FOREMOST HILL LTD v. LI HON BANK OF CHINA (HONG KONG) LTD

HCA 2555/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2555 OF 2013

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J U D G M E N T

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INTRODUCTION

1.  The plaintiff commenced this action in December 2013, claiming in effect that it has acquired title to the subject area (as defined in para 3 below).  The claim is denied by the 2^nd defendant (“D2”), which counterclaims against the plaintiff in trespass over the subject area.

BACKGROUND

2.  The plaintiff is the registered owner of a shop (known as Shop 4) in a building located in Shamshuipo (respectively “the plaintiff’s shop” and “the subject building”).  D2, which is a licensed bank, became the mortgagee bank of another shop (known as Shop 6) (“D1’s shop”) effectively since January 1981.  The said two shops are next to each other.  When looked at from above, their relative positions form a shape resembling the letter “L”.

3.  Sometime earlier (before January 1981 according to the plaintiff), the rear portion of D1’s shop was somehow “severed”; the partition wall dividing the two shops was somehow “moved” and part of the rear of D1’s shop was physically included as part of the rear of the plaintiff’s shop (the plaintiff became its owner since January 1997 (but a Mr Lun (see para 5(1) below) and other occupiers were related to the plaintiff)).  That portion will be called “the subject area” below (see also para 1 above).

MAIN ISSUES

4.  The issues raised by D2 can be broadly categorized as:

(a) factual: the plaintiff has not been able to adduce cogent evidence to overcome the heavy burden placed upon it to establish continuous adverse possession of the subject area;

(b) legal: because ownership in a building is in the nature of co-ownership, the plaintiff has not been able to establish the act of ouster to ground a claim in adverse possession against D1 (and therefore against D2);

(c) in any event, the defendants are entitled to rely on the deed of mutual covenant of the subject building (“the deed of mutual covenant”) to compel the plaintiff to deliver up the vacant possession of the subject area.

5.  The following witnesses testified at trial:

(1) Mr Lun, the plaintiff’s shareholder and director (“Lun”);

(2) Mr Tam, the plaintiff’s shareholder and director (“Tam”);

(3) Mr Lee, the plaintiff’s staff (“Lee”);

(4) Madam Ngai, Tam’s sister-in-law (that is, the wife of Tam’s elder brother) (“Mdm Ngai”);

(5) Mr Siu, the plaintiff’s staff (“Siu”);

(6) Mr Liu, D2’s head of the assets recovery monitoring department (“Liu”).

(a)  Factual issue

6.  D2’s main criticism is the plaintiff’s pleaded case is different from the testimony given:

(1) the plaintiff’s pleaded case is essentially that, from June 1990 to January 1997, the plaintiff’s predecessor-in-title granted a licence for Lun to use the plaintiff’s shop and the subject area; when the plaintiff became the owner in January 1997, a licence was granted to Lun and Tam for both to share the use of the plaintiff’s shop and the subject area for their respective business;

(2) the plaintiff’s witnesses testified differently.  Lun and Tam said they began to share the subject area (together with other areas) since 1990 for business use;

(3) further, a plan referred to by the plaintiff’s witnesses shows that the subject area was connected to the plaintiff’s shop and the shop next to it (“Shop 3”) (also used by Lun and Tam);

(4) from 1990 to at least 1995, the plaintiff’s shop and the subject area were used by Lun’s business and an operator of a car business;

(5) Tam said he was the tenant of Shop 3 from May 1990 to around 1997 (part of the shop from May 1990 to 1994 and the whole shop from 1994 to around 1997).

7.  Based on the above, D2 submits that:

(a) Lun never has exclusive possession of the plaintiff’s shop from April 1990 to January 1997, as pleaded;

(b) the plaintiff’s shop and Shop 3 were owned by different owners but there is no evidence the owners jointly possessed the subject area;

(c) the subject area could be used by whoever was/were occupying the plaintiff or Shop 3 without obtaining permission from the other occupier(s);

(d) hence, neither Lun nor Tam ever has exclusive possession of the subject area.

D2 invites the court to place weight and rely on the plans attached to the assignment documents of both the plaintiff’s shop and D1’s shop, contending that they were prepared by qualified professionals.  The boundaries of D1’s shop were properly delineated in those documents.

8.  D2 also argues that, because Lun was the vendor referred to in the assignment of the plaintiff’s shop in 1990, Lun should be taken to have represented that the attached plan was accurate.  The same point is made against Lun and Tam when they signed the assignment in 1997 for the plaintiff.

9.  With respect, for the reasons set out below, I disagree with D2 (especially with regard to para 7(a) above).

10.  First, as the plaintiff correctly points out, its case is supported by documentary evidence:

(1) demands for rents and rates dating back to 1993 issued to Lun regarding the plaintiff’s shop and the subject area (“the said demands”);

(2) that the said demands in fact included the plaintiff’s shop and the subject area is clearly shown by a letter from the Rating and Valuation Department dated 15 December 2015.  Among other things, it said: “上述物業雖然由不同業主擁有﹐但佔用人將該等地段合併為一個物業單位使用﹐而地段間並無明確分界﹐故仍為一個單一物業 ...”.

The plaintiff also relies on part of D1’s shop (its front portion) having earlier been used as a transformer room as a possible explanation for the subject area being included as part of the plaintiff’s shop. This is however too speculative for any evidential weight to be properly placed.

11.  I also reject D2’s contention that the said demands were issued without knowledge of the actual physical condition at the plaintiff’s shop (including the subject area).  The letter 15 December 2015 shows that this should not be the case; the issuing department was quite clear about how the plaintiff’s shop was partitioned.

12.  Secondly, the differences pointed out in para 6 above are relatively trivial and must have been caused by inaccuracies or mistakes in recollection due to the long time lapse between the narrated matters and the trial.  Briefly, the differences pertain to:

(a) precisely when the occupation of the subject area began;

(b) the identity of the occupants of the subject area;

(c) the precise businesses operated by the occupants;

(d) whether there was at one stage a partition between the subject area and the other areas of the occupied space (be that the plaintiff’s shop or Shop 3).

These inaccuracies or mistakes over details do not impact significantly on the plaintiff witnesses’ reliability or credibility regarding the approximate length of occupation of the subject area.

13.  As regards para 7(b) to (c) above, I disagree with D2’s submission that the subject area was occupied at different times by different individuals without reference to each other, or without the permission or consent of the others.  Because of the relationship of the occupants (Lun and Tam were long acquaintances, and there were similar members for the shareholding and directorship of the various corporate owners), the proper inference is that their occupation of the subject area was with the permission or consent of the other occupants.  There is no basis for suggesting, for example, that other (or complete) strangers would be able to gain access to the subject area during those periods.

14.  In the premises, in disagreement with para 7(d) above, I find that Lun and Tam have at various time had exclusive possession of the subject area; during different periods from at least 1990, they have done so (i) on their own, or (ii) jointly with the others, or (iii) continuously by taking over from the others.  This applies a fortiori to their exclusion of the “paper” owner(s) of the subject area from the subject area, including D1.

15.  It is not common Hong Kong conveyancing practice for real properties to be professionally surveyed for the purpose of sale and purchase.  There is no evidence (or indeed any proper basis) for concluding that a different practice has been adopted in relation to the plaintiff’s shop and D1’s shop.  For this reason, I find that the plans attached to the related assignments to be more for identification purposes, than as evidence for concluding that they necessarily reflect the actual (or on-site) boundaries of the properties concerned (see para 7 above).

16.  Similarly, it is not common Hong Kong conveyancing practice for vendors or purchasers to physically check the said plans against the related properties.  Likewise, there is no proper basis for suggesting otherwise in the case of the plaintiff, Lun or Tam.  In the absence of actual knowledge of what the said plans show, the argument that Lun, Tam or the plaintiff has made any representation (or bound by some kind of estoppel) is unfounded (see para 8 above).

17.  Understandably, Liu has no personal knowledge of the actual events which took place at the subject building during the material time period.  No weight will be placed on his testimony in this regard.

18.  I will therefore make findings of fact in the plaintiff’s favour (see para 13 and 14 above).

(b)  Legal issue

19.  D2’s main argument is based on the trite legal proposition that, in order for a tenant-in-common to establish adverse possession against another tenant-in-common, there must be an act of ouster by the former against the latter.  D2 argues that there has not been sufficient ouster in this action (“the co-ownership argument”).

20.  Further, D2 relies on the parts of the deed mutual covenant conferring on each co-owner the right to the exclusive use, occupation and enjoyment of his own unit(s) (“the DMC argument”).

21.  In relation to the co-ownership argument, D2 argues that there is no evidence that the incorporated owners of the subject building, and the other co-owners, have all been ousted by the plaintiff. 

22.  This argument has no merit.  The subject area was originally part of D1’s shop (and never formed part of the common parts of the subject building).  Neither the deed of mutual covenant nor the general law has conferred any title to the incorporated owners over the subject area. There is no suggestion the incorporated owners have asserted any exclusive rights over the subject area.  The same observations apply to the other co-owners of the subject building (except the defendants).

23.  As regards D1/D2, the subject area has been separated from D1’s shop by a concrete wall, and (as observed in the letter dated 15 December 2015) has formed part of the plaintiff’s shop.  The plaintiff’s shop has been used by Lun, Tam (and their associates) in such state.  The defendants have not asserted their title or other rights over the subject area until after this action has commenced.

24.  D2’s (ancillary) point that the subject area was not “an exclusive unit” is likewise unsound for the reasons given above.  D2 has not clarified the meaning of “an exclusive unit”.  Presumably, it refers to a unit in the subject building as constructed by the developer.  If such a unit can be adversely possessed as a matter of law, there is no valid reason, whether as a matter of logic or principle, why part(s) of such a unit cannot be adversely possessed, provided the part(s) so possessed is/are sufficiently well defined and the act of ouster is adequately demonstrated.

25.  The DMC argument raises the point of whether, realistically, there can ever be adverse possession among the co-owners of a multi-storey building.  The parties have not referred to any judicial decisions directly on the point.  The decision which involves a claim grounded on the enforcement of a deed of mutual covenant is Incorporated Owners of Man Hong Apartments v Kwong Yuk Ching and Others [2001] 3 HKC 116.

26.  It is probably better to approach this dispute starting from basic premise.  A deed for mutual covenant can normally be enforced:

(1) at common law, by way of contract;

(2) in equity.

27.  The time limitation period prescribed by the Limitation Ordinance (Cap 347) for the recovery of land is governed by s 7(2) (a period of 12 years) while that for an action founded on contract or tort is governed by s 4(1)(a) (a period of 6 years).

28.  Subject to D2’s co-ownership argument (and the alleged insufficient evidence of an act of ouster) (para 19 above), the time prescribed by ss 4(1)(a) and 7(2), Cap 347 have expired when this action was commenced.

29.  D2 relies on a number of judicial decisions in support of its argument that it can rely on the deed of mutual covenant to resist the plaintiff’s claim.

30.  Insofar as that argument rests on contract, it fails because of s 4(1)(a), Cap 347.

31.  Insofar as that argument rests on an enforcement of the relevant covenants in the deed of mutual covenant, it should be analyzed as follows.  Many of the provisions usually found in a deed of mutual covenant are in the nature of covenants “running with the land”.  As such, they are normally equitable rights (also provided for in s 41(2), Conveyancing and Property Ordinance (Cap 219)): the Man Hong Apartments decision, pp 122 and 123-4.

32.  While a claim for equitable relief is not barred by Cap 347 (s 4(7)), such a claim is subject to the equitable doctrine of laches.  Thus, in the Man Hong Apartments decision, it was observed:

“...‘What machinery is there in [the UK equivalent of Cap 347] affecting the right of a covenantee who has the benefit of a restrictive covenant? Nothing in the Act has been pointed out to us which touches that right at all. In fact, unless and until the right of the covenantee has been in some way infringed, so that it becomes necessary for him to enforce that right, there is no reason, either in principle or in fairness, why his right should be in any way affected. ... ’ ” (p 123, quoting from Re Nisbet and Potts’ Contract [1906] Ch D 386 and 404).

The court then continued in the Man Hong Apartments decision:

“What next needs to be considered are the pinciples applicable to a claim made in equity. These principles are helpfully set out in Snell’s Equity ...:

‘Now the doctrine of laches in courts of equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases lapse of time and delay are must material. Laches essentially consists of a substantial lapse of time coupled with the existence of circumstances which make it inequitable to enforce the claim.’ ” (p 124, quoting from Snell’s Equity).

33.  The Man Hong Apartments decision was not a claim between co-owners.  It concerned one co-owner encroaching upon a portion of the passageway near to a shop in a multi-storey building.  The incorporated owners relied on the terms of the deed of mutual covenant to seek an injunction to stop the encroachment.  It was in such context the court found that the incorporated owners’ claim had not been time-barred.

34.  Re Nisbet and Potts’ Contract (referred to in the Man Hong Apartments decision) involved a restrictive covenant prohibiting the erection of buildings.  After observing that the right was an equitable right (p 402), the court decided that a squatter, who was not a purchaser for value without notice, should take the land subject to the covenant (p 404). The question of delay did not arise because there has not been any breach (or threat of breach) until the defendant there acquired title of the land with the intention to build on it.

35.  The defendants were in a good position to find out, if they had wanted to, the correct boundaries of D1’s shop (and the plaintiff’s shop) because of the plans attached to the assignments which were referred to in this action (para 7 above).

36.  Further, because the subject building has been resumed by the Urban Renewal Authority (“the URA”) for redevelopment purpose, the parties’ real interest lies practically with the amount of compensation payable for the ownership of their respective shops.  Any prejudice which either party may suffer is monetary in nature.  Because of the failure to take timeous action (para 35 above), D2’s prejudice is very much a misfortune of its own (or D1’s) creation.

37.  Insofar as it may be necessary to do so (see para 1, 20, 23, 27 and 35 above), I also agree with the plaintiff that, in any event, D2’s defence and counterclaim is in truth in the nature of an action to recover land (where s 7(2), Cap 347 is engaged).

38.  Finally, D2 complains that the plaintiff has failed to adduce clear evidence regarding the measurements, position and extent of the subject area.  Relying on the decision in The Port of London Authority v Tower Bridge Yacht and Boat Co Ltd [2013] EWHC 3084 (Ch), para 273-4, D2 submits that relief should be refused for this reason.

39.  The Port of London Authority decision concerned properties which have allegedly been used as “ancient moorings” (moorings which have been used since before 1857).  The moorings were said to be either fixing mechanisms rooted in the riverbed (of the Thames), or rings fixed to a wall on the riverbank.  In such factual context, one can readily understand why the court described the title claimed as:

“... limitation title to very small defined areas. Yet [the claimant] has not proved where those areas are, with sufficient clarity for these purposes ... The root may be stones of various shapes; or a concrete block; or an engine block; or an oddly shaped piece of wood; or something which has decayed over time so that it now has a different shape.” (para 273)

The court also referred to Thomas W Ward Ltd v Alexander Bruce (Grays) Ltd [1959] 2 Ll Rep 472, 478 where the property claimed was:

“... [an] area [which] has extended and may, by the action of the tide, or, indeed, of the [claimant’s], be curtailed, and it seems to us that there is no room here for this claim ...” (para 274)

Based on the above, the court in Port of London Authority refused the declaratory relief sought on the procedural ground that the claimant could not point out the property allegedly adversely possessed.

40.  Nothing in this action resembles the descriptions quoted above.  The subject area has been well defined (or was capable of being well defined).  It is by no means “very small defined areas” (as that phrase was used in the Port of London Authority decision).

41.  Further, the parties disclosed at the pre-trial review hearing that proceeding for assessing the compensations payable by the URA is still pending in the Lands Tribunal.  It is conceivable that any dispute regarding the exact size of the subject area (and therefore the amount of related compensation payable) will be looked into there.

42.  There is therefore no substance in D2’s submissions regarding the alleged imprecision.

CONCLUSION

43.  Judgment is entered in the plaintiff’s favour as claimed.  D2’s counterclaim is dismissed (if it were necessary to do so, I would have agreed with the plaintiff and refused D2’s application in effect for a “split trial”).

OTHER MATTERS

44.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS ORDER

45.  The parties agree that costs of this action should follow the event.  There will accordingly be a costs order that the costs of this action are to be paid by the defendants to the plaintiff, to be taxed if not agreed.