SUNLINE INVESTMENTS LTD v. TEAM WEALTHY LTD

HCMP 893/2025

[2025] HKCFI 4339

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 893 OF 2025

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REASONS FOR DECISION

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1.  This originating summons dated 2 June 2025 (the “VP Summons”) seeks the determination under section 12 of the Conveyancing and Property Ordinance, Cap 219 (“CPO”) of the question whether Sunline Investments Limited (“P”) has shown and proven good title. The property concerned is the subject matter of an agreement dated 15 April 2025 made between P as vendor and Team Wealthy Limited (“D”) as purchaser (the “Agreement”). At the conclusion of the hearing, I made an order in terms of §§1 and 3 of the VP Summons.

2.  This is a case of a willing vendor and a willing purchaser. Irrespective of outcome, the parties have agreed to bear their own costs and not seek costs against each other.

3.  The subject matter of the Agreement (the “Property”) concerns an undivided half share of and in Inland Lot No. 7201 (the “Lot”) and the buildings thereon, more particularly described in Schedule 2 of the Agreement as follows:

“

The Property

ALL THAT one equal undivided half part or share of and in ALL THAT piece or parcel of ground situate lying and being at Jardine's Lookout, Hong Kong and registered in the Land Registry as INLAND LOT N0.7201 And of and in the messuages erections and buildings thereon now known as "N0.4 and N0.4A COOPER ROAD" ("the Building") Together with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT PORTION of the Building (which said Portion is more particularly shown and coloured Yellow and marked "No.4A" on the Plan annexed to a Deed of Mutual Covenant registered in the Land Registry by Memorial No.UB1139638 ("the Deed of Mutual Covenant") and the appurtenances thereto Subject to and with the benefit of the Deed of Mutual Covenant.”

Relevant background and chronology

4.  The occupation permit dated 5 February 1957 (“OP”) records a certificate of completion dated 23 January 1957 for a new building at 20 Cooper Road on the Lot (the “Building”).

5.  The Building is one single structure but as described in a letter from the Crown Lands and Surveys office[1] dated 27 May 1960, it is “divided internally by a vertical partition so as to comprise two separate semi-detached residences”. The letter was addressed to Tam Wing On and Chan King Wai (“Chan”) at 20 Cooper Road, presumably the then lessees/owners occupying the Lot.

6.  On 12 November 1965, the Government granted a lease of the Lot “and all the easements and appurtenances whatsoever” thereto to Chan and Kwan Kwan (“Kwan”) as tenants in common in equal shares for a term of 75 years from 11 January 1950 with the right of renewal for one further term of 75 years (“Government Lease”) at a reassessed rent. By this date, the Lot was identified by “No. 4 Cooper Road”.

7.  The Government Lease contains the following covenant by the lessees Chan and Kwan that they

“will not erect or allow to be erected on any portion of the said piece or parcel of ground any house having a curtilage of less than Eight thousand square feet including the site of the house and will not dispose of any portion of the said piece or parcel of ground having an area of less than Eight thousand square feet AND will not erect or allow to be erected any buildings on the said piece or parcel of ground except one detached or semi-detached residence of European type with garage and all proper out-buildings thereto (it being agreed and declared that the composition of a residence shall be decided by the said Director) AND will obtain the special approval of the said Director to the design disposition and height of any building erected or to be erected on the said piece or parcel of ground ...

. . . AND will not without the written consent of the said Director carry out or allow to be carried out any alterations or additions to the existing building on the said piece or parcel of ground.” (Italicized part referred to as the “Covenant”)

8.  At least since 30 January 1975, No. 4 and 4A Cooper Road have been in use to identify the 2 semi-detached houses on the Lot respectively. These are identified in the layout plan of the DMC made by the owners of the 2 semi-detached houses and P’s half share (being the Property) is identified as No. 4A.

9.  In response to a query from a law firm relating to the house number of “No. 4 Cooper Road Inland Lot No. 7201”, by its letter of 29 October 1997, the Rating and Valuation Department confirmed that the current building numbers in respect of the Lot are 4 and 4A Cooper Road.

10.  P purchased the undivided half share of and in the Lot, being No.4A Cooper Road, on 31 March 1988.

11.  On 19 July 1999, Lands rejected a “Building Plan Submission[2]” relating to the Lot on the ground that the development (having 2 separate entrances and being occupied by 2 different parties) is in breach of the ‘one residence’ restriction in the Government Lease.

12.  On 22 February 2006, Lands wrote to the registered owners of the Lot, referring to a recent inspection which revealed 2 separate entrances[3] at the Lot and the courtyard divided by a partition wall. It opined that 2 separate residences is inconsistent with the lease conditions which restricted the Lot to one detached or semi-detached residence of European type and having a curtilage of not less than 8000 sq.ft. Lands sought clarification from the owners within 2 weeks, stating that failure to comply with any of the lease conditions would entitle the Government to re-enter and take back possession of the Lot and the buildings thereon.

13.  Exchanges of correspondence then ensued in February and March 2006 between (i) Lands and P’s then solicitors (“SKL”), and (ii) Lands and solicitors for the then owner of the other undivided half share (No. 4) (“ILL”). The owners disagreed with Lands’ interpretation of the Covenant or that the Lot had been ‘partitioned’ referring to the view adopted by the Legal Advisory and Conveyancing Office that the Covenant is not a restriction in respect of the sale of the half share. In any event, the owners considered that the Government had acquiesced in the current position.

14.  A year later, on 3 April 2007, Lands sought to follow up on the 2006 exchanges of correspondence with SKL and ILL and required the owners of No 4 and 4A “to purge the breach of lease conditions” without specifying the remedial action required.

15.  ILL replied on 21 May 2007 reiterating their earlier reply.

16.  There was no follow-up after the exchanges mentioned until 17 years later with Lands’ letter dated 19 September 2024 to P that repeated the points made in their earlier letters of 19 July 1999 and 22 February 2006. The letter also expressly reserved Government’s right to take any necessary lease enforcement actions including re-entry.

17.  By a follow-up letter dated 13 February 2025, Lands referred to the absence of any action “to purge the breach” and reserving the right to take further lease enforcement action deemed necessary.

18.  By the Agreement, D agreed to purchase P’s undivided half share in the Lot for $174.8 million for completion before 8 July 2025.

19.  After perusing the Agreement, title deeds and related documents made available by P’s solicitors, Messrs Guantao & Chow (“GT”), D’s solicitors Messrs Edmund Cheung & Co (“EC”) raised a number of requisitions, culminating in the VP Summons seeking the determination on whether P has shown and proven good title on the Property to D under section 12 of the CPO.

20.  It is relevant to mention that the original term of 75 years expired on 10 January 2025 with a right of renewal for one further term of 75 years (at a reassessed rent).

Applicable principles

21.  It is common ground that assuming there is a breach of the Covenant, the only “enforcement action” available to the Government is re-entry under section 4 of the Government Rights (Re-entry and Vesting Remedies) Ordinance, Cap 126 (the “Government Rights Ordinance”) by registering a memorial of the instrument of re-entry in the Land Registry. Upon registration of such a memorial, the land and tenements shall become re-vested in the Government. In other words, should the Government exercise any right of re-entry, it would extinguish the interest of every owner in the whole Lot and not only the interest of the owner of No.4A.

22.  Section 8 confers on the former owner a right to apply for relief against re-entry or vesting.

23.  Jumbo Gold Investment Ltd. v Yuen Cheong Leung and Another (2000) 3 HKCFAR 52 concerned the breach of a building height restriction in a Government lease. The Court of Final Appeal had to consider whether, on the facts of that case, there was a real risk that the Government might take “enforcement action” for breach of the covenant.

24.  The judgment of Litton PJ (with which the other members of the Court agreed) highlighted a number of matters (at 59F-60G):

(i)  The applicable considerations that would arise on a question of relief against forfeiture under section 8(1)(b) of the Government Rights Ordinance differ depending on whether it is a case of the Government, in its capacity as lessor, dealing simply with the developer or a case where third parties have become involved.

(ii)  In the former scenario, they would be decided by examining the respective conduct of the two immediate parties: the Government as lessor and the developer as lessee.

(iii)  In the latter scenario, third parties have become involved by acquiring units in the building on the basis that Government had granted permission to occupy it for domestic purposes and that Crown rent had been paid and accepted for many years.

(iv)  To forfeit their interest because of some “fault” of the developer in the past, without compensation, is a wholly different matter. That concerns not only owners, but tenants as well.

(v)  Litton PJ did not accept that the purpose was to extract some premium from the owners for relief against forfeiture in the absence of any precedent that the Government has acted in such a harsh and capricious manner.

(vi)  In deciding whether there was a real risk of enforcement, the Court must look at the larger picture. To require the vendors to show “proof of knowledge i.e. of the breach of covenant” before the Government could be taken to have waived the height restriction in that case is to take too narrow an approach.

(vii)  Litton PJ concluded that the notion that there was a real risk of enforcement in the circumstances of that case to be fanciful.

25.  Assuming that the Government had a right of re-entry, Bokhary PJ considered (at 61A-B) that the question is whether there is any real risk that the Government would actually take the drastic step of enforcing it to the detriment of innocent owners. He observed that “it is simply not in the nature of good government to harm innocent people unnecessarily like that”.

26.  Liu Wai Yin v Failic Trading Co Ltd [2023] 3 HKLRD 91 is a recent application of Jumbo King. In that judgment (at §46), Ng J referred to the dissenting judgment of Liu JA[4] where he opined that

“the court would be considered best guided by the commercial reality as to whether there is any real risk of problems in title. It is not to be troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in matters requisitioned. Conveyancing practice must be geared to uphold bargains.[5]”

27.  A breach of a covenant in a Government Lease may or may not lead to a doubtful or defective title to a property on the land. The answer depends upon whether there would be a real risk that the Government may take enforcement action over the property because of the breach: see Wielder Properties Investment Company Limited v Richway International Investment Limited [2020] HKCFI 506 at §22. Sub-paragraph (3) of §22 contains a summary[6] of the Court of Appeal’s holdings in Kingdom Miles Limited v Ever Crystal Limited [2019] 1 HKLRD 643 at [66]-[72]:

“Good title means that there is no real risk that a third party may assert some right over the property, thereby encumbering it or defeating the title altogether. It is trite that a good title is not a perfect title, free from every possible blemish. In considering whether a good title has been shown, the matter should be approached from the stand-point of a willing vendor and a willing purchaser with reasonably robust commonsense. What has to be borne in mind is the commercial reality, not the seeking of an absolute risk-free assurance.”

Conveyancing history of the Lot

28.  Upon the grant of the Government Lease, Chan and Kwan were registered as tenants in common, each holding an undivided half share of the Lot.

29.  On 6 June 1968, Chan sold his undivided half share, being No.4A Cooper Road to Tam Yuet Wah. The following table summarises subsequent transactions concerning No.4A as recorded in the Land Register:

(1) 4A Cooper Road

Date	Buyer	Consideration (HK$)
6 Jun 1968	Tam Yuet Wah	135,000
30 May 1981	Murli Manohar Company (Hong Kong) Limited	6,500,000
31 Mar 1988	The Plaintiff	7,000,000

30.  Kwan passed away on 22 November 1967 and her undivided half share (being No.4 Cooper Road) devolved on her executors who were Tam Wing Sing[7] and Tam Wing On. On 8 January 1971, Tam Wing Sing and Tam Wing On executed a vesting assignment of Kwan’s undivided half share in themselves and on the same day, Tam Wing On assigned his one- half interest in Kwan’s undivided half share to Tam Wing Sing. The following table summarises subsequent transactions concerning No.4 as recorded in the Land Register.

(2) 4 Cooper Road

Date	Buyer	Consideration (HK$)
8 Jan 1971	Tam Wing Sing	250,000
1 Dec 1981	Fems Realty Limited	9,000,000
22 Sep 1987	Emir Company Limited	6,900,000
1 Mar 1991	First Pacific Management Services Limited	12,000,000
17 Dec 1997	Yieldbest International Limited	60,880,000

Whether there is a real risk of enforcement

31.  The first question is whether there is any breach of the Covenant on the evidence presented.

32.  When the Government Lease was granted in 1965, the Lot included the Building but which to the Government’s knowledge was “divided internally by a vertical partition so as to comprise two separate semi-detached residences[8]”. In 1960, Government considered that to be contrary to “Special Condition No.8”[9]. As there is no evidence of the actual wording of the Special Condition referred to, it is possible but unclear if the Covenant replicated or tracked its wording.

33.  The fact of there being a vertical partition must mean that there would have been separate entrances to the 2 parts of the Building. Otherwise, one of the parts would have been inaccessible.

34.  In any event, had the Government considered that state of affairs to be unacceptable, it would have made the grant of the Government Lease conditional on the alleged breach first being ‘purged’, that is to say being put right. The Government did not do so.

35.  If the use and occupation of the Building was no more than a continuation of the state of affairs prevailing at the date of the grant, it is difficult to see how a breach could have arisen.

36.  Assuming (for present purposes) that it is arguable that the Covenant has been breached, Mr Benjamin Lam and Mr Oliver Tse, counsel for P submitted that the principles laid down in Jumbo Gold come into play. The relevant factors to be taken into account include the following:

(i)  There have been many conveyancing transactions in the past 60 years of the two undivided half shares of the Lot: it is therefore a situation where third parties are involved.

(ii)  The Government has written letters sporadically[10], complaining about a breach of the Covenant without any meaningful follow-up.

(iii)  For any enforcement action to be taken now, such action would affect not only No.4A but also No.4 Cooper Road.

(iv)  The effect of any such action is tantamount to ‘confiscating’ both properties[11] for a breach not committed by the current owners.

(v)  On the evidence presented, any such breach pre-dated the Government Lease, yet for decades the Government did not see fit to require remedial action by the grantees as a condition of a grant.

37.  Mr Michael Lo, counsel for D, attached considerable significance to the September 2024 and February 2025 letters and considered there to be a real risk of enforcement. He also sought to distinguish Jumbo Gold where there had been 40 years of Government inaction.

38.  In my view, it is unrealistic to have regard only to the 2 most recent letters from the Government and ignore the events set out in §§4-16 above. One needs to look at the broad picture and evaluate the likely risk having regard to commercial reality.

Conclusion

39.  For the reasons set out above, I considered that there can be no real risk of enforcement. The observations of Bokhary PJ in Jumbo Gold set out in §24 above apply, mutatis mutandis, to the present case.

40.  In my view, should the Government take enforcement action, it is inconceivable that the Court would not grant relief against forfeiture.

41.  Accordingly, I made an order in terms of §§1 and 3 of the VP Summons.

42.  Towards the end of the hearing, I enquired about the status of Government rent commencing 11 January 2025. As that information was not at hand at the hearing, P’s solicitors undertook to update the Court in writing.

43.  On 11 September 2025, P’s solicitors wrote to the effect that P does not have a record of receiving the Government Rent demand note or record of payment Government Rent. Upon oral enquiries made with the District Lands Office (the “DLO”) on 11 September 2025, the DLO verbally confirmed that there are no outstanding payments for Government Rent. There are quarterly receipted payments for rates for the 1^st to 3^rd quarters of 2025.