FINWORLD DEVELOPMENT LTD. V. SIRIBAN LTD.

1992 M.P. No. 3307

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G E M E N T

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1. By provisional agreement dated 14th August 1992, the Plaintiff agreed to buy and the Defendant to sell Shop C1, Lee Kwan House, Wang Chau Road, Yuen Long. By Vendor and Purchaser Summons issued on 16th October 1992, the Plaintiff seeks:

1. A declaration that it was entitled to make and obtain satisfactory answers to certain requisitions or objections on the Defendant's title

2. A declaration that the Defendant has failed to show a good title to the shop

3. A declaration that it is entitled to rescind the agreement and to return of deposits paid

4. n order for return of the deposits, alternatively relief against forfeiture thereof

5. declaration that it is, pending return of the deposits, entitled to a lien on the shop for the deposits.

2. Pursuant to the provisional agreement, the Defendant was required to deliver up vacant possession of and guarantee that there is no third party interested in Shop "C1".

3. Shop "C1" is part of a multi-storey building known as Lee Kwan House. The building, as is now common place in Hong Kong, is held by a number of co-owners as tenants in common, each owner having reserved to it exclusive possession of a defined part of the building. By Assignment dated 31st August, 1973 two equal undivided 50th shares were assigned to Fung Ho Fai and Wong Lin Hing together with the full and exclusive right and privilege to the use occupation and enjoyment of Shop "C" on the ground floor, to hold as tenants in common in equal shares. This Assignment was subject to and with the beneficit of an earlier Deed of Mutual Covenant (the DMC) which, so far as the material before me suggests, was in a common form. The DMC gives a co-owner "the right to the exclusive use and enjoyment" of a specified part of the building. It also provides for each co-owner to sell, mortgage, dispose of or deal with his share and interest without the consent of or reference to any other co-owner; and also to let that part of the building of which each co-owner has exclusive use and enjoyment.

4. Mr. Fung Ho Fai died in 1975. By Deed of Mutual Grant (the Grant) dated 22nd March 1989, his administrators and Madam Wong Lin Hing having agreed to divide Shop "C" into two shops, being "C1" and "C2", purported to give each Other exclusive right to the use of one of the two shops. The administrators were to get Shop "C2, Madam Wong to get Shop "C1". The Grant, after reciting the administrators' and Madam Wong's "full and exclusive right and privilege to the use, occupation and enjoyment" of the whole of Shop "C" went on to grant each other "full right and privilege to hold, use, occupy and enjoy" Shop "C1" and Shop "C2" respectively. It is to be noted that the grant to each other did not use the word "exclusive".

5. Clause 3 of the Grant provided that, subject to Clause 7, the respective grants of use and occupation should be for the residue of the term of the Crown Lease less three days. Clause 7 provided for the respective grants to be extinguished should "the said premises" (defined as Shop C) become so damaged by fire or other causes as to require re-building and the grant to be then deemed cancelled and of no effect.

6. I note that the DMC, while containing a re-building clause, does not thereby purport to extinguish the DMC itself.

7. Clause 4 of the Grant reads:

" Each party hereto shall pay its due proportion of the following:-

(a) The Crown Rent, the Property Tax under the Inland Revenue Ordinance or any Ordinance amending or replacing the same as well as Government rates and rates for water consumed on the said premises maintenance fees and the insurance premium for the policy of insurance against loss or damage by fire.

(b) The performance and observance of all convenient and conditions respectively contained in the said Crown Lease the said Ordinance and the said Deed of Mutual Covenant.

(c) The expenses for keeping the said premises in good and tenantable repair shall be borne by the parties hereto in equal shares."

8. The phrase "the said premises" means the original Shop "C". There is no evidence that Shops "C1" and "C2" are equal in size. The Clause is a curious mixture of precision and imprecision.

9. Clause 10 provides for service of notices and refers to the portions of Shop "C" of which each party has "the exclusive right to use, occupation and enjoyment". The word "exclusive" has crept in.

10. Clause 11 is an arbitration clause. It provides for disputes and questions arising upon the Grant itself or rights or liabilities arising from the Grant to be referred to arbitration.

11. By Assignment dated 18 January 1992 (the Assignment), Madam Wong purported to assign as beneficial owner her undivided share in Shop "C" together with exclusive use of Shop "C1". The second schedule to the Assignment contains what Madam Wong purported to convey and reads:

"ALL THAT one equal undivided moiety or half part or share of and in ALL THOSE 2 equal undivided 50th parts or shares of (Lee Kwan House) ..... TOGETHER with the right (in common with the other owner for the time Being of the other half part or share of and in the said 2 equal undivided 50th parts or shares of the Lot) to hold use occupy and enjoy ALL THAT SHOP "C1" on the GROUND FLOOR of the Building"

12. It will be seen at once that the words emphasised are wholly inconsistent with Madam Wong having exclusive use of Shop "C1". The words expressly recognize the continuing rights of her co-owner.

13. Having received the title deeds, the Plaintiff's solicitors sought clarification of these words on 27th August 1992. On 3rd September the Defendant's solicitors replied, proposing that the Assignment be amended by deleting the offending words. The Plaintiff's solicitors replied on 10th September. In relation to the Grant, they said:

"In the Deed, Wong Lin Hing was granted the full right and privilege to hold use occupy and enjoy Shop C1. It is strange as Madam Wong was always entitled to the same, she being a co-owner of Shop C. In this sence, (sic) the grant must be invalid. In our opinion, Madam Wong should be granted the exclusive right to occupy Shop C1. Please comment."

14. In relation to the Assignment they said:

"Looking at the Deed of Mutual Grant Memorial No. 396156 and the Assignment Memorial No. 495074, we have reason to believe that exclusive right to occupy "Shop C1" has never keen granted to your client. We cannot believe that the words "(in common ...................of the Lot") in the Schedule of Assignment Memorial No. 495074 had been inserted inadvertently. Such a sentence is so uncommon that it had to be inserted deliberately. We do not want to comment on your proposed amendment of the Assignment Memorial No. 495074 but we do believe unless the position of the Deed of Mutual Grant is made clear, any amendments to the Assignment will be futile."

15. The Defendant's solicitors replied on 16th September. They said:

" The rights of the parties have been defined in the Deed of Mutual Grant. In Clause 2 of the said Deed, our client's predecessor was grant (sic) the specific right to occupy "Shop C1".

We propose to amend Assignment Memorial No. 495074 as suggested."

16. The Plaintiff's solicitors replied on the same day saying, inter alia:

" We do not understand what you are trying to say. Please explain. Further, we shall be grateful if you could point out to us in which part of the Deed of Mutual Grant where the exclusive right to occupy "Shop C1" was granted to your client's predecessor.

As we have stated earlier, we do not want to comment on your proposed amendment. But, if we are right to say that the words "(in common ........... of the Lot)" were not inserted inadvertently, then there will be nothing to be amended. If the proposed amendment is the only thing you are going to do, we shall definitely advise our client not to complete on 21st September 1992 as agreed.

For the time being, we do not believe that your client has proved a good title to the property. So, would you please advise us what you are going to do to cure the defects in title. Time is running short."

17. On 18th September, the Defendant's solicitors in a letter said:

"An assignment shall operate to assign the exclusive right to occupy the property. Your attention is drawn to the rule of diversity of occupation and the case of Long v. Gowlett [1923] 2 ch 177 subsequently approved by the House of Lords in Sovmots Investments Ltd v Secretary of state for Environment [1979] AC 144. The fact that the word "exclusive" was not used in the Deed of Mutual Grant will not affect the purchaser's right under Common Law."

18. The Plaintiff's solicitors did not find the Defendant's solicitors' answers satisfactory. The Plaintiff did not sign a formal agreement on 25th August and did not complete the purchase on 21st September as required by the provisional agreement. The Defendant's solicitors took the view that the Plaintiff was in breach of the provisional agreement and declined to return the Plaintiff's deposits, totalling HK$173,000.00. The Plaintiff accordingly commenced these proceedings.

19. For the Plaintiff, Mr. Cheung argued that the Defendant had failed to show that it was entitled to the exclusive possession of Shop "C1" or that it was in a position to give vacant possession thereof and had failed to show good title. In any event, he said, even if the Defendant had a good title, it had failed satifactorily to answer the Plaintiff's requisitions on which alone the Plaintiff is entitled to succeed: see KOK Chong-Ho v. Double Value Developments Limited. CA No. 96 of 1991. There was no dispute as to the latter proposition.

20. Mr. Cheung said that the Grant was a failed attempt at partition of the Shop "C". He referred to 39 Halsbury's Laws, p.364 "Determination of Tenancies in Common", paragraphs 551 to 561. He said it is clear that tenancy in common can be determined by union of interests in one person (which does not apply in this case) or by partition. Partition is the division of land between co-owners so as to put an end to community of ownership between them. Partition may be effected by agreement of all parties or by a partition action.

21. Mr. Cheung argued that the Grant failed to take effect as a partition by agreement because it failed to confer upon either of the parties exclusive right to possession of the two shops. He said that whatever the intention of the parties to the Grant may have been, the Grant on its proper construction failed to effect partition. He pointed in particular to the use of the word "exclusive" in the recitals in contrast with the word "full" in the body of the Grant other than in Clause 10. He referred to Clause 7 which, he said, makes the grant conditional; and to Clause 11 which, he suggested, is inconsistent with partition because it implies a continuing relationship between the parties.

22. For the Defendant, Mr. Ho said that the Plaintiff wholly misunderstood the position. The Grant was not intended to be a partition of Shop "C". The Grant was, in effect, a Deed of Mutual Covenant between the two co-owners, each granting the other exclusive use of a specified part of Shop "C" in the same way as the original co-owners of the whole building had done. Madam Wong remained a tenant in common of 2/50 shares in the whole building but with her exclusive possession cut down to Shop "C1".

23. There is, I think, a number of objections to Mr. Ho's argument. First, in the Grant the administrators and Madam Wong made no attempt to deal with their respective interests in the land, unlike the usual Deed of Mutual Covenant which attributes to each co-owner a specified share in the land as well as a specified area to which exclusive use will be attached. What Madam Wong purported to convey to the Defendant, therefore, was a wholly indeterminate share in the land as a whole.

24. Second, the administrators and Madam Wong together were one co-owner of the land as a whole. By virtue of the DMC, they had an unrestricted right to dispose of their 2/50th interest in the land. They did not however have an unrestricted right to sub-divide their interest. Although no authority was advanced for the proposition, I am satisfied that in the context of multi-storey ownership governed by a Deed of Mutual Covenant, all co-owners are entitled to signify their agreement or otherwise to the sub-division of his interest by one of the individual co-owners. It seems to me that the co-owners collectively have a legitimate interest in knowing if one of them intends to sub-divide his share or interest, and how the specified area to which exclusive jurisdiction attaches by virtue of that interest will itself be divided.

25. Third, regarding the Grant as a whole and having in mind the particular parts to which I have referred earlier, I am satisfied that it is not effective in allocating indefeasible rights to exclusive use of the sub-divided shops capable of being passed on to others.

26. At best, it seems to me, the administrators and Madam Wong reached agreement for the regulation of their tenancy in common inter se. Quite what interest each acquired I hesitate to determine, but I dare say that each acquired a contractual right capable of enforcement against the other.

27. Fourth, the failure of the Grant effectively to confer exclusive use on each of the parties seems to me tacitly to have been recognized by the draftsman of the Assignment. The wording which I quoted earlier is consistent with a recognition that the other tenant in common had not lost his right to use of the whole of Shop "C". It is with respect no answer to say that the offending words were inserted by mistake or inadvertence.

28. As Mr. Cheung submitted, the basis of a tenancy in common is unity of possession. That unity is destroyed if one of the tenants obtains exclusive possession of all or part of the land. That destruction in relation to multi-storey ownership has been avoided by the device of Deed of Mutual Covenant. The Deed relates to land so that the covenants contained therein bind the successors to the original parties thereto. The effect is not that an individual co-owner can claim exclusive possession of a part of the building but rather that the co-owners are bound by the covenants to respect each other's areas of exclusive possession. Thus, as I suggested earlier, the co-owners collectively are necessarily interested in the identity of the other co-owners, the extent of their shares and the delineation of exclusive possession attaching to each particular share.

29. In the circumstances, I am satisfied that not only has the Defendant not answered the Plaintiff's requisitions satisfactorily but that the Defendant has not shown that it has a good title.

30. It is not now necessary for me to deal in detail with another requisition raised by the Plaintiff's solicitors. Shop "C" was physically partitioned to produce Shops "C1" and "C2". A Mr. H. W. Leung, an authorized person, in a letter dated 8th January 1992 gave it as his opinion that the partition did not affect the structural stability of the building and was in compliance with Building Regulations. He did not however state whether the partition required the consent of the Building Authority and if so whether that consent had been given. The Plaintiff's solicitors asked for this to be clarified. The Defendant's solicitors pointed out that consent is not required under the Buildings Ordinance if work does not involve the structure (see Cap.123, s41(3)) and that Mr. Leung's letter clearly stated that the partition did not affect the structural stability. The Plaintiff's solicitors accepted that proposition but required Mr. Leung further to state that no permit was required. The Defendant's solicitors replied that Mr. Leung's certificate was sufficiently clear and that no permit from the Building Authority was required.

31. On this point I agree with the Defendant's solicitors. Mr. Leung, an authorized person, had expressly stated that structural stability was not affected. The Building Ordinance does not require application to or approval from the Building Authority in such circumstances. It is difficult to see what more the Defendant's solicitors could or should have done.

32. Accordingly, I grant the relief sought in paragraphs 1(b) and (c) 2 and 3 of the originating summons. There was no argument about return of the deposits. I make an order nisi that the Defendant forthwith return the deposits to the Plaintiff. I make no order as to a lien since a lien would be worthless in the light of my findings.

33. I also make an order nisi that the Plaintiff is to have the costs of the proceedings.