HINEX UNIVERSAL DESIGN CONSULTANTS CO. LTD. v. CHAN LAI HING

1997, No.MP2292

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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Reasons Handed Down : 31 December 1997

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R E A S O N S

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1. This is a vendor and purchaser summons issued by the Plaintiff Purchaser seeking, inter alia, declarations that the title of the Defendant Vendor is defective and that the Defendant has failed to prove good title to the Property.

2. The parties entered into an Agreement for Sale and Purchase on 13 June 1997 relating to "all those 10 equal undivided 1,011th parts or shares of and in all that piece or parcel of ground registered in the Tsuen Wan New Territories Land Registry as Kwai Chung Town Lot No.303 and of and in the messuages erections and buildings thereon known as 'Wah Wing Industrial Building' Nos.14 - 20 Wing Yip Street, Kwai Chung ('the Building') together with the sole and exclusive right and privilege to hold use occupy and enjoy all those Workshop Unit 'A' and the Storeroom on the 20th Floor of the Building ('the Property')". At the hearing on 23 December 1997, I dismissed the originating summons with costs. The reasons appear below.

The facts

3. The facts are not in dispute.

4. The Building was developed in the late 70's. The Deed of Mutual Covenant ("DMC") is dated 31 March 1978. It was made between Chess Land Investment Company Limited, the Developer, described in the 1st Schedule as "the 1st owner" being the owner of the whole Building (save and except Unit "A" on the 18th Floor) and of 1,001/1,011th parts or shares therein and Lee Wah of Unit "A" on the 18th Floor of the Building ("the 2nd Owner") being the owner of all that workshop Unit "A" on the 18th Floor of the Building and of 10/1,011th parts or shares therein. The DMC was registered under Memorial No.156229. On the same day, the Developer assigned to Wing Heung Investment Company Limited, an associated company, over half the Building namely the properties described in the Schedule to the Assignment ("the 1st Assignment"). This was registered at the Land Office under Memorial No.156577. The Schedule reads :

"ALL THAT the estate right title interest and benefit of an in ALL THOSE 558 equal undivided 1001th parts or shares of and in ALL THAT piece or parcel of ground registered in the District Land Office Tsuen Wan, N.T. as KWAI CHUNG TOWN LOT NO.303 and of and in the messuages erections and buildings thereon known as WAH WING INDUSTRIAL BUILDING. ..."

At the same time the Developer also assigned to Wing Heung the "sole and exclusive right to hold use occupy and enjoy" numerous designated units including Workshop A on the 20th floor, car park No.28 and the storeroom on the 20th floor. It will be seen that the 1st Assignment affected over 50% of the total number of undivided shares in the Building and the sole and exclusive right to occupy numerous units, carparks and storerooms. It is apparent from the plan attached to the 1st Assignment that each of the 15th to 21st Floors was divided into four units and that there is a storeroom on each of those floors.

5. On 20 April 1978, Wing Heung assigned 11 equal undivided shares to Lee Chui Sin and Lee Kuk Fai together with the sole and exclusive right to hold use occupy and enjoy Unit A on the 20th Floor of the Building and car park No.28. On 15 September 1978, Wing Heung also assigned to the same purchasers the sole and exclusive right to hold use occupy and enjoy the storeroom on the 20th Floor of the Building. On 15 April 1997, the Vendor acquired 10 undivided shares in the Building together with the exclusive and sole right to use and occupy workshop A and the storeroom on the 20th Floor. The remaining one undivided share together with the exclusive use of car park No.28 did not form part of the 1997 assignment to the Vendor and remained vested in his predecessor-in-title.

6. It is relevant to mention that there is a control card kept at the Land Registry which shows that Unit A on the 20th Floor has 10 undivided shares and that no share is allotted to any of the storerooms on the 15th to 21st Floors. Each car park is shown as having one undivided share. The number of undivided shares shown on the control card tally with the number of undivided shares, namely 1,011, that subsist in the Building. There is no evidence as to the date the control card came into existence save that it must have been subsequent to the DMC to which it is expressed to be subject.

The issue

7. The short point that arises from the summons is whether a vendor's title is flawed if he is unable to produce a document of title that explains how the undivided shares in the subject land are allotted. An aspect of this issue is whether subject to any limitations imposed by the DMC or other document, a subsequent owner has an unfettered right similar to that which the developer has to allocate undivided shares in the event of his subdividing or selling off parts of the building owned by him.

8. The allocation of undivided shares is often dealt with in the DMC. In the present case, however, the DMC is silent on the question of allocation of undivided shares. It is to be noted that under Clause 4(f) of the DMC, the outgoings are borne by the owners of the Building in proportion to the number of unit or units for the time being owned by them and not, as is often the case, proportionately, by reference to the number of undivided shares vested in each owner.

9. It is common ground that the control card is not a document of title. Although there is no evidence as to how the entries on the control card came to be compiled, it was accepted that two possibilities exist : one is that it was made in accordance with a share apportionment document similar to that in Marking Limited v. Cheerifat Investment Limited, (unreported) MP 2727 of 1995 alternatively, the card may have been drawn up according to the shares of the first assignments registered as was the evidence before the court in Goldjet International Investment Limited v. Ling Kee Wai and Others, (unreported), MP 4160 of 1996. In the latter case, there would be no document governing the overall allocation of undivided shares. It is unclear what the Land Registry practice is where a "first assignment" covers more than one unit as in present case since the first assignment in Goldjet related to the individual unit in question.

10. Counsel for the Plaintiff relies on Lee Tak Chun v. East Weal International Limited and another [1994] HKC 722 for the proposition that it is incumbent on the Vendor to produce a document of title showing the allocation of undivided shares. At 731I - 732B, it is stated that :

"... [m]any of the rights and liabilities of an owner of a unit vis-(-vis other co-owners depend solely on the exact proportion in the undivided shares of the land his unit was legally and validly allotted. Thus, it is singularly important for the exact proportion of the undivided shares of each unit to be proved by a vendor. The importance lies not in whether the vendor is capable of assigning a particular number of undivided shares to the purchaser, though that is of course not unimportant either. The importance lies in the definition of the exact extent of rights and liabilities that run with the unit. ..."

At 731C - H the learned Judge made observations to the effect that where there was nothing to show when, how and in what manner the shares were allotted, it would be reasonable to infer that some document existed which had not been disclosed. He opined that if such a document did not exist, the proper way to answer the requisition would be to state that it did not exist and then go on to explain how the undivided shares were allotted.

11. In that case the vendor had entered into a first agreement with the first purchaser. On completion date, the vendor was informed that the requisitions requesting documentary evidence indicating the number of undivided shares allocated to the unit were insufficiently answered. After the deposit was forfeited by the vendor, the first purchaser sued for specific performance. The vendor then entered into a second agreement with the second purchaser. The second purchaser sought a declaration against the first purchaser that it had no interest in the unit and against the vendor that the second purchaser had no obligation to complete the second agreement pending the final determination of the first purchaser's claim against the vendor under the first agreement.

12. As Counsel for the Defendant rightly pointed out, the observations relied on by the Plaintiff were not made with the benefit of full argument since the learned Judge was only asked to rule on whether the first purchaser had a prima facie case against the vendor for a wrongful repudiation of the first agreement. So the preliminary issue was whether the second purchaser need not complete. The issue between the vendor and the first purchaser, (viz. whether the vendor was under an obligation to supply some documentary evidence indicating the number of undivided shares allocated to the unit) was not dealt with in substance. It is in that context that the observations of the learned Judge have to be read. There is therefore no holding as such that a vendor is obligated to provide documentary evidence of the nature suggested. The point is thus not covered by authority and has to be approached afresh.

13. Counsel for the Plaintiff accepted that subject to any restrictions imposed by the DMC, a developer has an unfettered right to allocate the undivided shares amongst the various units. See Sheenip Industries Limited v. Champion Billion Development Limited, (unreported) MP 1390 of 1995 where it was held (at page 14) that the proprietary rights which the developer enjoyed as owner of undivided shares cannot be restricted except by clear wording or by necessary implication. I agreed with that proposition in Marking Limited v. Cheerifat Investment Limited, (unreported) MP 2727 of 1995 and remain of that view. An aspect of the issue to be determined in the present case takes the Sheenip case one step further : whether, subject to any limitations that may be imposed by the DMC or other document, a subsequent owner has a similar right.

14. Counsel for the Defendant submits that a subsequent owner does have such a right so that the Vendor need only show -

(i) that he has the requisite number of undivided shares contracted to be sold;

(ii) that he has the exclusive right to use and occupy the subject property;

(iii) that he has a right in common to access and support etc.; and

(iv) that he is not constrained by any prior prohibition, whether contained in the DMC or some other document, from allocating the number of undivided shares to the subject property.

15. Approaching the question as one of principle, there does not appear to be any valid basis or reason for differentiating between the position of a developer who has an unfettered discretion and that of a subsequent owner. In my judgment, a subsequent owner has the same unfettered right as the developer in the allocation of undivided shares vested in him subject to any prior prohibition which exists in the DMC or some other document. As a practical matter, where liabilities such as outgoings are dependant on the number of undivided shares held, it is a consideration that may operate to restrain allocations that do not reflect some rational or logical basis. For example, if the owner of a whole floor in a building which has allocated to it 100 undivided shares were to sub-divide the floor into two equal halves, and in his unfettered discretion chooses to allocate one undivided share to one half and ninety-nine undivided shares to the other, he may, in practice, have difficulty in disposing of the half to which the 99 undivided shares have been allocated because of burden of outgoings which the owner of that half will have to bear.

16. In my judgment, Wing Heung had an unfettered right to allocate the 558 equal undivided shares amongst the various properties conveyed to it in March 1978. The Vendor's predecessor-in-title became the owner of 11 such undivided shares and was entitled to assign 10 of the undivided shares to the Vendor whilst retaining the remaining one undivided share and the exclusive right to use part of the Building other than the Property. It is to be noted that nothing in the chain of assignments affecting the Property is in any way inconsistent or at variance with the number of undivided shares shown on the control card and to be assigned under the Agreement. On these facts, the Vendor's title is plainly not defective and I so hold.

(Doreen Le Pichon)

Judge of the Court of First Instance
High Court