The Incorporated Owners of Hung Wai Building v. Sunny Elegant Ltd and Other

CACV 261/2021

[2022] HKCA 426

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 261 OF 2021

(ON APPEAL FROM LDBM NO. 76 OF 2019)

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Before :  Hon Kwan VP, Cheung and Au JJA in Court

Date of Hearing :  3 March 2022

Date of Judgment :  17 March 2022

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J U D G M E N T

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Hon Cheung JA (giving Judgment of the Court) :

1.This is an appeal by the respondents, pursuant to leave granted by this Court, against the decision of H H Judge M. Wong, the Presiding Officer of the Lands Tribunal who dismissed the respondents’ application to transfer the case from the Lands Tribunal to the High Court under section 8A of the Lands Tribunal Ordinance (Cap. 17) (‘LTO’).

I.  Background

2.The applicant is the incorporated owners of Hung Wai Building (‘the Building’) at Nos 3-5 Fa Yuen Street, Mongkok, Kowloon. The Building comprises a commercial podium with shops on the ground floor and office units on the 1^st floor and two residential blocks. The 1^st respondent is the owner of Shop No. 8 on the ground floor (‘the Shop’) and Units Nos. 1-19 on the first floor (the ‘Offices’). The 2^nd respondent is the principal tenant of the Shop and Offices. The 3^rd and 4^th respondents are the sub-tenants/licensees and occupiers of the Shop and the Offices.

3.It is not disputed that adjacent to the Shop are the common entrance space of the Building, two staircases and a staircase landing leading to the first floor of the Building. On the first floor, there are the common corridor, two male toilets and two female toilets (collectively ‘the disputed areas’).

4.It is the applicant’s case that the disputed areas are the common parts of the Building both under the Building’s Deed of Mutual Covenant (‘DMC’) and the Building Management Ordinance (‘BMO’) (Cap. 344) and the respondents have erected structures and objects in the common parts in breach of the DMC and the BMO.

5.The applicant sought a declaration against the 1^st and 2^nd respondents that the disputed areas are the common parts of the Building and an injunction against all the respondents requiring them to remove all the structures and objects and to reinstate the common parts to their original condition. Damages are also claimed.

6.The applicant also alleged that the respondents had installed air-conditioners and chimneys on the external walls of the Building in breach of Clause 33 of section IV of the DMC. The applicant asked for these items to be removed and the external walls to be reinstated to their original condition.

7.In its Notice of Application, the applicant referred to a licence agreement, the terms of which were partly contained in a Chinese Undertaking dated 30 January 2012 signed by the 1^st respondent, where the applicant granted a licence of the disputed areas to the 1^st respondent to be used by the then tenant of the 1^st respondent of the Shop and the Offices. The applicant pleaded that the licence agreement expired when that tenant moved out from the Building in July 2017 when its tenancy with the 1^st respondent ended. Alternatively, the licence was terminated by a written notice served by the applicant on the 1^st respondent on 30 May 2018.

8.The respondents’ case is that the disputed areas are not the common parts of the Building. They pleaded that they have the exclusive rights to use the disputed areas and the external walls. They denied that there was any oral or written licensing agreement between the parties. Further, the 1^st respondent was induced to sign the Chinese Undertaking by the misrepresentation of the applicant that signing the Chinese Undertaking was a ‘mere procedure’ and the Chinese Undertaking will not be enforced. In reliance on the applicant’s misrepresentation, the 1^st, 3^rd and 4^th respondents have invested substantial money on the disputed areas by carrying out construction work there. As a result, the 1^st respondent has acquired a proprietary interest in the disputed areas and the applicant is estopped from denying the 1^st respondent’s exclusive right to use and occupy the disputed areas.

II.  Basis of application for transfer

9.In the respondents’ affirmation filed in support of the application to transfer, it is stated that the issues to be determined in these proceedings do not merely go into construction and enforcement of the DMC, but is instead extended to the proprietary rights of the respondents based on proprietary estoppel which is independent from the DMC. This renders the case outside the jurisdiction of the Tribunal by reason of section 45(3) of the BMO.

10.The respondents also asked the Judge to exercise his discretion in favour of transfer in the interest of justice because of the proprietary estoppel claim under section 8A of LTO.

11.At the hearing before the Judge, the respondents also relied on the fact that the applicant’s case of the oral licence would require the Tribunal to enforce an agreement under common law which is outside the jurisdiction of the Tribunal under section 8 of the LTO or Schedule 10 of BMO. They relied on the same argument in respect of the applicant’s claim for damages.

III.  Our view

1)  The jurisdictional provisions

12.This appeal raises a crisp point on the application of section 45(3) of the BMO because of the respondents’ case on proprietary estoppel. Before we come to examine section 45(3), it is necessary to see if the applicant’s case comes within the jurisdiction of the Lands Tribunal.

13.The provision on jurisdiction of the Lands Tribunal is by section 8(5) of the LTO which provides that :

‘ (5) The Tribunal shall have such other jurisdiction as may be vested in it under any Ordinance including any Ordinance specified in the Schedule.’

14.Section 8(9) of the LTO furtherexpressly provides that :

‘ (9) In the exercise of its jurisdiction, the Tribunal shall have the same jurisdiction to grant remedies and reliefs, equitable or legal, as the Court of First Instance.’

15.The BMO is an ordinance under that schedule. Section 45(1) provides that :

‘ (1) The [Lands Tribunal] shall have jurisdiction to hear and determine any proceedings specified in Schedule 10.’

16.Three paragraphs of Schedule 10 are relevant :

‘ 1) Proceedings relating to the interpretation and enforcement of the provisions of this Ordinance.

2)Proceedings relating to the interpretation and enforcement of the terms and provisions of a deed of mutual covenant, including such terms or provisions impliedly incorporated into a deed of mutual covenant under Part VIA.

3)Proceedings relating to the use, occupation, enjoyment, possession or ownership of the common parts or any other part of a building in which the owners have a common interest.’

17.The starting point is that the rights of the owners in relation to the common parts of the Building are to be exercised and performed by the applicant as the incorporated owners of the Building (section 16 of BMO). It is the duty of the applicant to maintain the common parts of the Building in a good condition and to do all things reasonably necessary for the enforcement of the obligations contained in the DMC (section 18 of BMO). It is clear that the applicant’s claim falls within the jurisdiction of the Lands Tribunal. First, it involved an interpretation of the DMC whether the disputed areas are common parts. Second, the claim is concerned with the use, occupation and possession of the common parts if the interpretation is in favour of the applicant. The applicant’s reference to the licence in the Chinese Undertaking merely serves as the background to its claim. There is no question of the applicant enforcing any common law right under a licence agreement.

18.Apart from paragraphs 1, 2 and 3, four other paragraphs in Schedule 10 are also relevant in view of the respondents’ assertion that they had acquired a proprietary interest by their occupation of the disputed areas :

‘ 6. Proceedings relating to any question of law concerning ownership, occupation or possession of the whole or any part of the building, including ownership or an undivided share in a building or in land on which there is a building.

7. Without prejudice to paragraph 6 and subject to section 45(3), proceedings relating to any question of law concerning the extent and applicability or otherwise of any contractual or proprietory right enjoyed by owners and occupiers or otherwise referred to in the terms and provisions of an instrument which is registered in the Land Registry including a deed of mutual covenant (if any).

8. Proceedings relating to any question of law concerning any breach or alleged breach of any covenant, term or condition specified in an instrument which is registered in the Land Registry including a deed of mutual covenant (if any).

9. Proceedings relating to the enforcement of any contractual or proprietory right referred to in paragraph 7 or any covenant, term or condition referred to in paragraph 8, as the case may be, whether by way of specific performance, injunction, declaration, damages or otherwise.’

19.Declaration, injunction and damages are reliefs that the Lands Tribunal is empowered to grant under section 8(9) of the LTO.

2)  The section 45(3) restriction

20.Section 45(3) of the BMO is as follows :

‘ (3) Subject to the provisions of the Ordinance, nothing in this section or Schedule 10 shall be construed to vest in the tribunal any jurisdiction other than civil jurisdiction or any jurisdiction to make any order which would, if made, have the effect of rendering void, negativing or substantially varying in whole or in part any contractual or proprietory right enjoyed by any owner or occupier or otherwise referred to in the terms and provisions of an instrument which is registered in the Land Registry including a deed of mutual covenant (if any).’ (emphasis added)

21.Mr Chong (together with Ms Li and Mr Tang) for the respondents submitted that section 45(3) is engaged because first, the order of the Lands Tribunal may affect the proprietary right of the respondents as an ‘owner or occupier’ in the event that the Lands Tribunal found against them on their entitlement to the disputed areas. He referred to section 45(5) which reads : ‘In this section and Schedule 10, proprietary right includes any such right express or implied whether specified in an easement, licence, permission or otherwise.’ Second, the proprietary right of the applicant in respect of the common parts may be affected as well in the event that the Lands Tribunal found in the respondents’ favour.

22.We do not accept this argument. It is important to bear in mind that the rights and obligations of the owner of an undivided share in a multi-unit building in relation to the other owners are governed by the terms of the assignment by which the individual owner acquires his share and also by the terms of the DMC and the statutory provisions of the BMO, dealing with, inter alia, the use and management of the common parts. Viewed in this light, the restriction imposed by section 45(3) in terms of the jurisdiction of the Lands Tribunal cannot be intended to be of such a wide ambit as submitted by Mr Chong. We would rather consider that section 45(3) should be narrowly construed and the restriction will only apply where both parties to the proceedings are relying on the terms and provisions contained in the registered instruments such as the assignment and DMC to advance or defend their respective case. If they do, then the Lands Tribunal does not have jurisdiction to make orders that would have the effect of rendering void, negativing or substantially varying those terms and provisions. It is not necessary for us to speculate why the legislature chose to impose this restriction. The research conducted by Mr Chong on the legislative history of the BMO does not shed any light on the restriction. It may well be the concern at that time was on the expertise of the Lands Tribunal but by now the work in the Lands Tribunal is mostly carried out by professional judges who deal frequently with issues of adverse possession, proprietary estoppels etc. in proceedings concerning the common parts of the building. The president of the Lands Tribunal is a High Court judge.

23.In respect of the argument based on the alleged proprietary right of the respondents as owner or occupier in the Building, we would point out that their argument proceeds on the assumption that they have a proprietary right based on proprietary estoppel. Proceeding also on assumption, what if they fail to establish such a right? How can the restriction be engaged in such an event? Their position is not rendered worse because of the order made by the Lands Tribunal. But because they are not able to establish the right in the first place. This highlights the point that the restriction is not directed towards any contractual or proprietary right of an owner or occupier but only, as section 45(3) provides, the right ‘referred to in the terms and provisions of an instrument which is registered in the Land Registry, including a [DMC], if any’. The alleged proprietary right of the respondents in the disputed areas does not come within the terms of the above words because it is not based on the terms and provisions of any registered instruments but by matters extraneous to them. This is in line with paragraphs 7, 8 and 9 of Schedule 10, which confer jurisdiction on the Lands Tribunal to deal with proceedings relating to questions of law and with enforcement where the contractual or proprietary right or the covenant, term or condition is referred to or specified in an instrument registered in the Land Registry. We do not consider section 45(5) relied upon by Mr Chong would assist him because what is required is ‘instruments registered in the Land Registry.’

24.We note the phrase ‘or otherwise’ that appears between ‘any owner or occupier’ and ‘referred to in the terms and provisions of an instrument which is registered in the Land Registry...’ (‘the registered instrument provision’). A question may arise as to whether the phrase ‘or otherwise’ should be read together with the words ‘owners or occupier’ or disjunctively with the registered instrument provision. This question was raised in Incorporated Owners of Homantin Mansion v Power Rich Investment Limited and others, L.T. Case No. BM41 of 1996. When that case was considered in 1996, section 45(3) did not have the words ‘any jurisdiction other than civil jurisdiction or any’ which appear in the current legislation. The Presiding Officer, the late H H Judge Z E Li held :

‘ 5. The construction of section 45(3) of the Ordinance is not without difficulties. For example, should the otherwise in ‘any contractual or proprietory right enjoyed by any owner or occupier or otherwise referred to in the terms and provisions of an instrument which is registered in the Land Registry’ be construed as a para-phrase of the clause ‘enjoyed by any owner or occupier’ or just alternative to ‘owner or occupier’? In the former case, the Tribunal has no power to render a decision that would render void, negative or substantially vary in whole or in part any contractual and proprietory right even though such right cannot be found in [a] registered instrument? In the latter case, only those rights founded on a registered instrument are untouchable by the Tribunal? In either case, it seems to me, this subsection prevents the Tribunal from exercising jurisdiction over the dispute because it is one between rights now being claimed by the applicant based on a registered deed of mutual covenant and a right now being claimed by the respondents based on common law or statute. In whoever’s favour the Tribunal decides, the decision will fall foul of section 45(3) of the Ordinance. The proper course, in view of the circumstances, would be to transfer the matter to the High Court under section 8A of the Lands Tribunal Ordinance, Cap. 17.’

25.After that case, the statutes of Hong Kong have introduced the Chinese language text. The Chinese text of section 45(3) places the ‘registered instrument provision’ in the alternative as can be seen from the parts that we have underlined :

「(3) 除本條例條文另有規定外，本條或附表10所述一切，均不得解釋為將民事司法管轄權以外的任何司法管轄權或任何發出下述命令的司法管轄權歸於審裁處，該命令一旦發出，其效力會使任何業主或佔用人所享有的任何合約性權利或所有權權利，或另於土地註冊處註冊的文書包括公契(如有的話)的條款及條文所提述的任何合約上的權利或所有權權利，完全或部分作廢，或被否定或實質上改變。」 (劃線部分後加)

26.We recognize that by reason of section 10B of the Interpretation and General Clauses Ordinance (Cap. 1), both the English and Chinese language texts are equally authentic (section 10B(1)) and the provisions of the ordinance are presumed to have the same meaning in each authentic text (section 10B(2)). But section 10B(3) also provides that :

‘ (3) Where a comparison of the authentic texts of an Ordinance discloses a difference of meaning which the rules of statutory interpretation ordinarily applicable do not resolve, the meaning which best reconciles the texts, having regard to the object and purposes of the Ordinance, shall be adopted.’

27.Having considered the object and purposes of the BMO, we are of the view that the ‘registered instrument provision’ in the context of section 45(3) should not be an alternative provision to the earlier phrase of ‘owner and occupier’ but should instead be read in conjunction with it and to be construed sui generis, so ‘or otherwise’ would refer to any person other than ‘any owner or occupier’, such as the incorporated owners, and the ‘registered instrument provision’ would qualify ‘any contractual or proprietory right enjoyed by any owner or occupier or otherwise.’ This is because the object and purposes of the BMO is to regulate the management of multi-unit buildings by reference to the terms and provisions contained in an instrument registered in the Land Registry, such as the assignment, the DMC and the statutory provisions contained in the BMO itself. Viewed in such a way, the contractual or proprietary right of an owner or occupier that is not allowed to be affected by an order of the Lands Tribunal in relation to building management is the right that has been expressly provided for in the first place in the registered instruments which confer the rights and obligations to the owners or occupiers of the building. The restriction in section 45(3) has nothing to do with the contractual or proprietary claims acquired by an owner or occupier in respect of the common parts of the building, for example, as in the present case advanced by the respondents, by way of proprietary estoppel or in other cases, by way of adverse possession or licence. To construe otherwise would indeed lead to a most absurd result in that, as in the present case, even though the applicant’s claim comes squarely within the jurisdictional ambit, as a result of the defence raised by the respondents the matter will fall outside the jurisdiction of the Lands Tribunal.

28.In respect of the reverse situation relied upon by Mr Chong that in the event the respondents are successful in their proprietary claim, the applicant’s right in the DMC or other registered instruments may be affected, we are of the view that what we have just said above applies as well. In other words, the restriction only applies in situations where both parties assert a contractual or proprietary right which is provided for in a registered instrument and not otherwise.

29.What we have said above applies to the respondents’ argument on damages.

30.This is the first time that this Court has to make a full analysis of the restriction in section 45(3). But previously this Court had already rejected arguments that the Lands Tribunal has no jurisdiction to deal with cases where adverse possession or estoppel was advanced as defence to the Incorporated Owners’ claim on the common parts of the building. In Mountain View (IO) v Heart Cuisine [2012] 4 HKLRD 628 this Court held :

‘ 29. …… In simple terms, adverse possession began with the unauthorised use of an owner’s land. It would be most odd and contrary to the intention of the BMO and LTO that incorporated owners cannot institute proceedings in the Lands Tribunal against someone who, without the authority of all the co-owners, occupies a common part of the building which belongs to them.’

31.Section 45(3) was not relied upon in that case.

32.In Provident Commercial Investments Ltd v Incorporated Owners of Provident Centre [2005] 4 HKC 155 (CA), this Court dealt with section 45(3) but it was unnecessary to give a full analysis of its ambit. This Court rejected the argument that Lands Tribunal lacks jurisdiction where the defence to the claim by the Incorporated Owners on the common parts of the building was that the respondent had exclusive possession by reason of an assignment to it. It shall be noted that both parties in that case had asserted a contractual or proprietary right provided for in a registered instrument. In rejecting the contention that the Lands Tribunal had no jurisdiction, the Court had regard to the words ‘any order which would, if made, have the effect of rendering void, negativing or substantially varying in whole or in part any contractual or proprietary right.’ Yuen JA held, inter alia, the issue was rectification and not variation :

‘ 20. Judge Chan held that even if the Tribunal were to find that common parts had not been coloured on the Plans, that would only involve the Tribunal in an interpretation of the DMC, and not in making an order varying any contractual or proprietary rights.

21. In my respectful view, that must be right, because the Tribunal would only be interpreting the deeds to find out what had been intended - from Day 1 - as common parts. If the areas in dispute were found to be common parts, the fact that a party may have purported to assign them as ‘private’ property would not change their status as common parts - over which no private contractual or proprietary rights could have been created or assigned.

22. If the Tribunal were to find that some common parts had not been coloured when they could or should have been, at most what could be said is that the Plans were liable to be rectified, but rectification of documents is different from variation of contractual or proprietary rights. Rectification is only a procedural method (used to correct documents in order that they may reflect the parties’ intentions accurately), whereas variation is a substantive alteration of parties’ rights (in spite of their original intentions). It is the latter that the Tribunal has no jurisdiction to effect under s 45(3) Lands Tribunal Ordinance. Insofar as rectification of documents and variation of rights were mentioned in the same breath by Yam J in Mass Transit Railway Corp v Lam Kai Fai (HCA 1796/1994, 9 May 1995, unreported), [1996] HKLY 1132 as if s 45(3) applied identically to both concepts, that was with respect incorrect.

23. PCIL’s submission that the tribunal had no jurisdiction in the proceedings was therefore groundless. Although various submissions were made to us on the situations to which s 45(3) might apply, it is not for the court on this occasion to define the situations where the tribunal may be asked to make an order ‘rendering void, negativing or substantially varying ... contractual or proprietary rights’. As with an elephant, it is probably easier to recognize the situation when one is confronted with it, rather than to describe it before one sees it. This case did not present such a situation.’

33.In The IO of Triumph Court v Law Ping Patsy (unrep., CACV 51/2018, [2020] HKCA 272 (CA)), this Court heard an appeal from the Lands Tribunal where the Incorporated Owners required an owner in a multi-unit building to demolish the unauthorised work she placed on the common parts of the Building. The owner’s defence was that she acquired a possessory title over the common parts and a licence and easement were granted to her by the Incorporated Owners.

34.Mr Ng (together with Ms Wong) also referred us to numerous other cases where this Court and the Lands Tribunal dealt with the defence and counterclaim of proprietary estoppel and acquiescence in proceedings in the Lands Tribunal.

35.Mr Chong has referred to the legislative history of the LTO and the jurisdiction provisions in sections 8(6) and (7). He submitted that the words ‘or otherwise’ in these sections after ‘the Landlord and Tenant (Consolidation) (Cap. 7)’ may only mean tenancy matters and not giving the Lands Tribunal general jurisdiction to deal with claims like the present one. Even if sections 8(6) and (7) are to be construed as such, we have already referred to the other provisions in the LTO and the BMO which confer jurisdiction on the Lands Tribunal. In light of our view on the issue, it is not necessary for us to refer further to the legislative history of the LTO. In any event, the legislative history does not shed light on how section 45(3) should be construed.

36.By reason of our view in the foregoing paragraphs, there is no proper basis to transfer the case to the High Court under the discretionary provision in section 8A(1)(b).

III.  Conclusion

37.Accordingly, the appeal is dismissed with costs to the applicant. This Court will assess the costs summarily :

1)  Costs of the appeal :

$210,000 which includes $160,000 for two counsel which we will certify as appropriate.

2)  Costs of the application for leave to appeal (CAMP 181/2020) :

$50,000 which includes $30,000 for counsel.

Mr Lawrence K F Ng and Ms Becky Wong, instructed by Lam & Partners, for the Applicant

Mr K.M. Chong, Ms Vivian Li and Mr Tyrone Tang, instructed by Christine F.L. Ip & Young, for the 1^st to 4^th Respondents