KUNG MING TAK TONG CO LTD v. PARK SOLID ENTERPRISES LE AND ANOTHER

HCA 1926/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1926 OF 2001

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J U D G M E N T

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1.  This action concerns parts of a building in Tsuen Wan.  The building was developed by Fou Wah Weaving Mills Limited (“Fou Wah”) and consists of a multi-storey building with 4 floors (Ground, First, Second and Third Floors) of a commercial podium and a tower block of domestic flats above (“Fou Wah Centre”).

2.  The 4 floors of commercial space in Fou Wah Centre were sold by Fou Wah to the 1^st Defendant and the 1^st Defendant subsequently sold various units to others, including the Plaintiff.

3.  In common with conveyancing practice in Hong Kong, the whole of the land and building was divided into shares and the shares were then sold with accompanying rights of exclusive possession.  In this case, the property was notionally divided into 9,700 shares.  The shares represent an undivided interest in the property and are set out in the First Schedule to the Deed of Mutual Covenant dated 7^th March 1978.

4.  A Sub-Deed of Mutual Covenant (“the Sub-Deed”) was executed on 27^th June 1977 in respect of the Ground, First, Second and Third Floors of Fou Wah Centre i.e. the commercial podium.  The Second Schedule sets out the shares in the undivided whole in respect of which exclusive possession attached for the units the subject of these proceedings i.e.

First Floor
Existing Entrance Lobby	26/9700 shares
Shop 2B	65/9700 shares
Second Floor	720/9700 shares
Third Floor	720/9700 shares

5.  The Sub-Deed governs the relationship between the owners of shares in the land and building to which are attached rights in respect of the units in the commercial podium.  It is not in dispute that, prior to the purchase by the Plaintiff in 1997, the 1^st Defendant was entitled to the exclusive use and enjoyment of the units covered by its shares in paragraph 4 above.

6.  In 1999 the 1^st Defendant placed some of its units in Fou Wah Centre on the market for sale.  The Plaintiff eventually purchased Shop 2B on the First Floor, the whole of the 2^nd Floor and the whole of the Third Floor.

7.  The Plaintiff was represented by the same estate agent in respect of the sale and purchase, one Terrence Chung.  At all material times the parties were all legally represented.

8.  It is apparent from plans and photographs that have been produced and a site inspection that took place during the hearing that there are various access points into the relevant parts of the building including entry at Ground Floor level and from other points on the First Floor podium level.  But the entrance at what is called the Existing Entrance Lobby (“EEL”) which has direct visual and walking access from the nearby MTR station appears to be the most prominent and accessible entrance for Shop 2B.  There is also a well decorated staircase leading from the EEL to the Second Floor (used for restaurant purposes) and the Third Floor (a book shop).  Although there is another staircase entrance to the 2^nd and 3^rd Floors that can be accessed from both the Ground and 1^st Floor levels, it has all the hallmarks of a rear staircase with large commercial size garbage containers on the lobby levels and it is served by a poorly kept lift.

9.  It is not in dispute that the EEL is not part of the common parts of the building and its ownership was retained by the 1^st Defendant until the sale of the EEL to the 2^nd Defendant.  It is also not in dispute the 1^st Defendant was entitled to the exclusive use and enjoyment of the EEL which it passed to the 2^nd Defendant at the time of the sale.

10.  It is part of the Plaintiff’s case that Terrence Chung, acting for both vendor and purchaser, represented to the Plaintiff at the time of the negotiations for the sale and purchase that the EEL was and would remain the main pedestrian thoroughfare to Shop 2B, the 2^nd Floor and the Third Floor.  It is also not in serious dispute that at the time of the negotiations and subsequent purchase by the Plaintiff, Shop 2B was notionally internally divided into 2 separate shops which have been called Shop 2B-A and Shop 2B-B.  The representations by Terrence Chung which were relied upon by the Plaintiff and uncontradicted by the Defendants’ evidence, are tempered by the specific provision in the Sale and Purchase agreements that it is a complete agreement i.e. all other terms that may exist are specifically excluded.

11.  By an Assignment dated 24^th January 2000 the 1^st Defendant assigned Shop 2B on the 1^st Floor and the whole of the 3^rd Floor to the Plaintiff “together with and subject to (if any) such rights of way privileges easements and appurtenances as set out in the Assignment and together also with and subject to all other rights rights of way privileges easements and appurtenances (if any) as at present existing and/or subsisting.”  The same provision appears in an Assignment dated 24^th February 2000 by which the 1^st Defendant assigned the whole of the 2^nd Floor to the Plaintiff.

12.  The Plaintiff relies upon these provisions as establishing a right to use and continue the existing access through and across the EEL to the Plaintiff’s properties.

13.  It is not in dispute that Shop 2B-B consists, by reason of the sub-division of Shop 2B, of a narrow strip of shop with a 19 inch doorway onto the open exterior podium running around the building.  The premises is able to operate as a shop only because one side facing the EEL and measuring over 13 feet in length is open to the EEL forming a counter from which food is sold to customers standing in the EEL.

14.  It is also not in dispute that Shop 2B is the only unit known and recognised under the Assignment and the Sub-Deed as represented by the 65/9,700 shares in the land and building.  The notional division into 2 shops appears to be only for commercial convenience and Shop 2B-B has no formally recognised status in conveyancing terms or under the Deed of Mutual Covenant or the Sub-Deed.

15.  One of the access points leading from the EEL is an internal staircase leading down to a Ground Floor level shop occupied by China Light & Power (“CLP”) which has a shop front entrance at the Ground Floor.  By a Deed of Grant dated 28^th February 2001 the 1^st Defendant granted CLP the formal right of access over a defined strip of the EEL between the exterior 1^st Floor podium of the building (and thus from the MTR) to the internal staircase of the CLP shop.

16.  Less than a fortnight later the 1^st Defendant assigned to the 2^nd efendant the EEL for a consideration of HK$100,000.00.  The question of whether this was a bona fide arms length transaction is hotly contested between the parties, it being the Plaintiff’s case that it was a sham transaction concocted by the Defendants to facilitate the 2^nd Defendant’s present wish to create a shop in the EEL immediately adjacent to Shop 2B-B thereby rendering it useless for any commercial purpose as a shop or similar.

17.  The owner of the EEL is entitled under the Sub-Deed to the income and profit generated by the EEL arising from its right to exclusive possession, use and enjoyment of the EEL.  The owner is also solely responsible for all ownership outgoings in respect of its 26/9,700 share represented by the EEL.

18.  There is clearly a close relationship between the 1^st and 2^nd defendants to the extent that the Plaintiff alleges that one is tantamount to the alter ego of the other, lending weight to its argument that the sale of the EEL was a sham.  The benefit alleged to be provided by the sham is that the 1^st Defendant had, as part of a quasi-easement, granted rights of access over and usage of the EEL by Shop 2B-B, the 2^nd Floor and the 3^rd Floor.  The argument runs that the 1^st Defendant passed title to the 2^nd Defendant to enable a new shop to be created in the EEL unfettered by the previous quasi-easement.

19.  The crux of the case turns, in my view, on whether any quasi-easement or rights could have been conferred by the 1^st Defendant upon the Plaintiff or its predecessor in respect of the EEL.

20.  The Plaintiff and the 1^st and 2^nd Defendants are all co-owners as tenants in common of the same property i.e. the undivided land and building.  Each nominally holds a number of shares in the whole.  Certain numbers of shares are notionally ascribed to the exclusive use and enjoyment of certain units in the undivided land and building.  To suggest that the “owners” of units in a building are the owners of separate and distinct pieces of property is, as described in Jumbo King Ltd. V. Faithful Properties Ltd. 1999 4 HKC 707 “to turn the legal position on its head”.

21.  It follows that a tenant in common who is the holder only of a right of exclusive possession cannot create or grant an easement or quasi-easement or implied easement over property in which it has no exclusive ownership.  The only entitlement that the “owners” have is to exclusive possession which derive from the contractual relationship between the “owners” under a deed of mutual covenant – or as here, the Sub-Deed.

22.  The Plaintiff relies heavily upon Wheeldon v. Burrows 1879 12 Ch D 31 as the basis for founding a quasi-easement in favour of the Plaintiff in this case.  In my view, there is a fundamental difficulty to that argument in that the grant must be by one owner of land to another who is not and cannot be the owner of the same land.  Both the Plaintiff and the 2^nd Defendant are co-owners of the same land, namely the undivided land and building known as Fou Wah Centre.  The argument falls into difficulty because there can never as between co-owners of the same land be separate owners of separate land, nor can there be dominant and servient tenements.

23.  There is no evidence to suggest that easements existed at the time of the original Government lease and it follows that such easements could only then be created contractually between all the co-owners under the Sub-Deed.  That has not been demonstrated to have been done.  In Chiu Shu Chou v. Merrilong Dyeing Works Ltd. 1990 1 HKLR 385 it was held that easements cannot be created between co-owners in the context of Hong Kong conveyancing practice for multi-storey buildings.  In his attractive arguments, counsel for the Plaintiff contended that Chiu v. Merrilong is no longer good law.  I disagree.  In her very comprehensive submissions, counsel for the 2^nd Defendant has demonstrated that it has continued to be quoted with approval consistently since it was first reported.  Indeed the principles in Chiu v. Merrilong were relied upon in Jumbo King v. Faithful Properties.

24.  The Plaintiff relies upon what it says is a “rule of common honesty” in support of its contention that the previous usage and benefit provided by the EEL cannot and should not be discarded in favour of the 2^nd Defendant’s wish (and it is said, the 1^st Defendant’s subterfuge) to turn a profit out of what has become equivalent to a common area.  It is noteworthy that, despite the EEL having been at all material times an area to which the 1^st Defendant was entitled to the sole use, benefit and enjoyment and for which privilege it paid all ownership outgoings, no requisitions were ever raised at the time of the two separate assignments despite the Plaintiff’s assertions of the importance of the EEL to the transactions.

25.  The 2^nd Defendant is asserting its rights under the Sub-Deed to realise the potential of its investment.  I share the Plaintiff’s suspicions about the manner, timing and consideration of the assignment of the EEL, but in the light of the above, I do not consider that this can dilute or overcome the fatal flaws to the Plaintiff’s case.

26.  In all the circumstances, I am not satisfied that any easement, implied easement or quasi-easement has been created in the Plaintiff’s favour, nor that any could be created.  In my view the Plaintiff falls at the first hurdle in that co-owners of the same property cannot create easements in respect of each other, a fortiori to the exclusion their other co-owners.

27.  The Plaintiff’s claims are dismissed and the Order of Deputy High Court Judge Longley shall be set aside.

28.  I turn now to the 2^nd Defendant’s Counterclaim.  By reason of my findings above it follows that there should be an order in terms of paragraphs 1 and 3 of the Counterclaim.  Counsel for the 2^nd Defendant has said in her submissions that there is no intention to recover the amounts sought in paragraphs 2 and 4 of the Counterclaim but seeks a statement of its right to an indemnity.  The question of enforcement is one that the parties may seek to argue further, but I can see no reason why an order should not be made in such terms.  There will be judgment in favour of the 2^nd Defendant on the Counterclaim and an order in terms of paragraphs 1, 2, 3 and 4 of the Counterclaim.

29.  There will be an order for costs in favour of the 2^nd Defendant against the Plaintiff arising out of the Plaintiff’s claim and the 2^nd Defendant’s Counterclaim.  This order as to costs is to take effect unless within 14 days any party applies to the Court to be heard on the question of costs.