SHAMDASANI, MURLI PESSUMAL v. THE INCORPORATED OWNERS OF CHUNGKING MANSIONS

1991, No.199
(Civil)

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H E A D N O T E

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Where, by words or conduct, one party leads another to believe that whatever the first party's strict legal rights he will not insist on them, and the second party, to his detriment, acts in reliance on this, the first party will be held estopped from insisting, unconscionably, on his strict legal rights; but if it would have been ultra vires the first party to contract out of his strict legal rights, the second party cannot claim the benefit of such an estoppel against the first party.

1991, No.199
(Civil)

IN THE COURT OF APPEAL

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J U D G M E N T

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Godfrey, J.:

1. At the conclusion of the argument in this case we said that the court's judgment would be reduced into writing. This is that judgment, which I now hand down.

2. This is an appeal from an order of Mr Jerome Chan (sitting as a Deputy Judge of the High Court) made on 31st May 1991, the substantive effect of which was to dismiss the appellant's claim to be entitled to continue in possession or occupation of a number of units ("the A units") in Chungking Mansions, Nathan Road, Kowloon.

3. Before the judge, the appellant claimed to have acquired a possessory title to these A units; the judge rejected this and before us the appellant did not attempt to make good this claim. Instead, the appellant contended that the respondent had induced him to assume, to his detriment, that he would be allowed to occupy and let out these A units as they had been occupied and let out by his predecessor Maidstone Investments Limited ("Maidstone") which had assigned, or purported to assign, the A units to him; and that, in those circumstances, it would be unconscionable for the respondent to be permitted now to deny the appellant the right to occupy or let out the A units. On this basis, said the appellant, the court should make an order in his favour the effect of which would be to allow him to continue to occupy and let out the A units, if not for ever, then at least for some considerable period of time.

4. There is no difficulty about the law. If, by its words or conduct, the respondent did indeed lead the appellant to believe that, whatever the strict legal position, the appellant would be allowed to continue to occupy and let out the A units as Maidstone had, and the appellant, to his detriment, did act in reliance on this, equity will step in to prevent the respondent from now attempting, unconscionably, to insist on its strict legal rights. But is that what happened here?

5. In order to answer that question, we have to look at all the circumstances to see (1) whether the respondent did, by words or conduct, lead the appellant to believe that it would not insist on its strict legal rights; (2) if so, whether the appellant arranged his affairs in reliance on that belief; and (3) if so, whether he did so to his detriment.

6. The facts are not in dispute; what is in dispute is whether the conclusions indicated are those which ought to be drawn from them.

7. The facts are as follows.

8. Chungking Mansions is a building of 18 storeys and a basement developed on a piece of land in Kowloon by one Jaime Chua Tiampo, to whom an occupation permit was issued on 11th November 1961. On 1st May 1962, Mr Tiampo executed a deed of mutual covenant ("the DMC") affecting the building, from which it appears that there were assigned to him 916 of the 920 equal undivided shares in which the land was held. Under the regime constituted by the DMC, Mr Tiampo became entitled to the exclusive use, occupation and enjoyment of all but 4 units (3 shops and 1 flat) in the building.

9. The building of course contained common parts for the use and enjoyment of all those entitled to units in the building. Over the years, however, a number of additional units including the A units have, illegitimately, been created within the common parts. These units do not have allotted to them any undivided shares in the land on which the building stands; and they do not appear on the original building plan. They were carved out of recesses or encroachments in the corridors and lift lobbies. Their occupiers have always been assessed for rates and for management charges, despite the illegitimacy of their creation.

10. On 28th January 1972, the respondent was incorporated under s.8(1) of the Multi-storey Buildings (Owners Incorporation) Ordinance, Chapter 344. It has a statutory duty to maintain the common parts of the building in a state of good and serviceable repair and clean condition: see s.18(1)(a). It has also a statutory duty to do all things reasonably necessary for the enforcement of the obligations contained in the DMC : see s.18(1)(c). The rights, powers, privilege and duties of the owners in relation to the common parts of the building are to be exercised and performed by the corporation to the exclusion of the owners : see s.16.

11. In January 1976, the appellant took a tenancy of Shop 65 from Mr Tiampo.

12. In March 1980, the A units (save one which was assigned separately) were assigned by Mr Tiampo to Maidstone. This was a Liberian registered company controlled by the Tiampo family. Maidstone continued to let out the A units as had Mr Tiampo. The misuse of the common parts in this way was at all times open and conspicuous and (so long as the A units were owned by Mr Tiampo or Maidstone) tolerated by the respondent, in disregard of its statutory duties to which I have referred.

13. Some years later, the appellant was minded to purchase Shop 65. But Maidstone was willing to sell Shop 65 only as part of a lot including the A units. The appellant was willing to go along with this. However, it had been the policy of the respondent to object to sales of units which had been carved out of the common parts of the building. When it heard of the sale to the appellant, it objected accordingly (although it does not seem to have been successful in communicating its objection to the appellant and, indeed, does not seem to have made much of a fist of trying).

14. The price which Maidstone negotiated with the appellant for what it was selling to, or foisting on, him was HK$13,500,000. The appellant needed, in connection with this transaction, the assistance of his bank; and of his solicitors. His bank referred his request for financial assistance to its own solicitors Messrs Johnson, Stokes and Master. This firm advised the bank as follows :

"Our land search record and the Deed of Mutual Covenant relating to the above building reveal that the above premises do not hold any share in the land as they originally were part of the common areas. In the absence of further evidence, we do not think that the developer of the said building has the right to assign the exclusive right to use the said premises to the present owner. However, the developer or its solicitors may have in their possession document (s) (not having been registered in the Land Office) to show that the developer has in fact such a right to dispose the said premises."

15. On 29th December 1985, the bank indicated that in the circumstances it was not in a position to finance the appellant's purchase but that it would be prepared to reconsider the appellant's request if he could provide the bank with further details or the documents mentioned by the bank's solicitors.

16. In the end, the bank agreed to advance only HK$7,500,000 in connection with the appellant's purchase. Although the appellant would obtain no title as to the A units he would obtain a title to the remainder of the property the subject matter of the purchase; and the bank was presumably satisfied that the latter afforded it sufficient security for an advance of HK$7,500,000.

17. The appellant's own solicitors, Messrs Lo & Lo, expressed the same concern as the bank's solicitors. The appellant was anxious to put through his agreement with Maidstone; but his solicitors were prepared to assist him to do so only if he was prepared to address and sign a letter to them in the following terms :

" I refer to my instructions to you to put through an Agreement under which I will agree to purchase the above property for $13,500,000.00 from Maidstone Investment Ltd., the present owner. I acknowledge that you have explained to me and advised me as follows:-

1. The present owner and the present owner's predecessor in title have for many years been in undisturbed possession of certain units included in the sale and purchase namely Shop No.9A on the Ground Floor and Shops 8A, 25A, 41A, 43A, 46A, 80A and 95A on the First Floor and Units A10 on the 3rd, 8th, 11th, 12th, 13th, 14th, 15th and 17th Floors of the Building but the right to the exclusive use of the said units has not been reserved by or granted to the present owner or the present owner's predecessor in title under the Deed of Covenant of the building or any other deed or document and the present owner's title to the said units is defective and in the Agreement for Sale and Purchase I will be required to agree to accept such title as the present owner has.

2. The walls of the said units and the sanitary installations in Unit A10 on 17th Floor have not been approved by the Building Authority.

3. Shop No.99 on the Ground Floor is now used as the transformer room of the building and I will be required to covenant at all times hereafter to permit such use and to permit access thereto.

Having heard and understood your advice and explanation I confirm my instructions to you to proceed with the Agreement for Sale and Purchase."

18. On 14th March 1986 the appellant addressed and signed a letter to his solicitors in these terms; and on the same day he entered into an agreement for the purchase at the price of $13,500,000. That agreement contained, as clause 11, the following provision :

"11. The Vendor and the Vendor's predecessor in title have been in undisturbed possession of the following units specified in the said Schedule namely Shop No.9A on the Ground Floor, Shops Nos.8A, 25A, 41A, 43A, 46A and 95A on the First Floor and Units A10 on the Third, Eighth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth and Seventeenth Floors ('the said Units') for many years but the right to the exclusive use of the said Units has not been reserved by or granted to the Vendor or the Vendor's predecessor in title under the Deed of Covenant specified in the said Schedule or any other deed or document and the Vendor shall not be required to show any title to the said Units except an Assignment Memorial No.1868564 and the Purchaser shall accept such title as the Vendor has."

19. By an assignment of 1st July 1986, Maidstone assigned, or purported to assign, "the properties" to the appellant.

20. Those are the facts. They fall far short of what would be needed to justify a conclusion that the respondent had, in fact, induced the appellant to assume that he would be allowed to continue and occupy the units in question as Maidstone had done. We go further. We can discern nothing whatever in the evidence which would support such a conclusion. No doubt, the respondent had quite openly allowed Maidstone, and before Maidstone Mr Tiampo, to occupy and let out these units. No doubt, too, when the appellant decided to purchase the properties he acted in "the confident and not unreasonable hope" (we borrow this expression from Lord Templeman : A.G. of Hong Kong v. Humphreys Estate (Queen's Gardens) Ltd [1987] AC 114, at p.125) that this state of affairs would, indeed, be allowed to continue, for he gave evidence that Mr Tiampo's son had expressly told him that his occupation and use of the property would not be disturbed; but that is of no assistance to the appellant since Mr Tiampo's son had no authority of any kind to make such a statement to the appellant on behalf of the respondent.

21. So the appellant's case fails at the first hurdle. The respondent did not, in any way at all, induce the appellant to believe that, if he purchased the A units, he would be allowed to continue to make the same use of them as Maidstone, and before Maidstone, Mr Tiampo had been allowed to do. The respondent was not responsible for the way in which the appellant acted. The appellant had had no dealings of any sort with the respondent before he chose to enter into the Agreement of 14th March 1986, which, as we have seen, he did with his eyes open but his mind closed to the difficulties which had been drawn to his attention. Whatever representation the respondent might have been held to have made to Mr Tiampo, or to Maidstone, there is no warrant for holding that any such representation was made to them, not only for their own benefit, but also for the benefit of their successors in interest. In any case, just as it would have been unlawful for the respondent to contract to allow anybody the exclusive use of units carved out of the common parts of the building (because so to do would be a breach of its statutory duty) so also it would have been impossible for the respondent to bring about the same result by making representations which might otherwise have given rise to an estoppel: Western Fish Products Ltd v. Penwith District Council [1981] 2 All ER 204.

22. In the circumstances, the questions of reliance and detriment do not arise and it is unnecessary to consider them. It is also unnecessary to consider the point, properly taken on behalf of the respondent, that the appellant's case as advanced before us by Mr Neville Sarony, Q.C., in the course of his elegant and attractive argument on behalf of the appellant, was not his pleaded case as advanced in his defence and counterclaim. (We note in this connection that the judge, at p.8 of his judgment, recorded: "No reliance has been placed by the defendant on the doctrine of proprietary estoppel...").

23. This appeal therefore fails; and pursuant to O.42, r 5B(6) of the Rules of the Supreme Court we order that the costs of the respondent of the appeal are to be taxed (if not agreed) and paid by the appellant to the respondent.