MARKING LTD. v. CHEERIFAT INVESTMENT LTD.

HCMP No. 2727 of 1995

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is a petition issued under s.12 of the Conveyancing and Property Ordinance, Cap.219 on 22nd September 1995 by Marking Limited ("the Purchaser") for a declaration that the Vendor has failed to make or show a good title.

2. On 29th July 1995, the Purchaser had entered into a Sale and Purchase Agreement with Cheerifat Investment Limited ("the Vendor") to purchase "ALL THOSE 12 equal undivided 3,100th parts or shares of and in ALL THAT that piece or parcel of ground registered in the Land Registry as KOWLOON INLAND LOT NO.10600 and of and in the messuages erections and buildings thereon known at the date hereof as 'HARBOUR CRYSTAL CENTRE' together with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT OFFICE NO.912 on the NINTH FLOOR of the said building" ("Unit 912") at a price of $7,555,500.

3. Under the Agreement, completion is to take place on or before 23rd October 1995, time being of the essence. The sale was expressed to be subject to and with the benefit of the Deed of Mutual Covenant of Harbour Crystal Centre dated 30th March 1983 ("DMC").

4. The petition before me concerns a requisition raised by the Purchaser's solicitors on 13th July 1995 as to the absence of any Sub-Deed of Mutual Covenant ("Sub-Deed") or other document or deed to sub-divide the 138/3100 equal undivided shares allocated to the 9th floor as a result of which it was said there would be no exact definition of the exact rights and liabilities that run with Unit 912. The objection was thus twofold, viz. (a) the absence of a Sub-Deed or other document sub-dividing the 138 undivided shares to the units on 9th floor, and (b) the lack of certainty regarding the rights and liabilities that run with Unit 912.

Allocation of undivided shares

5. Under the DMC, 138/3100 equal undivided shares were allocated to the whole of the 9th floor which Rococo Estates Ltd and Moon Court Ltd ("the Developers") retained: see recital (5). The DMC also reserved to the Developers the right to enter into a Sub-Deed which was never exercised: see clause 8(e).

6. Subsequent to the DMC, the Developers executed the following assignments:

It is to be noted that as a result of these assignments, the Developers parted with all the 138/3100 undivided shares that had previously been vested in them in respect of the 9th floor.

7. It will be seen from the last of the assignments listed above that the Developers assigned 62/3100th undivided shares to Mirex Investments Ltd ("Mirex") together with the sole and exclusive right to hold use occupy and enjoy Units 901, 902, 904, 905 and 912. On 1st September 1984, Mirex in turn assigned 37/3100th undivided shares together with the sole and exclusive right to hold use occupy and enjoy Units 901, 902 and 912 on the 9th floor of the Building to the Vendor.

8. Prior to the issuance of the Petition, the only evidence relating to the allocation of undivided shares on the 9th floor consisted of a copy of a Control Card No.6 ("the Control Card") kept at the Land Registry pertaining to the 6th-10th floors. Under the remarks column, there is an entry viz. "12 shares" against Office Nos. 6 and 12. In fact, the twelve "offices" on each of those floors fell into 3 groups, each of the units in the relevant group shown as having respectively, 18 shares, 7 shares and 12 shares. The Control Card does not reveal when it was opened but it was obtained by the solicitors for Mirex on 1st May 1984 when it acquired five units on the 9th floor including Unit 912 on 2nd May 1984. The first observation to be made on the Control Card entries is that the number of undivided shares of the 12 units total 138.

9. There was also a two-page document with entries under columns headed "Floor", "Office No." and "No. of Shares" relating to the 3rd and 5th-13th floors ("the Memorandum"). It was also obtained from Messrs Woo, Kwan, Lee & Lo who acted for the Developers on 1st May 1984 by the solicitors for Mirex. The number of undivided shares appearing adjacent to the units on the 9th floor correspond to those shown on the Control Card save that various entries had a line drawn through them. Other than that, there is no information regarding the date(s) the Control Card and the Memorandum came into existence.

10. The Purchaser submitted that it is not apparent from the Control Card as to when and by what means the 138/3100th undivided shares had been allocated and the Memorandum was defective because Units.903, 909, and 910 appear to have been crossed off the list. The solicitors who acted for the Developers when the 9th floor was divided into separate units confirmed in writing that at that time they had specific instructions from the Developers on the allocation of undivided shares to the various units.

11. On 9th October 1995, which was after the presentation of the Petition, the vendor made available a copy of a document headed "Share Apportionment In Respect of Harbour Crystal Centre (K.I.L.10600)" ("the Schedule") obtained from Messrs Woo, Kwan, Lee & Lo. The Land Registry has confirmed that the original was lodged with them on 13th May 1983 by Messrs Woo, Kwan, Lee & Lo for the creation of sub-division registers for Harbour Crystal Centre as filed in Land Registry Records. As regards the 9th floor, the undivided shares allocated to each of the 12 units as shown in the Schedule correspond with those appearing on the Control Card and on the Memorandum.

12. The Petitioner relies on the unreported decision Lee Tak Chun v. East Weal International Ltd HCMP No.857 of 1994 in support of its contention that a vendor must prove the exact number of undivided shares allocated to the unit being sold. In that case, the entire 35th floor of a building had been sold to A as a unit and 227 undivided shares were assigned to A. Subsequently the 35th floor was divided in 12 units and A sold 8 out of 12 units to the vendor, assigning to him 147 undivided shares. One of the 8 units was sold by the vendor to the purchaser. The agreement referred to the unit having 20 undivided shares. There was a land search record relating to the unit which contained a partly chopped and partly hand-written endorsement of "20/3100th" share but there was no other document registered that would throw any light as to the allocation of 20 undivided shares to the unit. There was nothing that revealed how, when and by what means the unit was allocated 20 undivided shares. The basis of the information that came to be entered the Land Registry's record was a complete mystery.

13. It was held that the requisition regarding the allocation of the 20 undivided shares to be a relevant and proper one to raise because "[m]any of the rights and liabilities of an owner of a unit vis-a-vis other co-owners depend solely on the exact proportion in the undivided shares of the land his unit was legally and validly allotted ..... The importance lies in the definition of the exact extent of rights and liabilities that run with the unit": per Jerome Chan, J. at p.11 of the judgment.

14. It will have become apparent that the present case is not on all fours with Lee Tak Chun, supra. Factually, it is materially different because here it is known how the 12 undivided shares for Unit 912 came about: the Schedule was lodged with the Land Registry several months before the first of the units on the 9th floor was sold off and it clearly shows Unit 912 as having 12 undivided shares. In my view, the Schedule is sufficient evidence of the allocation of undivided shares: the Schedule on its face deals with "Share Apportionment In Respect of Harbour Crystal Centre"; it was submitted to the Land Registry by the solicitors who acted for the Developers for the creation of sub-division registers for Harbour Crystal Centre, accepted as such and acted upon by the Land Registry; and units on the 9th floor have been assigned in conformity with the number of undivided shares shown on the Schedule. Accordingly, in my judgment, the objection based on back on the allocation of undivided shares is unsustainable.

15. Having reached that conclusion, it is not strictly necessary to consider the argument put forward by counsel for the Vendor except that it may have a bearing on costs. Put shortly, the argument is that neither the Schedule nor any memorandum of allocation is necessary. It was submitted that the minimum requirements were three, namely, that (1) the vendor has the number of undivided shares he has contracted to sell; (2) the vendor can grant the purchaser the exclusive "use" of the subject premises; (3) there is a right of way to the premises. It was also submitted that as far as title is concerned, a deed of mutual covenant is not necessary: Goodtex Land Co. Ltd v. Lung Kwong Emporium Co. Ltd [1993]1 H.K.C.645. Nevertheless, where a deed of mutual covenant exists, it was accepted that any assignment of undivided shares would be subject to limitations (if any) imposed by that deed. For example, clause 7 of the DMC in this case prohibits the right to exclusive "use" from being dealt with separately from the undivided share save in the case of terms of 10 years or less. So, the vendor could not validly assign in contravention of this provision.

16. Mr Chain referred to the unreported decision in Sheenip Industries Ltd v. Champion Billion Development Ltd, HCMP No.1390/95 for the proposition that there are no constraints on the allocation of undivided shares by their owner. But as is clear from the judgment of the learned deputy judge (at p.14 M-N), "there might be a difference if the DMC had contained a specific allocation of shares and the [owner of the undivided shares] chose to re-allocate the shares differently". I respectfully agree. I would go further to say that, it does not matter if the specific allocation of shares is made in the DMC itself or in some other document.

17. If it might make a difference whether the number of undivided shares to be assigned is inconsistent with the number that had been allocated to the unit, it must follow that should such a document exist, be it a DMC or some other document such as the Schedule, it would have a bearing on the title of the premises being conveyed. In my judgment, the Purchaser is entitled to know if any document exists that relate to the allocation of undivided shares so as to be in a position to ascertain whether what was contracted to be conveyed is consistent or at variance with the allocation (if any).

Rights and liabilities

18. The Purchaser's other objection is that the rights and liabilities that run with Unit 912 remain uncertain because of the absence of a Sub-Deed.

19. Although counsel for the Purchaser submitted that uncertainty exists (and he gave by way of example, the right to use the corridor and the lavatories and an owner's liability for rates), it is not readily apparent why this is so. Where, as in the present, there is sufficient evidence of the undivided shares allocated to the unit in question, the uncertainty which the learned judge in Lee Tak Chun thought would result from there being no evidence of allocation of undivided shares simply does not arise. The holding made in Lee Tak Chun regarding uncertainty does not therefore fall for consideration.

20. Admittedly, some of the assignments of 9th floor units contain an express grant of a right to pass and repass over the corridor and to use the lavatories on the 9th floor subject to the payment of a due proportion of the costs for maintaining the same whilst others contained no such express grant. It is to be noted that the assignment to the Vendor of 1st September 1984 by Mirex and the assignment of 2nd May 1984 to Mirex contained such an express grant. But it does not necessarily follow that uncertainty would result because some of the assignments did not contain an express grant if, for example, such rights and liabilities fall within and are governed by the DMC to which each assignment was subject.

21. As noted above, the Developers parted with all the 138 undivided shares allocated to the 9th floor by the various assignments referred to above, having in the process created the corridor delineated on the plans attached to each of those assignments. Having regard to the terms of the DMC, that the corridor (and the common lavatories) on the 9th floor fall within the definition of "The Building Common Areas" does not admit of any real doubt: the corridor is clearly not "exclusively owned" by any of the owners. In these circumstances, no uncertainty has been made out regarding the right of the owners of the 9th floor units to use the common areas on the 9th floor. Nor has uncertainty been shown as regards management fees. Clause D(3)(b) of Section VI of the DMC provides that:-

"The amount of the monthly contributions payable by each Owner ..... shall be calculated by reference to the size and area of each Owners' (sic.) portion of the Building or such alternative basis as the Manager may in its absolute discretion from time to time think fit."

There is evidence before me that management fee is and has been levied on each individual unit according to actual existing units irrespective of whether any party owns or occupies more than one unit: see paragraph 12 of the affirmation of Tsang Wai Kwan filed on 9th October 1995. There appears to be agreement that the charges levied are currently calculated by reference to size. Although the basis for which management fees are charged may be altered (as is expressly provided for in the DMC), that does not render the liability of an owner uncertain.

Order

22. I find that requisition No.4 contained in the letter dated 13th July 1995 has been satisfactorily answered and that the Respondent has made or shown good title to the said premises. Accordingly, I order that the Petition be dismissed.

Costs

23. Having regard to the decision of Lee Tak Chun, and the fact that the Schedule and evidence concerning it were not made available until after the date of the Petition, there will be no order as to costs.