5M ENTERPRISES LTD v. LEE CHEE WAH AND ANOTHER

HCMP 2296/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2296 OF 2003

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J U D G M E N T

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1. Let me say at once that I find the evidence of there having been made a common mistake regarding the so-called first assignment, the subject instrument, in the present proceedings for rectification, overwhelming. I agree with the submission of Mr Jeremy Chan, appearing for the Plaintiff: What is in issue is the true agreement or true intention of both parties to the first assignment, i.e. the developer of the subject building and the first purchaser of a flat on the 3rd floor of the building, when they executed the assignment back on 14 November 1968. What does not directly require my determination is the true construction of the provisions in the Deed of Mutual Covenant executed on the same day as the first assignment. I am concerned with an application by the Plaintiff, i.e. the developer, for the rectification of the first assignment. I am not concerned with any rectification of the Deed of Mutual Covenant.

2. I say all this because as I understand it, there is an on-going dispute involving the incorporated owners of the building, i.e. the 2nd Defendant, with the Plaintiff, regarding the right to use and occupy the roof of the building.

3. Reverting to the true agreement between the Plaintiff and the first purchaser, i.e. the predecessor-in-title of the 1st Defendant, who does not dispute the Plaintiff's claim in the present proceedings and does not appear at today's hearing, I bear in mind the following matters put in evidence before the Court.

4. The operative part of the first assignment clearly suggests that some words are missing from the exception and reservation clause. Not only was the roof, the real subject matter of contention between the parties, not excepted and reserved, the rest of the units in the building (apart from the one unit on the 3rd floor agreed to be sold to the first purchaser) were also not excepted and reserved. Only the car parking spaces at the ground floor and the first floor were excepted and reserved.

5. Secondly and perhaps more importantly, prior to the first assignment, the parties had signed a sale and purchase agreement dated 18 October 1968, i.e. less than one month before the execution of the first assignment. Clause 14 of the sale and purchase agreement clearly provided that the sale and purchase of the unit on the 3rd floor should confer no right to the first purchaser to use the roof of the building, and there was excepted and reserved unto the developer the sole and exclusive right to hold use and enjoy all the flats in the building other than the unit in question on the 3rd floor and the roof of the building.

6. Between the signing of the sale and purchase agreement and the execution of the first assignment, there was less than one month's time. There is nothing before me to suggest that during that short period of time, there was any change of intention or agreement between the parties regarding the subject of sale and purchase so that somehow the right to use the roof of the building after the completion of the sale and purchase, should leave the developer in whole or in part.

7. On the contrary, I have the evidence of the solicitors acting for the developer and the first purchaser in the transaction respectively. Both solicitors said on oath that it was the intention of their respective clients to only sell and purchase the unit on the 3rd floor together with one car parking space, with the developer excepting and reserving unto itself the exclusive right to use the remaining units and the roof. Of significance is that none of them suggested that they had ever received any instructions from their respective clients, prior to the execution of the first assignment, that there had been any change of agreement or intention amongst them, after the signing of the earlier sale and purchase agreement, regarding the roof. They both said that in fact, a typographical error was made in engrossing the first assignment, resulting in the missing of the reference to the other apartments or units in the building as well as the roof from the exception and reservation clause in the executed first assignment.

8. As I mentioned above, certainly there is no documentary or circumstantial evidence suggesting that there was a change of intention or agreement between the parties prior to the execution of the first assignment.

9. I fully accept that the Deed of Mutual Covenant is a relevant document to look at, in order to find out whether there was a common mistake made by the parties, or put another way, the true agreement and intention of the parties.

10. I bear in mind the submissions made by Mr Lo on behalf of the incorporated owners regarding the true construction of the Deed of Mutual Covenant. As I said at the outset, I am not concerned with the true construction of the provisions in the Deed of Mutual Covenant as such; I am aware, as I said, that there is an-ongoing dispute between the co-owners of the building regarding the roof.

11. Even assuming - without deciding - as Mr Lo has forcefully submitted in his written submission, that clause 1 of the Deed of Mutual Covenant and the first schedule to the Deed, on their true construction, do not provide that the developer shall have the exclusive use occupation and enjoyment of the roof (as opposed to the other units), the Deed does not say that the roof is a common part of the building not within the exclusive use occupation and enjoyment of the developer either. Certainly, clause 2 of the Deed which relates to common parts does not say that the roof forms part of the common parts of the building. Put in the present context, the Deed is inconclusive regarding the true intention and agreement between the parties. Whilst, as I say, I must bear in mind the Deed of Mutual Covenant and its provisions, the extent to which the Deed and its provisions could assist the Court in finding out the true intention and agreement of the parties is limited.

12. As regards the definition of "common parts" in section 2 of the Building Management Ordinance (Cap. 344), in my judgment, the same is perhaps more relevant to the true construction of the Deed than to the question of the true agreement between the parties back in 1968 when they executed the first assignment - which ultimately is a question of fact and evidence. But in any event, the definition of common parts in section 2 does not take the matter any further for the purpose of Mr Lo, because as regards the roof, whether it is part of the common parts of the building depends on whether the roof has been "specified or designated in an instrument registered in the Land Registry as being for the exclusive use occupation or enjoyment of an owner". So far as the first assignment is concerned, this begs the question because the present issue is whether the first assignment should be rectified in order to include the reference to the roof in the exception and reservation clause. So far as other instruments are concerned, i.e. the sale and purchase agreement and the subsequent assignments which I will come to, they all refer to the roof as being for the exclusive use occupation and enjoyment of the developer.

13. I find the subsequent assignments relevant to the true agreement between the developer and the first purchaser. Between 1 December 1968 and 30 June 1977, there were no less than 15 subsequent assignments of units and car parking spaces in the building by the developer in favour of subsequent purchasers. In all of these assignments, the exclusive use occupation and enjoyment of the other units as well as the roof was expressly and specifically excepted and reserved unto the developer. In particular, between 1 December 1968 and, say, 15 November 1969, i.e. within one year after the execution of the first assignment, there were 9 subsequent assignments by the developer in favour of various subsequent purchasers. In all these assignments, one could find the same exception and reservation regarding the roof (and the other units). I certainly find all these assignments, particularly those made within one year after the execution of the first assignment, highly material as evidence of what the true intention and agreement of the parties to the first assignment was regarding the roof (and the other units).

14. I should say that I could understand Mr Lo's argument regarding the true construction of the Deed of Mutual Covenant. But even assuming that Mr Lo was correct regarding the true construction of the Deed of Mutual Covenant relating to the roof, the necessary implication of which would be that the developer and all the subsequent purchasers were labouring under a mistake regarding the developer's (supposed) right to use the roof when they entered into the subsequent assignments on terms that I have alluded to above, that would not prevent the subsequent assignments from being evidence of what the true intention and agreement of the developer and the first purchaser was at the time when they entered into the first assignment. They are simply two different matters.

15. For all these reasons, as I said from the outset, I find the evidence supporting a common mistake overwhelming.

16. There is no real dispute regarding the principles governing the grant of this equitable and discretionary relief of rectification. I have been referred helpfully by Mr Chan to cases like Beale v. Kyte [1907] Ch 564; Clark v. Barnes [1929] 2 Ch 368; Lovell & Christmas v. Wall (1911) 104 LT 85, which set out the relevant principles.

17. I am satisfied that based on the established principles, a case for rectification, by reason of a common (clerical or typographical) mistake made in the course of reducing the parties' true intention and agreement to writing (in the form of the first assignment), has been made out.

18. Mr Lo, on behalf of the incorporated owners, has submitted that as the rectification of the first assignment would not conclusively dispose of the dispute between the relevant parties regarding the roof which (dispute) concerns more the construction of the Deed of Mutual Covenant than anything else, there is no practical benefit to be gained by granting the relief. He has therefore submitted that the Court should not as a matter of discretion grant the relief.

19. I do not agree. That the rectification of the first assignment might not conclusively resolve the question regarding the right and privilege to use occupy and enjoy the roof does not mean that it would not assist in the eventual resolution of the dispute at all. I can certainly see the practical benefit of granting the relief sought.

20. In the exercise of my discretion, in the circumstances of the present case, I am prepared to grant the relief sought. In other words, I order that the assignment dated 14 November 1968 and registered in the Land Registry by Memorial No. 654227 be rectified by inserting in clause 4 thereof the words "all the apartments in the said building and the roof thereof, and" immediately after the words "AND EXCEPTED AND RESERVED unto the vendor and his assigns the full and exclusive right and privilege to hold use occupy and enjoy".

21. I would now hear the parties on the question of costs.

[Submissions on costs]

22. Having heard submissions on costs from both counsel, I can say at once that I am not disposed to ordering costs on an indemnity basis against the 2nd Defendant who has, according to my judgment, lost, as it were, the present argument. I can see no arguable basis for awarding costs on an indemnity basis against the incorporated owners.

23. As regards the costs of the present proceedings, I bear in mind, on the one hand, that costs should normally follow the event and the 2nd Defendant has failed in the substantive argument. On the other hand, I am entitled to bear in mind the nature of the present application, i.e. the Plaintiff came to seek a discretionary relief from the Court, the necessity for which arose out of a mistake the Plaintiff itself was a party to.

24. I also bear in mind that the Plaintiff has of its own volition joined the 2nd Defendant, prima facie a stranger to the first assignment, as a party to the present proceedings. On the other hand, I do note that after having been so joined, the 2nd Defendant has taken an active part in resisting the application of the Plaintiff in the present proceedings.

25. I bear all this as well as the general circumstances of the case in mind in exercising my discretion on costs. I should add that the Plaintiff in coming to Court asking for a discretionary relief must, in any event, have to incur some costs in proving its case to the satisfaction of the Court.

26. In the exercise of my discretion, I order 50% of the costs of the substantive hearing, i.e. the costs of the hearing today, to be paid by the 2nd Defendant to the Plaintiff; such costs are to be taxed if not agreed. As regards the rest of the costs of the proceedings as between the Plaintiff and the 2nd Defendant, I make no order as to costs. (As regards the costs of this action as between the Plaintiff and the 1st Defendant, I order, by consent, that the same be paid by the Plaintiff to the 1st Defendant, to be taxed if not agreed.)

27. By taxation of costs, I was of course referring to taxation of costs on a party and party basis.