LEE PAK HONG v. LEE WAI WING

HCMP 2490/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2490 OF 1997

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J U D G M E N T

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In or about 1927, a gentleman by the name of LEE Fong became the sole registered owner of all that piece or parcel of ground registered in the Land Registry as Section A of New Kowloon Inland Lot No. 1033 and of and in the messuages, erections and buildings thereon now known as No.264 Lai Chi Kok Road, Kowloon ("the Property"). The Property was and still is held under a Crown Lease dated 4th November 1925 for a term of 75 years from 1st July 1898 and for a further term of 24 years less 3 days as extended to 30th June 2047 under Section 6 of the New Territories Lease (Extension) Ordinance, Cap.150.

2. In or about 1934, LEE Fong assigned one equal undivided half share in the Property to a Wong King Sim whereupon Lee Fong and Wong King Sim became tenants-in-common of the Property in equal undivided shares. In or about 1951, Wong King Sim assigned her undivided half share in the Property to a Lai Cheung Wing. In or about 1958, Lai Cheung Wing assigned his undivided half share to Lee Wai Wing ("the Purchaser"). All these transactions are recorded in the Land Registry.

3. LEE Fong died in Mainland China on 27th January 1940. Not much is known about his immediate family. However, it is accepted by the parties that LEE Fong has two surviving grandsons, one name LEE Pak Hong and the other LEE Pak Wing. LEE Pak Wing for some reason became the adopted son of another family and he has disclaimed any inheritance interest in the Property. I am, therefore, concerned with the interests of LEE Pak Hong ("the Successor") only.

4. In respect of the estate of LEE Fong, deceased, letters of administration (Grant No. 7525 of 1992) were granted to the Successor on 7th December 1992 and Lee Fong's undivided half share in the Property became vested in the Successor in the capacity of the administrator of his estate. By an assent dated 11th December 1996, the Successor assented the said undivided half share in the Property to himself, being the only person entitled to Lee Fong's estate upon his intestacy. As from 11th December 1996, the Successor became the legal and beneficial owner of one equal undivided half share in the Property.

5. At present, there is erected upon the land a 3-storey building ("the Building") consisting of business premises on the ground floor ("the Ground Floor") and domestic premises on the First Floor ("the First Floor") and the Second Floor ("the Second Floor"). The precise date of construction of the Building cannot now be ascertained. Evidence tend to suggest that it was completed in the 1930's. In any event the Building must be a pre-war structure. For the avoidance of doubt, any reference to "the Property" includes reference collectively to the plot of land and the Building.

6. It is common ground that when LEE Fong assigned his half share in the Property to Wong King Sim, there existed an arrangement under which Lee Fong (and after his death his family) had the right to let out the First Floor and Second Floor, whereas Wong King Sim (and subsequently Lai Cheung Wing and the Purchaser had the right to let out the Ground Floor. All rental income derived from the Property was shared equally between Lee Fong (and after his death his family) and Wong King Sim (and subsequently Lai Cheung Wing and the Purchaser). The Second Floor was all along let out to a principal tenant who in turn sub-let bed spaces to a couple of sub-tenants. The Second Floor is now still occupied by the principal tenant and the sub-tenants.

7. The First Floor had been occupied by the Successor family until 1972 or 1973 when the Successor and his family moved out to live in a public housing unit in Lei Muk Shue Estate, Kwai Chung. Sometime after the family moved out of the First Floor, the late mother of the Successor, in consideration of a sum of HK$10,000 odd paid by the Purchaser, "assigned" the right to let out the First Floor to the Purchaser. The First Floor has since then been, and still is, occupied by the Purchaser and his family as their residence. The Ground Floor has since 1958 when the Purchaser became a co-owner of the Property been, and still is, occupied by the Purchaser at which he runs his business under the trade name of Globe Sewing Machine Company.

8. As mentioned in paragraph 6 above, all rental income derived from the Property was shared equally between the 2 co-owners. The Successor family would collect the rent for the Second Floor. The Purchaser would account for the rent for the First Floor and Ground Floor as he has been in occupation of the First Floor and Ground Floor. In the normal course of events, the Successor family should receive a sum from the Purchaser each month for their share of the rental income. Before the monthly payment stopped, the Successor received HK$20.00-HK$40.00 from the Defendant each month. During the mother's lifetime, for some unknown reason, she had issued rental receipts to the Purchaser acknowledging receipt from him of the monthly rent of HK$76.80 in respect of the First Floor. After the mother's death in 1976, the Successor followed her practice and continued to issue such rental receipts to the Purchaser. In fact the Successor never received the said monthly rent from the Purchaser. The Successor stopped issuing the rental receipts in or about May 1996.

9. Demand notes for government levies such as Crown rent, rates and property tax in relation to the Property were mailed to the Ground Floor. Since the Purchaser was in occupation of the Ground Floor, he was the one who received the demand notes and arranged for them to be settled. He then claimed that the monthly sum payable to the LEE Fong family had to be set off against that family's share of the Crown rent, rates and property tax which he had paid for that family. In the late 1970's, the Purchaser claimed that the amount he had paid on that family's behalf had exceeded the amount owed by him to the Successor family and so he stopped making the monthly payment. A few years ago, on one occasion when the Successor met the Purchaser, the latter stated that the Successor owed him HK$8,000 odd in respect of the Successor family's share of government levies which he had settled and asked the Successor to sign a note to acknowledge indebtedness. The Successor signed a document to that effect without raising any query.

10. In fact, it is agreed by the parties that the Purchaser since 1978 has paid a total of $2,614 as Crown Rent/Government Rent, $244,386.52 as rates and $42,787 as property tax and has spent $161,518.50 for repairs. The aggregate of these items comes to $451,306.02. It is conceded on behalf of the Successor that he is liable to contribute towards these payments and expenditure.

11. Some time in the mid-1990's, the relationship between the Successor and the Purchaser turned sour. The Successor wanted to be bought out by the Purchaser but they could not settle on how this may be achieved. On 11th July 1997, solicitors for the Successor served a notice to quit on the Purchaser under section 122(1) of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 purporting to terminate the Purchaser's tenancy of the Ground Floor of the Building. The next thing we know, writs were flying in both directions. The Successor commenced HCMP 2490 of 1997 seeking eviction of the Purchaser from the Ground Floor of the Building. The Purchaser issued proceedings in HCA 6201 of 1998 for an order to partition the interests of the parties in the Property. Since the two actions are inter-related, they have been tried together.

The Interests of each Tenant in Common

12. It will be remembered that LEE Fong and Wong King Sim became tenants in common in or about 1934. At that time, the Building must be already standing on the plot of land. Purely as tenants in common in equal shares in a plot of land with the Building erected thereon, LEE Fong and Wong King Sim should have undivided 50% share each in the plot of land, in the Ground Floor, in the First Floor and in the Second Floor. In other words, neither of them or their respective successor in title has sole absolute ownership of an inch of space on the plot of land or in the Building. This is the basis on which the Successor claims that the Purchaser is only a tenant in respect of the Ground Floor. By the same token, the Successor says that upon partitioning each tenant in common would be entitled to half of the value of the Property whether it be sold by public auction or on market valuation.

13. On behalf of the Purchaser, it is contended that the original tenants in common had apportioned their interests by a device which, for want of a better description, they called "letting out right". The Successor concedes that there was such arrangement of allocation of "letting out right". This arrangement was an informal one. It is not reflected by anything in writing or in the Land Registry records. As already mentioned, by this arrangement, LEE Fong and his successors had the right to let out the First and Second Floor whilst Wong King Sim and her successors in title have the right to let out the Ground Floor.

14. I believe none of the parties before me fully understands what the "right to let" is all about. No one now living was present when the original tenants in common negotiated and made the arrangement. This is compounded by the fact that the "right to let" is hardly known in conveyancing practice. Nonetheless, I have to resolve this matter and give effect to the intention of the original tenants in common on the available evidence.

15. To start with, I think one must realize the practical problem facing the original tenants in common. When LEE Fong was the sole owner, he could of course occupy or rent out whichever part of any structure standing on the plot of land under his name. As soon as he had to share half of the Property with Wong King Sim, the two had to devise a method for practical division of the use of the land with a three storey structure on it. The three storey structure cannot be literally or physically cut into two equal halves vertically or horizontally. It must be remembered that in the early 1930's, the concept of split title for individual units in a multi-storey building as is the norm now was unknown. So, I think what they did was to allocate use of three storeys to the two tenants in common in an equitable way. As it turned out, Wong King Sim had sole use of the Ground Floor and LEE Fong had sole use of both the First Floor and the Second Floor. That appears to me to be a fair "division" of the use of the Building because, in general and at all times, the practical utility of a ground floor unit is higher than that of upper floor units. A ground floor unit can be used as a shop which commands much higher rent if rented out. Having decided to "divide" the use of the three floors of the Building, in order to reflect that after all they shared common undivided ownership of the Property, the original tenants in common further agreed that they would share the rental income of the Property. Hence there was the arrangement that each tenant in common had to account for the actual or notional rental income from each floor.

16. In my view, the "right to let" is simply the expression or idea used by the original tenants in common to represent the modern concept of exclusive possession and use of a unit in a multi-storey building. The "right to let" should not be taken as a tenancy condition. It is not the equivalent of a right to sub-let. At common law and according to Hong Kong local custom, a tenant is always entitled to sub-let unless the landlord expressly prohibits. So there was no need for the tenants in common to give each other permission to sub-let. In any event, unless there is a tenancy, it is meaningless to talk of permission to sub-let.

17. The "right to let" is not a lease or tenancy either because in those days stamp duty had to be paid on a lease or tenancy agreement. One cannot presume that the original tenants in common conferred on each other the "right to let" in an attempt to evade stamp duty for what should in fact be a tenancy.

18. Moreover, it appears that from the day the original tenants in common created this "right to let" for each other, the LEE Fong family has had exclusive use and occupation of the First Floor and has let out the Second Floor. Similarly, the co-tenant in common has had exclusive use and occupation of the Ground Floor. This state of affairs continued for decades, transcending three generations. I believe the "right to let" was meant to be a permanent arrangement that attaches to the floor or floors in question. It is more than a life tenancy. It is tantamount to the right of an owner although it cannot be severed from the umbilical cord of the tenancy in common under the Crown Lease/Government Lease.

19. It may be said that the "right to let" cannot be a species of ownership because there is this duty to account for actual or notional rental income. There are three answers to this. First, as I have noted, the duty to account for actual or notional rental income only reflects the ultimate tenancy in common. Secondly, one has to make allowance for the fact that the original tenants in commons were trying to achieve the effect of split title for units in a multi-storey building by a means that is perfected only after the Second World War. Thirdly, the accounting for actual or notional rental income is somewhat akin to the collection of management fees to meet common out-goings such as Crown Rent/Government Rent, rates, property tax and maintenance and repairs. In this regard, accounting for actual or notional rental income is not inconsistent with ownership of individual floors.

20. In conclusion, I hold that the original tenants in common granted to each other exclusive possession and use of the respective floors. It was something within their power to do as most modern Hong Kong flat owners have done. Even if the tenants in commons did not mean to create such a situation, the fact that they and their successors in title have literally lived by such arrangement is sufficient to enable the court to hold that neither party before me as successor in title can now deny the other's right to be treated for all purposes as the owner of the respective floor or floors.

The First Floor

21. This is in fact the central dispute between the parties. Both sides accept that up to 1972, each successor in title to the original tenants in common was entitled to one equal half of all the interests in the Property or the equivalent in value upon the sale of the Property. However, a transaction took place in or shortly after 1972. I shall try to describe the transaction using neutral terms. Shortly after the Successor and his family moved out of the Building, the mother of the Successor for a consideration of ten thousand odd dollars allowed the Purchaser to take over the First Floor. The question is what is the effect of this transaction.

22. Now, but for the take over by the Purchaser, the successors in title of LEE Fong would have the letting right of the First Floor. I have held that this letting right amounts in law to the full rights of ownership of an individual unit in a multi-storey building. So, by allowing the Purchaser to take over, and there is no indication of reservation of any interest, the letting right in respect of the First Floor must have been assigned to the Purchaser. The Purchaser became from that moment effectively the owner of two of the three floors of the Building.

23. It has not been seriously argued that the consideration for the transfer of interests was not meant for full and complete conveyance because of its amount. Even if it is so argued, I do not think the argument would go far. It is trite law that sufficiency of consideration is irrelevant. In any event, the Purchaser stated in evidence that the ten thousand odd dollars he paid to the Successor's mother was sufficient to buy a small flat in the same area in those days. One must not forget that the amount paid by the Purchaser was not to buy one-third of the interests in the Property. The Purchaser already had one half interest in the Property. In taking over the First Floor, the Purchaser's interest in the Property increased from one half to two-thirds. I cannot see anything improper or unconscionable with that transaction.

24. The problems with that transfer of interest are two fold. First, it was not evidenced in writing although it affects land. But I think it can be treated as an equitable assignment of legal and equitable interests supported by actual performance. The Purchaser did take possession of the First Floor and has been in possession thereof since about 1972.

25. The second problem is that the transaction was agreed between the mother of the Successor and the Purchaser. The mother was not a successor in title to LEE Fong. The Successor obtained grant of letters of administration of the estate of LEE Fong in 1992. So in 1972, no one had power or title to deal with the legal or equitable interests in the First Floor. In fact, this problem was not raised during the trial. I think it is safe to deal with the problem this way. The mother can be treated as agent for the Successor in the equitable assignment. She was no doubt the person in charge of the Successor's household. So what she agreed and transacted is attributed to the Successor. The mother received the consideration as agent for the Successor; alternatively, it is trite law that a binding bargain requires only consideration from the promisee, there is no need for consideration to go to the Successor as promisor. Although the Successor had no title in 1972, there has been feeding of the title when letters of administration was granted to him in 1992. The assignment, an equitable one, is complete. I would like to think that it is in recognition of the logic I have just described that those acting for the Successor did not raise this problem about capacity or validity.

26. In the premises, I would hold that the Purchaser now has two-thirds of all legal and equitable interests in the Property.

The Outgoings

27. The Successor has conceded that of the total of $451,306.02 paid as common outgoings for the Property after 1972 by the Purchaser, he is liable for a portion. Since I have held that the Successor from 1972 onwards has only a one-third interest in the Property, it is only fair that his contribution towards common outgoings for the Property should bear the same proportion. Credit should be given for accountable rental income totalling $84,974.40. I, therefore, give judgment for the Purchaser for the sum of $366,331.62 ÷ 3 = $122,110.54. Should I be corrected on appeal regarding the share or proportion of the parties' respective interests in the Property, this amount in judgment must, of course, be adjusted accordingly.

28. There is a further contention on behalf of the Purchaser that the amount he paid as common outgoings for the Property for which contribution was due from the Successor should count towards the Purchaser's equity in the Property as a whole. This is because the Successor had for nearly twenty years been unable to pay his share of contribution. Indeed the Successor had financial difficulties. Had the Purchaser not met the statutory and obligatory common outgoings for the Property, such as Crown Rent/Government Rent, rates and property tax, the government would have re-entered the Property and there would be nothing left in the estate of LEE Fong for the Successor to take. Moreover, the Building has been for some years a very dilapidated antiquity. The Building Authority has twice issued repair orders. It was the Purchaser who paid for all the repairs thereby preserving the Building and thus saving the interests of the Successor.

29. Counsel for the Successor argued that the payments or contributions by the Purchaser cannot possible confer upon him additional equity in the Property. To enable the Purchaser to acquire equity, there must be common intention to that effect. Clearly, the Successor never intended and would not have intended that the Purchaser should gain in equity by advancing money for common outgoings for the Property. See Leigh and another v. Dickeson [1884] Q.B. 60; Lloyds Bank PLC v. Rosset [1990] 2 W.L.R. 867, Ruptash and Lumsden v. Zawick 2 D.L.R. (Zd) 145; In re Pavlou [1993] 1 W.L.R. 1046; Riseway Investment Limited v. Wong Kwok Chang et al HCMP 603 of 1994 and Hon Po Sun v. Lau Ngai [1995] 1 HKC 556.

30. I have already decided that as a result of the equitable assignment of interests in 1972 the Purchaser has already acquired two-thirds of all the legal and equitable interests in the Property. Counsel for the Purchaser also confirmed to me that the Purchaser would be content to have judgment recognizing he has two-thirds interests. It is therefore unnecessary for me to go into the issue arising from advancement by the Purchaser for the common outgoings for the Property. The claim in this regard canvassed for the Purchaser is in reality a fall back position only.

31. Nevertheless, in deference to submission by counsel for the Successor, I would observe that none of the authorities relied upon by him really assists his client because they deal with either enhancement of the value of the property in question or joint acquisition of a property. The present case deals with preserving or rescuing a property. The law has always been willing to reward a rescuer. Note all the authorities in maritime salvage cases and in negligence claims by rescuer of persons in danger. I should think equity would also aid the Purchaser in this case if the court has to decide this issue.

The Ground Floor

32. In the light of all that I have said in relation to the respective interests of the parties in the Property, the notice to quit served on the Purchaser in relation to the Ground Floor cannot possibly have any effect. To put it bluntly, the Successor tried to pull a fast one on the Purchaser, the exercise being part of the tactics to garner a larger wind fall from what is left by the Successor's grandfather. I do not blame the Successor. I have seen him giving evidence. I think he is a nice man, not very successful in life, but honest and timid. It is, I believe, his wife who has given contrived evidence and his children who are greedy who needled him into these litigation. The Purchaser must be entitled to judgment in HCA 6201 of 1998.

Order

33. Accordingly, I make the following declarations and orders:-

(1) the legal and equitable interests in the Property are partitioned between the parties in HCMP 2490 of 1997 as to one-third for the Plaintiff and two-thirds for the Defendant therein;

(2) the Property in HCMP 2490 of 1997 be sold within 6 months from the date of this judgment by public auction or private treaty in a manner to be agreed between the parties therein and the proceeds from sale be divided between the said parties in the same proportion to their partitioned interests, after deduction of the costs and expenses of sale;

(3) judgment for the Defendant in HCMP 2490 of 1997 for the sum of $122,110.54 together with interest thereon at the judgment rate calculated from the date of this judgment to the date of payment; stay of execution for six months from the date of this judgment;

(4) declaration for the Plaintiff in HCA 6201 of 1998 that the Plaintiff is entitled to exclusive possession and use of the Ground Floor of the Property therein as from 1958;

(5) costs of HCMP 2490 of 1997 to the Defendant therein and costs of HCA 6201 of 1998 to the Plaintiff therein, such costs to be taxed if not agreed;

(6) liberty to apply generally in both HCMP 2490 of 1997 and HCA 6201 of 1998.