking to your client as mentioned. We are further instructed that you have written a letter to the Incorporated Owners of Lorna Villa concerning the open space hereby assigned and we should be obliged if you would let us know any result thereto."

67. This letter shows that before the Defendants acquired any rights to the disputed areas, their solicitors were well aware of the potential interest of the Incorporated Owners, not in any car parking spaces, but in "the open spaces" intended to be assigned. Those open spaces, as the heading to the letter indicates, can only have been the disputed areas.

68. The Defendants solicitors were obviously anxious to know what position the Incorporated Owners were taking on such open spaces. On 13 June 1986, they sent Shea & Co a chaser and were told on 17 June that the latter firm had not yet received any reply from the Incorporated Owners. A second chaser was sent on 10 July 1986 and on 15 July, Shea & Co replied saying that no reply had yet been received from the Incorporated Owners and asking to be informed within 5 days "whether your clients will still be interested in purchasing the above mentioned premises". On 18 July, Ng & Shum confirmed that their client was "still interested in purchasing the above premises."

69. Accordingly, while fully aware of the Incorporated Owners' interest in the open spaces to be acquired with Flat D and having no definitive information as to their stance, the Defendants were prepared to press on with the transaction notwithstanding.

70. The negotiations regarding the terms of the sale and purchase agreement are even more revealing of the lack of mistaken belief on the part of the Defendants.

71. There is no doubt that Au Yeung Yuk Chun knew that the Incorporated Owners' position was that she had no right to exclusive use of the disputed areas. In the litigation commenced against her in 1981, the Incorporated Owners amended their counterclaim in 1983 to include a claim for a declaration that such areas were part of the common area and for an order that she demolish the structures thereon.

72. Now that she was about to sell the premises to the Defendant, Au Yeung Yuk Chun plainly wanted some protection against the Incorporated Owners if the Defendants were to continue to exclude other co-owners from the disputed areas.

73. Accordingly, her solicitors, Shea & Co, inserted Clause 23 (referred to in the letter mentioned above) into the draft sale and purchase agreement in the following terms:-

"The Purchaser further agrees and undertakes that the Purchaser shall at any time whenever call upon by the Incorporated Owners of the said building surrender free of cost compensation or claims for damages whatsoever the said open spaces to the Incorporated Owners of the said building."

74. For Au Yeung Yuk Chun to have asked for such an undertaking from the Defendants can only have meant that she regarded her rights to the exclusive use of the open spaces as against the Incorporated Owners to be untenable or, at the very least, highly vulnerable or doubtful. I have no hesitation in finding that this was conveyed to the Defendants by Ng & Shum.

75. Thus, on 21 July 1986, Ng & Shum tried to water down Clause 23 by suggesting a qualification to the undertaking by the insertion of the words: "and subject to the title of the Purchaser to the said open spaces having been overreached by the said Incorporated Owners." Whatever that may have been intended to mean, Au Yeung Yuk Chun rejected the suggestion. Furthermore, on 30 July 1986, Shea & Co added another clause, Clause 24 stating:-

"The Purchaser shall at any time whenever call upon by an government department or authority demolish the partition wall at or upon the said space."

76. This shows that the Defendants, via their solicitors, were being told that the structures were unauthorized and subject to demolition orders from government authorities.

77. On 31 July 1986, Ng & Shum wrote to Shea & Co confirming "that our client has no objection to the re-amended Agreement for Sale and Purchase ......." The Defendants therefore agreed to the undertaking and so must have been well aware that they were not acquiring any firm or undisputed rights to the open spaces but that they were subject to demands by the Incorporated Owners for their surrender and by the Government for demolition of the structures thereon.

78. Au Yeung Yuk Chun was apparently so nervous about the Incorporated Owners' claims to the disputed areas that, contrary to what had been agreed, she attempted to insist on Clause 23 being duplicated in the legal assignment of the property. This elicited a letter of protest dated 29 August 1986 from the Defendants' solicitors. They stated:-

"With respect, the Assignment herein only effect the transfer of title of the captioned property ....... and does not nullify the Agreement for Sale and Purchase. Your client can still enforce the terms contained in the Agreement for Sale and Purchase on the part of our client's breach. ....... In the circumstances, you are not justified to insist on further amendment of the Assignment herein."

79. However, they added: -

"On a without prejudice basis, we are instructed that our client has no objection to your suggested further amendment of the said Assignment provided that your client do pay the re-approval and re-engrossment charges thereof and provided that the keys to the captioned property shall be handed over to our client as arranged."

80. There can therefore, in my view, be no doubt that prior to the Defendants purchasing the property in question, they were fully aware that the Incorporated Owners were contesting the rights of their predecessor-in-title to exclusive use of the disputed areas and that any rights they were acquiring to such areas were likely to be subject to the same challenge. I therefore find that the Defendants lacked any material mistaken belief as to their rights.

81. As I have stated above, it follows that any money they spent was not spent in reliance on any such mistake and that the Plaintiff obviously cannot be fixed with knowledge of a non-existent mistake.

(iv) No encouragement

82. The evidence shows that, on 9 October 1986, while the Defendants were engaged in decorating Flat D (with its unauthorized structures), the Plaintiff wrote to them as follows:-

"We have realised that the ownership of Block D/G of this building has been transferred. You are now the current owner of the said property, and renovation has been proceeded. We would like to express to you that the wall and part of the area occupied by Block D is regarded as the common property of the building as a whole. This has already led to a legal action between the Incorporated Owners of Lorna Villa and the ex-property owner Peter Leung Construction Company Ltd. and Madam Au Yeung Yuk Chun. The litigation has not yet finalised until now. In order to clarify your actual possession, it may be necessary for you to contact your solicitor so as to avoid any future problems in terms of legal questioning and renovation costing."

83. On 15 October 1986, the Plaintiff again wrote, stating, inter alia as follows:-

"Furthermore, in the light of your interest we wrote to you on 9.10.86 regarding to the problem of the illegal structuring left over by the previous owner, and now hope that you can face the problem before moving in by demolishing such parts of the building. At the same time, the Incorporated Owners shall write to our legal consultant Cheung, Tong & Rosa to open a file for the possible further legal action in the future when nothing else can be done to protect the interest of all other owners. Hopefully, as you said in your letter, we are under the same roof and should always try to avoid conflicts among us. Litigation will end up giving all of us a bad time. However if legal action is the only solution, the Incorporated Owners of Lorna Villa will stand firm and will insist to protect the interest of the owners as that is our responsibility."

84. These letters make it clear that, far from encouraging expenditure of money on the land, the Plaintiff was telling the Defendants that they should refrain from doing so and that they should demolish the structures or face litigation.

85. The 1st Defendant sought to suggest that despite this position being adopted at the outset, the Plaintiff in fact then changed its stance and, through its then Chairman, Mr. Leung Kwok Chu, promised the 1st Defendant that the Plaintiff would recognise and not interfere with Defendants' enjoyment of the disputed areas. I am unable to accept this suggestion.

86. Leung Kwok Chu was not called. Nor was a Mr. Lam Kam Chui, whose witness statement had been filed on the Defendants' behalf as a witness able to corroborate the 1st Defendant's story. As Mr. Y. C. Mok, who appeared for the Plaintiff, pointed out, this allegation of a promise by the Chairman is not mentioned at all in any of the contemporaneous documents, notwithstanding continued demands and threats of legal proceedings being made by the Incorporated Owners. I think it extremely improbable, if there had been any such promise, that the 1st Defendant would not have made prominent use of it in such communications.

87. Indeed, the contemporaneous record tends to contradict the 1st Defendant's story. Thus, the 1st Defendant alleges that this promise was given in about November 1996 and that thereafter, until years later, the Plaintiff's conduct was one of acquiescence in the Defendants' quiet enjoyment of the disputed areas. In fact, in the minutes of the Management Committee meeting held on 9 December 1986, chaired by Leung Kwok Chu, the first item under discussion was "the illegal alteration of the drain pipes and occupation of public areas by" the 1st Defendant. The meeting resolved to chase the solicitors firm of Cheung, Tong & Rosa, then advising the Plaintiff, for advice and to ask whether to the Plaintiff should seek an injunction "requiring Mr Chan [i.e., the 1st Defendant] to remove his part of the structures on the occupied public areas." This seems to me wholly inconsistent with the 1st Defendant's evidence and I reject his account.

88. It is true that the Incorporated Owners took a long time to commence proceedings. However, I do not accept that this was because they had come to accept the Defendants' entitlement to exclude the co-owners from the disputed areas. An owners' incorporation is likely to move slowly in such matters. The committee meets only periodically and is made up of persons having many other commitments. The views and financial commitment of the owners of 47 flats were required before action could be taken. As time passed, some owners were replaced by new purchasers and committee members were replaced by newly elected members. Eventually, in 1993, sufficient support was marshalled to launch the present Action. Throughout, the Defendants were well aware of the objections of the co-owners to their occupation of the disputed areas. I see nothing inequitable about permitting the Plaintiff to proceed.

F. The relief

89. The Plaintiff is therefore in principle entitled to relief by way of a declaration that the disputed areas constitute part of the common areas and that the Defendants' occupation thereof is a trespass on such common areas.

90. The Plaintiff is also entitled in principle to an order for demolition of both Structures A and B. However, the expert evidence adduced clearly indicates that implementation of any demolition orders, whether the work is to be done by the Defendants or by the Plaintiff, raises safety issues that must be addressed.

91. In particular, it is clear that illegal structures similar to Structure A have been constructed as cage-like extensions to flats in the D block above Structure A. Questions have arisen as to whether implementation of a demolition order directed against Structure A can be implemented safely or at all, without the illegal structures on the upper floors also being demolished.

92. The Plaintiff called Mr. Benson Wong Sai Ning, a Registered Professional Surveyor (BS) and the Defendants called Mr. Paul Kong Ming, a Registered Structural Engineer. After having issued independent reports, they conducted a joint inspection at the Court's suggestion to ascertain whether the offending Structure A on the Ground Floor could safely be demolished if such demolition was limited to demolishing Structure A together with an unauthorized structure on the 1st Floor, supported by Structure A. I was told that the owners of Flat D on the 1st Floor had consented to such demolition.

93. Mr. Wong expressed safety concerns of a general nature concerning the long-term stability of the illegal structures. This was mainly because the structures had been put up without structural calculations or other appropriate control procedures and so could not meet any demonstrable safety standards. However, based on his inspections, he expressed the view that the Ground and 1st Floor structures could be demolished without endangering the structures on the 2nd and higher floors. This was based on his conclusion that the upper structure did not transfer any loading onto the lower two structures, a view in turn based on the apparent lack of visible evidence of cracks or other signs of stress on the lower structures.

94. Mr. Kong expressed categorical views disagreeing with Mr. Wong's conclusion. Mr. Kong's opinion was that the 2nd Floor structure did indeed derive some of its support from the structures below and that if the Ground and 1st Floor structures were removed and nothing done to shore up the 2nd Floor structure, a collapse would occur within two years. Mr. Kong's advice is for demolition to take place involving all the unauthorized structures from the top down. He also expressed the opinion that the tower of unauthorized structures extending from the flats in Block B of the building is exhibiting signs of sagging or tilting, partly because these structures do not rest on any ground floor extension. He advises that these structures should also be demolished.

95. I accept that these are necessarily opinions which cannot be immediately demonstrated to be right or wrong. However, I find that the evidence undoubtedly establishes credible risks of potentially catastrophic collapses which any order for demolition must take into account.

96. Accordingly, I have decided that the Plaintiff is entitled as against the Defendants to an order for demolition of Structure B which does not involve any safety issue disclosed in the evidence.

97. The Plaintiff is also entitled to an order against the Defendants for the demolition of Structure A. However, I will make such order conditional:-

(1) on its implementation taking place as part of an overall demolition of all illegal structures extending out of flats in Block D of the building;

(2) on the demolition being undertaken under the professional supervision of a properly qualified structural engineer recognized as such by the Building Authority;

(3) on such demolition being undertaken subject to a method statement or plan prepared by such structural engineer, submitted to the Building Authority; and

(4) on the Building Authority giving its consent to the commencement of such demolition work.

98. Plainly, in practical terms, the demolition should take place as part of a properly formulated plan and as an overall exercise. Mr. Chan was good enough to indicate to me yesterday that his clients are prepared to have the illegal structures on the Ground Floor demolished in any event. He has today confirmed that they are willing to submit to implementation of the Order as part of an overall exercise along the lines of the conditional Order I have indicated.

99. As I appreciate that there may be a need for further directions, the parties are to have general liberty to apply in relation to implementation of the demolition order.

100. I will now hear counsel as to the detailed wording of the Orders to be made and as to costs.