JOVIAN CORPORATE COMMUNICATIONS LTD v. LINK WIDE INTERNATIONAL INVESTMENT (HONG KONG) LTD

CACV 199/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 199 OF 2015

(ON APPEAL FROM HCA NO 1235 of 2014)

___________________________

___________________________

_____________________________________

REASONS FOR JUDGMENT

_____________________________________

Hon Lam VP (giving the Reasons for Judgment of the Court):

1.  The parties to this appeal were parties to a conveyancing transaction. The Defendant was the purchaser and the Plaintiff was the vendor under an agreement of 6 December 2013 in respect of an office unit on the 24^th Floor in Tung Hip Commercial Building [“the Building”] in Central. The agreed completion date was 30 June 2014. The Defendant alleged that the Plaintiff failed to answer a requisition satisfactorily. The transaction fell through and litigation followed. The Plaintiff’s case was that the alleged outstanding requisition was misconceived and sought a declaration that it was entitled to forfeit the deposit in the sum of $2,380,000 and damages. The Defendant resisted the claim and counterclaimed for the return of deposit and damages.

2.  After the close of pleadings, cross-summonses were issued by the parties to seek summary determination by the court.  By a summons of 13 October 2014, the Defendant made an Order 14 cum Order 14A application determining questions of law relating to the outstanding requisition and for summary judgment on the counterclaim.  On 12 March 2015, the Plaintiff made an application to strike out the Defence and Counterclaim in the event of the determination of those questions against the Defendant and for final judgment to be entered in favour of the Plaintiff.

3.  These summonses were heard by B Chu J on 30 March 2015.  By a judgment of 28 July 2015, the learned judge determined the questions in favour of the Plaintiff and granted the relief as sought by the Plaintiff. 

4.  This is the Defendant’s appeal against that judgment.  After hearing submissions, we dismissed the appeal.  Here are our reasons.

5.  The outstanding requisition was discussed in the clear and careful judgment at paragraphs 13 to 23 and the judge also summarized the relevant correspondence between the solicitors from 31 December 2013 to 30 June 2014 at paragraph 24.  In a nutshell, the requisition was directed towards a Deed of Mutual Covenant and Partition [“the DMC&P”] of 1 June 1988.  As one of the four developers of the Building was the Tung Wah Group of Hospitals [“TWGH”], solicitors for the Defendant relied on Clause 2(1)(b) of the Schedule to the Tung Wah Group of Hospitals Ordinance and contended that the DMC&P had to be executed “with the approval in writing of the Governor” as it is an instrument for the partition of immovable property.  In 1988, Clause 2(1)(b) provided:

“(1) Without prejudice to any other Ordinance, the corporation shall have the following powers-

 (b) with the approval in writing of the Governor, to grant, sell, convey, assign, surrender, exchange, partition, yield up, mortgage, transfer or otherwise dispose of, or let for any period exceeding 3 years, any immovable property;”

6.  The Governor was the Governor of Hong Kong and the provision was there because TWGH was a charity.

7.  The judge set out the events leading to the joint development and the construction of the Building at paragraphs 16 to 20. We gratefully adopt the same by way of background to the issues raised on this appeal:

“16.  The Developers respectively owned portions of land in certain sections of Inland Lot Nos 1556, 1557, 1864, 1865 and 1866 (“Lots”).  They first agreed to jointly develop and construct the Building pursuant to an agreement entered into on 13 March 1982, followed by a supplemental agreement dated 1 June 1988 (“Joint Development Agreements”).

17.  In the meantime, the Developers had entered into an Agreement to Assign on 24 September 1986 with the then mortgagee Bank of East Asia and the then Financial Secretary Incorporated pursuant to which the Developers agreed to construct at their expense certain MTR Structures (as defined therein) and upon completion of the Building and when called upon by Financial Secretary Incorporated  to assign free of all costs and incumbrances, areas named MTR Areas  and , among other things, subject to and with the benefit of the deed of mutual covenant (“MTR Agreement”). Further, the deed of mutual covenant was to be submitted to the Registrar General (Land Office) for his written approval, and was to include certain terms set out in clause (1)(c) of the MTR Agreement.

18.  There was a memorandum endorsed on the back of the MTR Agreement, which stated “I HEREBY CONSENT to the within written Agreement under Clause 2(1)(b) of the Schedule to the Tung Wah Group of Hospitals Ordinance” (“Memorandum”).  The Memorandum was dated the same date as the MTR Agreement and signed by the Director of Buildings and Lands for and on behalf of the Governor.  This represented the approval under the Statutory Provision.

19.  The Lots were developed and the Building was constructed.

20.  There were then a number of documents executed on 1 June 1988, including it seemed the supplemental agreement referred earlier, which was one of the Joint Development Agreements but no copy had been produced.  Anyway, the following 3 documents were executed on 1 June 1988:

(i)      A Deed of Exchange Memorial No UB3759586 on 1 June 1988 which the Developers entered into to exchange their rights title and interest of and in the portions of the land they respectively owned so that they became the co-owners of the Lots with their respective shares therein mentioned (“Deed of Exchange”).

(ii)     An Assignment Memorial No UB 3759587 (“MTR Assignment”), by which the Developers jointly assigned 160,400 equal and undivided shares in the Building and the exclusive rights of the MTR Areas to the Mass Transit Rail Corporation (“MTRC”).

(iii)    The DMC&P entered into by the Developers (as Registered Owners), with MTRC as first purchaser and Guardian Property Management Limited as manager.”

8.  The three questions raised in the summons were set out at paragraph 25 of the judgment:

“ The 3 questions of law set out in D’s Summons were:

(i) Whether the DMC&P amounted to a partition within the meaning of the Statutory Provision; (“1^st Question”)

(ii) Whether, if the answer to (a) hereinabove were to be affirmative, the absence of the written consent as required under the Statutory provision would render the title to the Property not a good title; (“2^nd Question”)

(iii) Whether, if the answers to (a) and (b) above were affirmative, D had validly accepted the repudiation of the Agreement by P. (“3^rd Question”).”

9.  The judge answered the 1^st and 2^nd Questions against the Defendant.  She held that the DMC&P did not amount to a partition (paragraphs 26 to 61 of the judgment).  She also held that even if it amounted to a partition, the absence of the written consent under the Statutory Provision would not have rendered the title to the Property not a good title (paragraphs 63 to 74 of the judgment).  In light of that, the 3^rd Question did not arise.

10.  She therefore struck out the Defence and Counterclaim and gave judgment in favour of the Plaintiff in the action.

11.  In this appeal, Mr Chan (appearing together with Mr Tsang for the Defendant) challenged the judge’s decision on both Questions 1 and 2.  In our judgment, our determination on Question 2 is sufficient for the disposal of the appeal though we would also discuss Question 1 in this judgment.

Question 2: was there a good title?

12.  Mr Chan cited the well known passage in Kan Wing Yau v Hong Kong Housing Society [1988] 2 HKLR 187 at p.193H-I on the obligation of a vendor to show and give a good title,

“ A good title is one which can at all times and in all circumstances be forced upon an unwilling purchaser in an action for specific performance, but the court will not force a doubtful title on a purchaser. A doubtful title includes not only a title on which the court entertains doubts, but also one in respect of which the court entertains a favourable opinion but may yet be reasonably and fairly questioned by other competent persons. In this connection the court bears in mind that its decision binds the parties but not other adverse claimants who are not parties to the proceedings. A purchaser will not therefore be forced to take a title which will expose him to risk or hazard.”

Counsel also referred to Sun Sek Haw v Au So Kum [1999] 3 HKLRD 12 at 19B-F.

13.  At the same time, the courts also emphasized that a good title need not be a perfect title and in the assessment as to whether there is any real problem in the title the matter should be approached from the stand-point of a willing purchaser and a willing vendor with reasonably robust commonsense.  Thus Litton PJ said in Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109 at 117D-E:

“ A good title does not mean a perfect title, free from every possible blemish. Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”

14.  In the more recent case of De Monsa Investments Ltd v Whole Win Management Fund Ltd (2013) 16 HKCFAR 419, Litton NPJ again discussed the correct approach at various paragraphs which were encapsulated in the headnote at paragraph (5):

“ The vendor’s obligation to give good title was to ensure that, by completion date, his title was neither defective nor defeasible. He must deal with all defects so that the purchaser would not be at risk of a successful assertion against him of any encumbrance. The degree of risk --- whether it could be regarded as ‘fanciful’ --- depended on the circumstances.”

15.  See also So Mariko v Tse Chun Chung John [2011] 3 HKC 174 and Chun Tat Paper Co Ltd v Wong Ip Cheng [2013] 1 HKLRD 571.

16.  Applying such approach in the present case, one must have regard to the following background leading to the execution of the DMC&P:

(a)  The Government was cognizant of the joint development and was privy to the MTR Agreement and the MTR Assignment (through the Financial Secretary Incorporated);

(b)  The joint development included the construction of MTR structures by the registered owners (including TWGH) and reservation of land in part of the site for MTR purposes.  The construction of MTR was a Government proposal, see Recital (6) in the MTR Agreement and the costs of the construction of the basement, foundations and structures up to the ground floor level had been borne by the Government and the MTRC, see Clause 8 of the MTR Agreement;

(c)  The execution of a deed of mutual covenant to facilitate the MTR Assignment was an obligation imposed on the registered owners (including TWGH) at Clause 1(b) of the MTR Agreement;

(d)  The shares to be assigned under the MTR Assignment were to be approved by the Government through the Building Authority;

(e)  The deed of mutual covenant had to be approved by the Government through the Registrar General pursuant to Clause 1(c) of the MTR Agreement;

(f)  The Director of Buildings and Lands endorsed the written approval of the Governor on the MTR Agreement on 24 September 1986;

(g)  The DMC&P was approved by the Registrar General, see Recital (8) of the DMC&P;

(h)  The DMC&P was executed at the same time as the MTR Assignment and without the DMC&P, the MTR Assignment could not be executed; and

(i)  The Director of Buildings and Lands endorsed the written approval of the Governor on the MTR Assignment on 18 May 1988, before the execution of the MTR Assignment and the DMC&P on 1 June 1988.  

17.  Against such background, it is fanciful to suggest that the Governor had not given any approval to the DMC&P even though there was no endorsement of a written approval on the face of that document.  In our judgment, it is beyond reasonable doubt that the Government regarded the written approval endorsed on the MTR Assignment (an approval given on 18 May 1988) as approval for the whole series of transactions to be entered on 1 June 1988, including the DMC&P.

18.  If one were to consider the matter by assessing the risk of a successful assertion by the Government that no approval had been given for the DMC&P, the only possible answer is that there is none whatsoever.  Mr Chan had not been able to explain how the Governor could have approved the MTR Assignment without approving the DMC&P when it is plain from the history of the matter that the MTR Assignment could not have been effective without the DMC&P.  Thus, when the written approval was given on 18 May 1988, it had to be an approval for the whole series of transactions to be executed on 1 June 1988.  There is no requirement in Clause 2(1)(b) of the Schedule to the Tung Wah Group of Hospitals Ordinance that the written approval must be endorsed on the instrument.  In this connection, Clause 2(2) is clearly permissive rather than mandatory. 

19.  Bearing in mind the history of the matter, particularly the requirements in the MTR Agreement and the background set out above, we reject Mr Chan’s submission that the absence of the endorsement of approval on the DMC&P gave rise to a reasonable doubt as to whether approval had been given.  In our judgment, it is clear beyond peradventure that the written approval of 18 May 1988 encompassed approval for the DMC&P.  It is simply unnecessary to have a further endorsement on the DMC&P.   

20.  Even assuming for a moment (contrary to our primary conclusion) that there were a technical non-compliance with Clause 2(1)(b) in that the approval was not endorsed on the DMC&P itself, there cannot be any doubt that approval had been given.  Any attempt by the Government or any other person to assert that the DMC&P is invalid due to the want of approval would be laughed out of court.

21.  And it is difficult to contemplate the circumstances in which the Government, TWGH or, for that matter, anybody else who has an interest in the Building, in its or his right mind would advance such a challenge.  In this connection, the dicta of Bokhary PJ in Jumbo Gold Investment Ltd v Yuen Cheong Leung (2000) 3 HKCFAR 52 at paragraph 60 are equally apposite in the present case:

“ … The question is therefore whether, assuming that the Government has that right, there is any real risk that it would actually take the drastic step of enforcing it to the detriment of innocent owners. I entirely agree with Justice Litton PJ that the correct answer is in the negative. It is simply not in the nature of good government to harm innocent people unnecessarily like that. Accordingly it is safe to proceed on the basis that the Government would never do so.”

22.  We are of the clear and firm view that the judge was correct in holding that the title was good notwithstanding that no written approval had been endorsed on the DMC&P.  For this reason alone, the appeal should be dismissed.

Question 1: was there any partition under the DMC&P?

23.  Turning to Question 1, as the judge identified at paragraph 33 of the judgment, the crucial question is whether the DMC&P constituted a partition within the meaning of Clause 2(1)(b) of the Schedule to the Tung Wah Group of Hospitals Ordinance. 

24.  A Deed of Exchange was executed between the four owners (including TWGH) on the same date as the DMC&P.  The Deed of Exchange formed the basis of the co-ownership of the four owners as tenants in common in respect of the land, thus providing the underlying premise for Recital (5) in the DMC&P.  The allocation of shares between the four co-owners was achieved by the Deed of Exchange instead of the DMC&P.  As noted by the judge, solicitors for the Defendant did not raise any requisition regarding the written approval for the Deed of Exchange.

25.  In our judgment, as far as the disposal of interest in land by TWGH in favour of the other 3 co-owners was concerned, it had been achieved by the Deed of Exchange, not the DMC&P.

26.  Notwithstanding so, Mr Chan submitted that the clear reference to partition in the DMC&P and the provision in the instrument for the mutual assignment grant and release of exclusive rights in respect of different self-contained units in the Building amounted to partition for which approval from the Governor was required.  The relevant clause is Clause 3 of the DMC&P and we can take Clause 3(a) as the example:

“ In pursuance of the said agreement and for the purpose of effecting the said partition the Second Owner (ie Tung Wah) the Third Owner and the Fourth Owner do and each of them doth hereby ASSIGN GRANT and RELEASE unto the First Owner its successors and assigns the full and exclusive right and privilege to hold use occupy and enjoy to the exclusion of the Second Owner the Third Owner and the Fourth Owner ALL THOSE the self-contained Units in the Building set out in Part B of the Second Schedule opposite to the name of the First Owner TO HOLD the same unto the First Owner for the respective residues now to come and unexpired of the said concurrent terms of 999 years created by the Crown Grant TO THE INTENT that the premises described in this Clause shall forthwith be held by the First Owner in severalty free from any interest of the Second Owner the Third Owner and the Fourth Owner and that the First Owner shall have in all respects the rights of an absolute owner thereof subject to the Deed of Dedication.”

27.  Mr Chan also placed reliance on the latter part of this clause which the judge referred as the Intent Provision.

28.  Counsel submitted that by virtue of this clause, in particular the Intent Provision, the four owners could no longer be co-owners of the self-contained units.  In other words, the owner to whom the self-contained units were assigned became the only owner of such units. 

29.  We cannot accept this submission.  The effect of the clause must derive from the construction of the DMC&P as a whole instead of focusing on a few words in the clause.  It is clear from the DMC&P that the four owners remained as co-owners as throughout the instrument, their respective interest in the land was described by reference to the number of undivided shares in the land as allocated to them.  If they ceased to be co-owners upon the execution of the DMC&P, the conceptual underpinning for the holding of undivided shares in the land could not be maintained and the allocation of shares under the Second Schedule could not be effective.  The ramification was that none of them could assign their interest in land by reference to such shares.  Yet all subsequent assignments were done by assignment of such shares. 

30.  Further, as it can be seen from Part B of the Second Schedule, though there were units allocated solely to one of the four co-owners, there were also other units allocated to several of them.  There could not be any intention to have split ownership regarding the latter though the allocation of shares and regulation of rights and obligations for such units, like the case of the former, were governed by the same clause.

31.  Though the Intent Provision refers to “the premises” being held by the First Owner “in severalty free from any interest of the Second Owner the Third Owner and the Fourth Owner”, construing the clause in its context, we are of the view it could not have meant that the First Owner would become the sole owner for the land pertaining to such premises.  As a matter of law, as the premises or units were built on the same piece of land as the other premises or units in the Building (at different floors), the legal ownership of the land must vest in all four owners as co-owners.  The “absolute ownership” and “holding in severalty free from any interest of the other owners” in the Intent Provision can only refer to the ownership of the shares related to such units and the exclusive rights pertained to such shares under the DMC&P.    

32.  The matter can be tested by asking what would happen if there were to be an application for compulsory sale under the Land (Compulsory Sale for Redevelopment) Ordinance Cap 545 or alternatively if there were a fire destroying the Building.  We have no doubt that all the four owners and their successors in title would be entitled to say that they were co-owners of the land and all questions regarding redevelopment of the land would have to be determined accordingly.  Likewise, the same would have to be the case if there is a resumption of the land by the government.

33.  Once the true effect of the clause is appreciated, it can readily be seen that the judge must be correct in holding that the analysis of Chief Justice Li in Kung Ming Tak Tong v Park Solid Enterprise (2008) 11 HKCFAR 403 was equally applicable in the present context.  We respectfully agree with paragraphs 48 to 51 in the judgment:

“48. What Li CJ had said in Kung Ming Tak Tongwas-

‘17. The conveyancing techniques adopted in the present case reflect the usual Hong Kong practice for dealing with the ownership of units in multi-storey buildings in multiple occupation. The system has been described in the textbooks and is unique in the common law world.

18. The first of the system’s main features is that persons owning interests in the property hold as legal tenants in common. All land in Hong Kong is held on a government lease (referred to as a Crown lease before 1 July 1997). The developer of the land, often the original government lessee, notionally divides such leasehold property into a specified number of equal undivided shares and allots exclusive rights of occupation over particular units or parts of the building to stated parcels of those undivided shares. Individual owners acquire their interest by taking an assignment of undivided shares, making them tenants in common with other owners who do likewise. It has been suggested that this approach – as opposed, for instance, to the creation of a series of sub-leases – was adopted to cater “for the desire of individuals to “own” their own property as opposed to merely being a tenant of a landlord…’

49. The words “ASSIGN GRANT and RELEASE” in Clause 3 (a) clearly referred to the assigning of the full and exclusive right and privilege to hold use occupy and enjoy those self-contained Units in the Building, as set out in Part B of the Second Schedule.

50.  I accept that Clause 3(a) with the Intent Provision was differently worded than, say clause 1 of the DMC in Kung Ming Tak Tong which stated “Each of the parties hereto … hereby grants … and assigns the full right and privilege to the exclusive use occupation and enjoyment and the rents and profits … of the part of the said Building … to the intent that each of the parties hereto shall be entitled to exclusive use occupation and enjoyment and the rents and profits … of the said part of the said Building …

51.  However, according to my construction, the Intent Provision no more than reiterated what Li CJ had said, that for all practical purposes, the Owner of undivided shares to which a Unit had been allotted was able, by virtue of the DMC&P, to exercise rights in relation to that Unit as if it was its absolute owner.”

34.  Partition is a term with special meaning in legal context.  In his written reply submission, Mr Chan referred to the explanation of the term in Halsbury’s Laws of Hong Kong 2^nd Edn Vol 35 paragraph 230.824:

“ A tenancy in common may be determined by partition. The legal term ‘partition’ is applied to the division of land, tenements and hereditaments belonging to co-owners and allotment among them of the parts so as to put an end to community of ownership between some or all of them.” (our emphasis)

35.  For reasons above, it could not have been the intention of the parties to the DMC&P to put an end to the common ownership of the land and the clause in question does not have that effect.  Thus, there had not been any partition.

36.  In his oral submissions, Mr Chan tried to persuade us that in the context of Clause 2(1)(b) of the Schedule to the Tung Wah Group of Hospitals Ordinance, the word “partition” should be given a wider meaning.  Granted that the intention of that clause was to give the Governor some control over the disposition of immovable property by TWGH as a charity, it is necessary to have certainty in the matter.  Counsel has not been able to formulate a precise meaning to replace the well established meaning for “partition” which is certain and workable.  The best formulation put forward by him was the dissection and giving up of interest in possession of a tenement in the property.

37.  According to such formulation, it may even encompass a lease of less than 3 years, which in light of the reference at the latter part of Clause 2(1)(b) to letting over 3 years, could not have been intended as partition.  Counsel also submitted it was a matter of degree whether a transaction amounts to partition.  In our judgment, such formulation suffers from want of clear criteria for determining whether a particular instrument comes within the requirement for written approval.  By reason of that reference, we see no basis for adopting a definition of partition which focuses on the right to possession as opposed to ownership.  

38.  Partition is and was a well understood concept amongst lawyers.  Even before the enactment of the Partition Ordinance, there were common law cases governing actions for partition.  We are not persuaded that there should be a different meaning for this expression in the context of Clause 2(1)(b).     

39.  We therefore hold that the judge was also correct in her answer to the First Question.

Disposition

40.  The appeal was dismissed with costs accordingly.