THE INCORPORATED OWNERS OF PO HANG BUILDING v. SAM WOO MARINE WORKS LTD

DCCJ 2259/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 2259 OF 2013

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DECISION

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Introduction

1.  After I handed down the Decision dated 23 December 2013 whereby I entered default judgment against Sam Woo Marine Works Limited (“Sam Woo”), the parties took out three summonses two by Sam Woo and one by the Incorporated Owners of Po Hang Building (“the IO”). In this document, I shall adopt the abbreviations as defined in the Decision.

2.  I shall first deal with the unopposed application of the IO by summons dated 22 January 2014 to vary the costs order nisi to the effect that the IO should be entitled to not just the costs of the two summonses (the IO’s summons dated 18 October 2013 and the summons of Sam Woo dated 7 November 2013) but also costs of this action as well.

3.  By the Decision, I granted the IO’s application for default judgment and naturally costs of the action should be borne by Sam Woo too, as so asked for in the IO’s summons. It was a slip that I did not make it clear in my costs order nisi. The parties agree that the application of the IO should be allowed so as to entitle the IO costs of the action upon my granting its application for default judgment. I so order and I make no order as to costs in respect of this application.  

4.  The two substantive applications of Sam Woo are respectively for leave to appeal from the Decision and for a stay of execution by two summonses both dated 24 December 2013.

5.  Here, I would refer to the Decision for all the background facts of this action and I shall not repeat them. By way of a basic backdrop, in the Decision I found the Man Hong Apartments case indistinguishable from this action and I rejected the submission of Ms Chao, former counsel for Sam Woo, that it was “overruled” by the Court of Appeal in the Wong King Lim case. Bound by the Man Hong Apartments, I similarly ruled that even if Sam Woo could establish it had exclusively and adversely possessed the Lane for the requisite period, the Lane should still be subject to the terms and conditions contained in the DMC. Thus, I held that Sam Woo’s plea of adverse possession could not resist the enforcement action of the IO against Sam Woo for its breach of the DMC and/or the BMO.

Leave to appeal?

6.  The governing provision relating to leave to appeal is section 63A(2) of the District Court Ordinance, which provides that leave to appeal shall not be granted unless this court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.

7.  Mr Ng, counsel for the IO, highlights to this court the observation of Le Pichon JA in SMSE v KL [2009] 4 HKLRD 125 to the effect that leave to appeal cannot be lightly granted.  

8.  At the outset of this hearing, Ms Ng, counsel for Sam Woo, confirms that she only relies on the matters raised in her skeleton and not those in the draft notice of appeal exhibited to the Affirmation of Lau Chun Kwok. Ms Ng further confirms that the Man Hong Apartments case cannot be distinguished from the present case and that this court is bound by the Man Hong Apartments case. As such, she does not challenge the correctness of the Decision. She indicates that the present application is premised upon the second limb of the provision, i.e., that there is a good reason in the interests of justice that this matter should be decided by the appellate court so that the appellate court can have a chance to review the law in this area.

9.  I should mention that in the Decision, I rejected the submission advanced on behalf of Sam Woo that the Man Hong Apartments case was “overruled” by the Wong King Lim case and I held that the former case was only distinguished in the latter case. I did not find it necessary to explain in any detail why I agree with Mayo VP and I simply followed the binding decision in the Man Hong Apartments case.

10.  To clarify, the Court of Appeal cannot really overrule its previous decision. It may only depart from its previous decision where it is satisfied that it is plainly wrong: Re Solicitor (24/07) and Law Society of Hong Kong (2008) 11 HKCFAR 117 at §44 per Li CJ.   

11.  Ms Ng rightly points out that Mayo VP based his decision on the dicta of Collins MR in Re Nisbet and Potts’ Contract [1906] 1 Ch 386. In a nutshell, Ms Ng’s argument is that the dicta of Yuen JA in the Wong King Lim case, though not being a departure, and indeed distinguishable, from the Man Hong Apartments case, actually throws doubt on the correctness of the judgment of the Man Hong Apartments case in that Mayo VP failed to properly consider the said dicta of Collins MR from the same angle as Yuen JA did in the Wong King Lim case. If the analysis of Yuen JA had been adopted, Ms Ng submits, the Court of Appeal in the Man Hong Apartments case should have reached a different conclusion.

12.  Mr Ng does not read the dicta of Yuen JA in the Wong King Lim case in the same light. He submits that quite on the contrary the Wong King Lim case indirectly affirmed the Man Hon Apartments case. The present debate thus falls within a narrow compass.

13.  I then turn to examine the true effect of the Wong King Lim case and in particular its analysis of Nisbet and Potts’ Contract. For ease of reference, the relevant passages of the Wong King Lim case relating to the Yuen JA’s analysis of Nisbet and Potts’ Contract are reproduced as follows:

31.After referring to Man Hong Apartments in para. 19, Cheung JA said (in para. 20):

“Further the principle in Nisbet and Potts’ Contract is clearly applicable because once the service lane is found to be a common part then whoever occupies it, be it another owner from the building or a trespasser who acquired a possessory title by adverse possession, he is bound by the terms of the DMC. The latter cannot be in a stronger position because his paper title is still subject to the covenants in the DMC and he cannot use the service lane to the exclusion of the owners in the building.”

32. I will first examine the judgment in Nisbet and Potts’ Contract on which the above passage in Mountain View Mansion was based.  Nisbet and Potts’ Contract was a case where there were two neighbouring pieces of land. There was a covenant restricting the user of one piece of land A (“the covenantor’s land”), with the neighbouring land B (“the covenantee’s land”) enjoying the benefit of that covenant.  A squatter dispossessed the covenantor of his land A.  Subsequently on a sale of A, the issue arose whether the covenant could still be enforced by the owner of B.

33.1 It was held that the covenant could still be enforced by the owner of B, the covenantee’s land, against any subsequent owner of A, the covenantor’s land, as the owner of A was not a bona fide purchaser for value of the legal estate without notice of the covenant.  A restrictive covenant was binding in equity upon land to which a squatter had subsequently acquired a statutory title by adverse possession against the owner and covenantor, as the statutory extinguishment of the title of the dispossessed owner of the land did not have the effect of destroying the covenant, the equitable right of the covenantee not being in any way affected by the statute of limitations which had barred the original owner from recovering his land.             

33.2 It is important not to confuse land with title. Land A remained subject to the covenant in favour of land B, even though the title of the owner of land A had been extinguished by the squatter’s adverse possession.  Thus Collins MR held at p.402that the whole (meaning the entirety of the) right the squatter acquires under the statute of limitations is the extinguishment of a title adverse to his own, and nothing else.  Put another way, the statute of limitations affects the right of the original owner and covenantor to sue the squatter to recover possession of land A. However the statute does not affect the right of the covenantee (the owner of land B), unless and until his right to enforce the covenant has been infringed.  Unless and until that happens, “it is a matter of absolute indifference to him [the covenantee, owner of land B] what person is the owner of the land over which that right exists [land A] until that land is used in some way incompatible with the assertion of that right [the covenant] on the part of the person entitled to it [the covenantee, owner of B]”.

34.When Nisbet and Potts’s Contract is so understood, I do not see how it assists the IO in this case.  The owners of the Building had covenanted only with one another to possess the Lane in common and not exclusively.  The plaintiff was not a party to the DMC.  The learned judge found that as far as possession of the Lane was concerned, the plaintiff’ intentionwas to exclude all the owners (and the IO) of the Building.  Accordingly at the end of the relevant period under the Limitation Ordinance, the plaintiffextinguished the title to the Lane which was adverse to his own, ie the title of all the owners of the Building(and the IO).  By then it did not matter what were the restrictions imposed on the use of the Lane by the owners under the express provisions in a deed of mutual covenant, or by the IO under the incorporated provisions of s.34I BMO.  Once theirtitle to the Lane was extinguished, the owners (and the IO) no longer had any right to it which they could enforce against the plaintiff, unlike in Nisbet v Potts where the statute of limitations had no effect on the covenantee (the owner of land B) who therefore retained his right to enforce the covenantbinding land A, which was separate and distinct from the original owner and covenantor’s adverse title against the squatter.  It is important to note that in LLC v Allen [1914] 3 KB 642, at 660 the English Court of Appeal held: “ the doctrine in Tulk v Moxhay does not extend to the case where the covenantee has no land capable of enjoying, as against the land of the covenantor, the benefit of the restrictive covenant”.  (Emphasis supplied)        

14.  Ms Ng places particular reliance on the highlighted part. She submits that after analyzing Nisbet v Potts’ Contract, Yuen JA rightly came to the conclusion that upon the extinguishment of the title of all the owners of the building (and the IO) to the common part, the owners and the IO no longer had any right to it which they could enforce against the squatter. She further submits the same conclusion should be reached in respect of any enforcement actions against an owner in light of Yuen JA’s analysis of Nisbet v Potts’ Contract.

15.  I am unable to accept Ms Ng’s submission.

16.  First, it should be noted that, as stated in the Decision, Yuen JA in the Wong King Lim case did consider the Man Hong Apartments case in some detail. Her Ladyship summarized the facts and the holdings in that case but her Ladyship did not make the faintest suggestion that it was wrongly decided. Nor did her Ladyship criticize the reliance of Nisbet v Potts’ Contract by Mayo VP.

17.  Yuen JA found it necessary to deal with Nisbet and Potts’ Contract because the appellant IO in the Wong King Lim case relied on the Mountain View Mansion case. The Mountain View Mansion case, like the present case, involved an owner claiming adverse possession of a common part and hence it is distinguishable from the Wong King Lim case. In that case, the Presiding Officer at the Lands Tribunal rejected the owner’s claim of adverse possession in her factual findings. Her factual findings could not be disturbed in the Court of Appeal and on that basis the appeal was dismissed.

18.  Nevertheless, Cheung JA made the observation by way of obiter dictum set out in paragraph 31 of the judgment in the Wong King Lim case (reproduced above) to the effect that on the application of the principle in Nisbet and Potts’ Contract, once a service lane is found to be a common part then whoever occupies it, be it another owner from the building or a trespasser having acquired a possessory title by adverse possession, is bound by the terms of the DMC. Since the observation too concerned a trespasser, as in the Wong King Lim case, it prompted Yuen JA to go further into Nisbet and Potts’ Contract. 

19.  The legal principles that her Ladyship distilled from the old English case were that one cannot confuse land with title and land A remained subject to the covenant in favour of land B (land A and land B are two neighbouring pieces of land), even though the title of the owner of land A had been extinguished by a squatter’s adverse possession. The limitation statute only affects the right of the original owner and covenantor to sue the squatter to recover possession of land A but not the right of the covenantee (the owner of land B) unless and until his right to enforce the covenant has been infringed.

20.  Then Yuen JA went on, in the highlighted part, to distinguish Nisbet and Potts’ Contract after expressly pointing out that the plaintiff there was never a party to the DMC at the very outset. Yuen JA explained why those principles expounded in Nisbet and Potts’ Contract were not applicable.

21.  The highlighted part of the judgment has to be understood in context. Yuen JA (and also Lam JA as Lam VP then was) more than once in the judgment stressed that the Court of Appeal was then dealing with the situation involving a trespasser never being a party to the DMC. The distinctive feature of the Man Hong Apartments case, as identified by Yuen JA, is that the defendant shop owner (and his predecessors in title) were throughout a party to the DMC. Here, we have exactly the same distinctive feature.

22.  In my judgment, Sam Woo is bound by the terms of the DMC from start to finish and the IO is perfectly entitled to enforce the DMC against Sam Woo for its continuing breach of the DMC notwithstanding the Limitation Ordinance.

23.  In the premises, despite the able submission of Ms Ng, I am unable to see how the correctness of the Man Hong Apartments case was in any way called into question by the Court of Appeal in the Wong King Lim case. It remains to be good and binding authority. I fail to see why the present case being factually indistinguishable from the Man Hong Apartments case should be considered by the Court of Appeal in the interests of justice so as to see whether the Court of Appeal may now take the chance and express a different view of Mayo JA’s dicta in the Man Hong Apartments case. I refuse to grant leave to appeal on this basis.

24.  Nor do I find that Sam Woo’s intended appeal has a reasonable prospect of success for the reasons given above. I dismiss its application for leave to appeal altogether.

Stay of execution?

25.  Having concluded that the intended appeal is not arguable, I find that the minimum requirement of a stay of execution is not met and therefore I am of the view that no stay shall be granted: Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at §§6-10 per Ma J (as the Chief Justice then was).

26.  I am further satisfied that I should not grant a stay by the fact that the alleged prejudice suffered by Sam Woo is that it has entered into a tenancy agreement with Hingslin and Company Limited in respect of the Shop together with the Lane for an initial term of 3 years starting from 16 September 2013 at a monthly rent of HK$138,000.

27.  Mr Ng points out that the tenancy agreement was entered after the date of the Writ and hence any monetary loss is self-inflicted. Ms Ng’s answer is that Sam Woo only became aware of these proceedings when it received the summons of the IO for default judgment in October 2013, after the creation of the tenancy agreement. That is the reasons advanced by Sam Woo for its default to file its Notice of Intention to Defend and Defence and Counterclaim. Mr Ng says that the explanation is not believeable.

28.  The pleaded case of the IO is that there were pre-action letters issued on behalf of the IO to Sam Woo demanding its vacation of the Lane back in 2012. There is no evidence that Sam Woo did not receive them. Sam Woo should be aware of the IO’s objection to its use of the Lane long before the grant of the tenancy even if this court accepts that it inadvertently failed to take note of the Writ and hence the present proceedings until October 2013. I hence accept that there is force in Mr Ng’s submissions that Sam Woo should take the consequences if it chose to enter into the tenancy despite the objection of the IO.

29.  I come to the conclusion that I do not have good reasons to exercise my discretion to grant a stay of execution pending the intended appeal of Sam Woo, which is in my view not reasonably arguable. Accordingly I dismiss this application of Sam Woo.

Orders    

30.  To sum up, the following are the orders that I make on the parties’ applications. First, the application of the IO to vary the costs order nisi be granted in terms of its summons with no order as to costs.

31.  In regard to the application of Sam Woo for leave to appeal, I dismiss the summons with a costs order nisi that costs be borne by Sam Woo, to be taxed if not agreed, with certificate for counsel.

32.  Lastly, I dismiss the summons of Sam Woo for stay of execution with a costs order nisi that costs be paid by Sam Woo to the IO, to be taxed if not agreed, with certificate for counsel.

33.  It remains for me to thank both counsel for their assistance.