THE INCORPORATED OWNERS OF MAN HONG APARTMENTS v. KWONG YUK CHING AND OTHERS

CACV 498/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 498 OF 2000

(ON APPEAL FROM DCCJ 22394 OF 1998)

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J U D G M E N T

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Hon Mayo VP:

1. This is an appeal by the plaintiff from a judgment of H. H. Judge Yung when he dismissed its action against the defendants.

2. The litigation has a somewhat chequered history. Proceedings were originally commenced in the District Court in 1994. It was dismissed on 10 August 1998 on the ground that the court did not have jurisdiction to hear the action. Deputy Judge Jenkins held that the proceedings should have been commenced in the Lands Tribunal.

3. The present action was commenced in the Lands Tribunal on 14 August 1998.

4. In the application the plaintiff who is the Incorporated Owners of Man Hong Apartments a building in Shaukiwan sought relief against the defendants in relation to an allegedly unauthorised structure and occupation on the common parts of the building adjacent to Shop 1 on the ground floor of the building (the suit portion). The claim was made pursuant to paragraph 3 of the 10th Schedule of the Building Management Ordinance, Cap. 344 ("BMO"). D3 is the registered owner of Shop 1, D1 and D2 are directors and shareholders of D3. D2 was previously a tenant of Shop 1. D1 is his wife.

5. The cause of action relied upon is the breach of the terms of the Deed of Mutual Covenant ("DMC") which the land is subject to and section 34I of the BMO which is couched in this form:

"34I. Common parts

(1) No person may -

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners' committee (if any);

(b) use or permit to be used the common parts of a building in such a manner as -

(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or

(ii) to cause a nuisance or hazard to any person lawfully in the building.

(2) Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building."

It is also pertinent to observe that section 34C of the BMO provides that the provisions contained in Part VIA of the BMO only apply to buildings in respect of which there is a DMC and that if there is any inconsistency between the provisions contained in the DMC and the BMO the terms of the latter shall prevail.

6. Mr Edward Chan SC for the plaintiff emphasised that his client was not seeking any right to possess the suit portion or any part of it.

7. The defendants defended the proceedings and filed a counterclaim against the plaintiff.

8. The thrust of the defence was that the defendants and their predecessor in title had been in adverse possession of the suit portion which was the narrow strip of land immediately adjoining the shop in the passageway and had erected a structure thereon which encroached upon the common area. It was contended that the plaintiff was time barred and had lost all rights to enforce any covenants under the DMC which the land is subject to. It was further pleaded that the plaintiff's title had been extinguished by virtue of section 17 of the Limitation Ordinance, Cap. 347.

9. In the counterclaim the defendants were seeking a declaration that the plaintiff had forfeited its rights to bring any action against the defendants and that D3 had acquired all rights and title to the exclusive physical occupation of the suit portion. D3 sought an order that it be registered as the owner of the land at the Land Registry.

10. As a consequence of the counterclaim being lodged the proceedings were transferred to the District Court. The defendants have since abandoned the claims they were making in the counterclaim.

11. When the case came on for hearing before the Judge I think that it is fair to state that the main issue which was ventilated was whether on the evidence which was before the court it enabled the Judge to be satisfied that the defendants had proved their adverse possession. He found that they had for the reasons he gave. It is pertinent to add that before us the parties are not now contesting the findings of fact made by the Judge.

12. At the conclusion of his judgment the Judge said:

"Conclusion

In the premises I find that the strip of corridor which the 3rd defendant has annexed to his shop has been encroached upon since the time of Chun Wah Store. The encroachment had been continuous for more than 20 years before the plaintiff brought the present action. The 3rd defendant and its predecessors by installing the metal gates had in effect the exclusive use and enjoyment of that part of the corridor so enclosed by the gates day and night and therefore were in possession of it. All the other owners had been excluded from its use and enjoyment and were dispossessed of their corresponding interest in the land. The intent of the 3rd defendant and its predecessors was no less than to possess the interest and to exclude every other owner and the plaintiff after its incorporation. In law and in fact the 3rd defendant has been in adverse possession for more than 20 years before the present action was brought and the plaintiff was time barred and this action must fail in respect of the strip of corridor now annexed to the shop of the 3rd defendant.

As to the signboard of the Chun Wah Store and the structure behind it, the intent to exclude the other owners was much weaker and the 3rd defendant failed to prove such intent or such continuous intent. The defence of adverse possession relating to that must fail.

Injunction

In the event I was wrong in holding that the defence of adverse possession succeeds, I am of the view that in the proper exercise of the discretion of the court, an injunction should be refused. The encroachment has been suffered for a long time. The encroachment did not affect the proper use of the corridor. In fact that boundary of the corridor was not ascertained until quite recently. Taking all these into account, I do not think it fair and equitable to grant such injunction.

As to the signboard overhanging outside the shop and the structures behind it, they were unsightly and 3rd defendant did not have good use for them. As time goes by, it would pose a danger to the users of the corridor. I do not see why the 3rd defendant should not remove them. Having said that I do not think it necessary and proper to compel the 3rd defendant by injunction to remove it. It has shown a readiness to have it removed but that it had not yet done so because of the main dispute in this case. The 3rd defendant wanted it preserved as evidence. The injunction to compel the 3rd defendant to remove is refused."

13. Mr Chan submitted that the reasoning of this conclusion was fatally flawed for a number of reasons. The first was that the Judge had proceeded upon an assumption that the plaintiff had made a claim in the alternative for possession of the suit portion when in fact it had done no such thing. Over and above this the Judge had failed to make any finding in respect of the main claim being made by the plaintiff that there had been a breach of the DMC and section 34I. In addition to this the Judge had not adjudicated upon the amended paragraph 14A of the defence which was in this form:

"14A. The 1st, 2nd and 3rd Respondents do say that the Applicant has acquiesced in the construction and/or erection of extension into the common areas of Man Hong Apartments by other owners and/or occupiers. The Applicant therefore has no right to proceed against the 1st or 2nd or 3rd Respondent in respect of the area coloured pink in the Plan annexed to the Application dated 14th August, 1998."

14. What is of importance is to appreciate the nature of the claim being made by the plaintiff.

15. It was not based upon the recovery of land. It is a claim made on behalf of all of the co-owners of the building to enforce their rights in relation to the common parts of the building. It was in accordance with the provisions contained in section 41 of the Conveyancing and Property Ordinance, Cap. 219.

16. As the claim is made principally under section 34I of the BMO it is necessary to consider some of the provisions contained in that Ordinance.

17. In section 2 "common parts" is defined in this way:

"'common parts' (公用部分) means -

(a) the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner; and

(b) unless so specified or designated, those parts specified in the First Schedule;"

18. Paragraph 8 of the 1st Schedule includes "passageways" which would clearly include the suit portion.

19. The important point to note in this definition is that it includes all parts which have not been designated for exclusive occupation in an instrument registered at the Land Registry.

20. Mr Chan submitted that section 34I tied in well with the definition of the common parts. Although the introduction to section 2 states that "unless the context otherwise requires" the definitions will have the meanings which are attributed to them it was clear that what was contemplated was the context of the Ordinance and not the facts of the case.

21. On the face of it section 34I does not appear to lend any support to the idea that where any part of the common parts may be subject to squatters rights it ceases to become a part of the common parts.

22. The answer of Mr Chang SC for the defendants to this was that the conversion referred to in section 34I (1)(a) had occurred prior to the Ordinance coming into effect namely 8 May 1993. It could therefore have no effect upon the conversion which had been effected at the shop which had taken place in 1972. The suit portion had therefore been in the exclusive possession of D3 and had not formed part of the common parts when the Ordinance came into effect. It could rely upon its predecessors' possession and on limitation. He also argued that it was apparent from the judgment that the Judge did not consider that the encroachment complained of adversely affected the enjoyment of the passageway.

23. Mr Chang submitted that it would have been open to the plaintiff to sue the owner of Shop 1 for a breach of the terms of the DMC in accordance with the provisions contained in the Multi-storey Buildings (Owners Incorporation) Ordinance which was the predecessor of the BMO. Its failure to do so meant that D3 and its predecessor in title had been able to obtain adverse possession. It could not be assumed that the enactment of the BMO would have the effect of relinquishing an existing legal right.

24. To find the answer to this problem I consider that it is necessary to determine the nature of the rights attaching to a DMC and the rights exercisable under section 34I.

25. It would appear to be manifest that there could have been no question of D3 or its predecessor in title being sued at common law in respect of a breach of the terms of the DMC. The right to enforce the covenants in the DMC would normally be an equitable right. Here however assistance can also be derived from section 41 of the Conveyancing and Property Ordinance, Cap. 219.

26. The covenants relate to Shop 1 and the benefit and burden of all of the provisions in the DMC are expressed and intended to run with the land of all the co-owners. This can be seen from section 41(2) which is in these terms:

"41. Enforcement of covenants

(1) This section applies to an express covenant and a covenant implied by or under this Ordinance or any other law.

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

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

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

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

27. The shop and the passageway are undoubtedly subject to the terms and conditions contained in the DMC and the plaintiff as incorporated owner is able to enforce the covenants.

28. Even if the defendants were able to establish that they had exclusive possession of the suit portion as a consequence of their adverse possession the land would still be subject to the terms and conditions contained in the DMC. The authority for this proposition is derived from p. 402 of the judgment of Collins M.R. in Nisbet and Potts' Contract [1906] 1 Ch D 386 and his conclusion at p. 404:

"... What machinery is there in the Statute of Limitations 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. The person who stands simply with the benefit of a negative easement is certainly not put upon the assertion of his right unless and until that right has been interfered with in some way; and it is a matter of absolute indifference to him what person is the owner of the land over which that right exists until that land is used in some manner incompatible with the assertion of that right on the part of the person entitled to it. It seems to me, therefore, that the principal question before us is whether or not Sir George Jessel was right in the view that he took in London and South Western Ry. Co. v. Gomm, that an obligation created by a restrictive covenant is in the nature of a negative easement, creating a paramount right in the person entitled to it over the land to which it relates. If that is so, then, in the present case, the squatter, by his squatting, simply acquired a right to land subject to this incident. Of course, the burden of that incident must pass to all persons who subsequently become assignees of the land, and the squatter is not entitled to hand it over freed from the obligation that was imposed on the person whose title he has ousted by his possession."

"Therefore, it seems to me that the law is clearly established in accordance with Sir George Jessel's view of the subject, and consequently that in this case the burden of the restrictive covenant did remain imposed on the land so as to be binding upon any person who could not shew that he had bought for value and without notice. Consequently it appears to me that the squatter's title does not in any way assist the appellant in this case."

29. The next question to consider is the consequences of any delay there may have been in enforcing the terms of the DMC.

30. None of the express covenants involves the taking of possession of any part of the land comprised in the common parts. There can accordingly be no question of either section 7(2) or section 17 of the Limitation Ordinance having any application.

31. Equally section 4(7) specifically excludes actions for injunctions and other equitable relief from the operation of the section.

32. There also can be no question of the statutes of limitation having any application by analogy as the claim here for breach of the terms of the DMC are in no way equivalent to any common law right of action.

33. What next needs to be considered are the principles applicable to a claim made in equity. These principles are helpfully set out in Chapter 3 of the 30th Edition of Snell's Equity, Sweet & Maxwell 2000. The commentary at 3-19 is particularly relevant:

"(c) Claims outside the Statute. The principles which equity applies to cases not covered by a statutory period have been stated thus:

'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 most material.'

Laches essentially consists of a substantial lapse of time coupled with the existence of circumstances which make it inequitable to enforce the claim. Delay will accordingly be fatal to a claim for equitable relief if it is evidence of an agreement by the claimant to abandon or release his right, or if it has resulted in the destruction or loss of evidence by which the claim might have been rebutted, or if the claim is to a business (for the claimant should not be allowed to wait and see if it prospers), or if the claimant has so acted as to induce the defendant to alter his position on the reasonable faith that the claim has been released or abandoned. But apart from such circumstances delay will be immaterial. ..."

34. The defendants did not demonstrate in the court below any of the circumstances referred to which might have had the effect of making any delay there may have been fatal.

35. The conclusion which can be reached from all of this is that there is no time bar to the claim which is being made by the plaintiff in respect of the claims it is making.

36. This needs to be considered in conjunction with the question as to whether the suit portion forms part of the common parts of the building. I have no doubt that it does. As indicated earlier in this judgment the definition of common parts makes it clear that any portion which is exclusively enjoyed by any of the co-owners has to be registered at the Land Registry. The Ordinance is clear and I can see no reason why land which has been obtained as a result of adverse possession should be any exception to this.

37. This then only leaves the question of whether the injunctive relief which has been sought should be granted.

38. Mr Chang argued most persuasively that it should not. He referred to the fact that the plaintiff was not seeking to recover any of the land. In its present form the building structure such as it was consisted of a narrow brick platform and the erection of a plate glass window. This glass had replaced a metal shutter which had previously been installed in the area. Mr Chang submitted that it was obvious that the encroachment did not impede access to any significant extent in the passageway and that in these circumstances no useful or practical purpose would be achieved by granting the injunction.

39. In my view there can be no doubt that there has been a breach of the terms of the DMC.

40. Paragraph A1 of the 1st Schedule reads:

'THE FIRST SCHEDULE ABOVE REFERRED TO

A. Easements, rights and privileges the benefit of which is held with each undivided 171st share in the said premises and building and with the exclusive right and privilege to hold use occupy and enjoy each shop or flat (Provided that all such easements rights and privileges shall be held and enjoyed subject to the provisions of this Deed):-

1. Full right and liberty for the owner for the time being and all persons authorised by him (in common with all other persons having the like right) to go pass and repass over and along the entrances staircases landings passages lifts and common areas in the said building and the roof thereof for all purposes connected with the proper use and enjoyment thereof."

and paragraph 5 of the 2nd Schedule reads:

"5. Not to make any structural alteration to the shop or flat of which he is the owner nor cut maim, injure, damage, alter or interfere with or make any unauthorised installation in any part or parts of the said premises or buildings in common use or any of the sewers, drains, watercourses, conduits, pipes, cables, wiring, fixtures, equipment, apparatus or services thereof."

41. Equally it is evident from correspondence which has been exchanged that there has been a breach of the provisions contained in the Buildings Ordinance, Cap. 123.

42. It needs to be added that D3 installed the plate glass earlier referred to after the commencement of the present litigation. This being the case if an order is made for him to demolish the works undertaken it is to a large extent the author of its own misfortune.

43. In my view there is no good reason why the relief which was claimed by the plaintiff should not be granted, namely an injunction requiring D3 to demolish the structure and reinstate the passageway as part of the common parts as it was originally. This should include also the signboard referred to in the conclusion to the judgment. I consider that the appeal should be allowed and that an order nisi should be made for the plaintiff to have the costs of this appeal and the costs of the court below.

Hon Keith JA:

44. I agree with Mayo V-P that the appeal should be allowed, and that the orders which he proposes should be made.

Hon Sakhrani J:

45. I agree with the judgment of the Vice-President. There is nothing that I can usefully add.

Hon Mayo VP:

46. This being the case the appeal is allowed and an order nisi is made in relation to costs as indicated at the conclusion of my judgment.