The Incorporated Owners of Unison Industrial Building v. The Director of Lands

DCCJ2233/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2233 OF 2004

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BETWEEN

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Coram : Her Honour Judge H.C. Wong in Chambers

Dates of Hearing : 18^th May 2005 and 16^th September 2005

Date of Handing Down Decision : 11^th January 2006

DECISION

The Defendant's application to strike out the Plaintiff's Statement of Claim

1.This is the second part of the two applications before me.  I shall not repeat the background, the background of these proceedings is set out at paragraphs 1 - 14 of my Ruling on 23 February 2005. 

The Issues

2.According to the submission of the Defendant’s Counsel, Mr. Ho, the issue to be decided is whether the said carparks in the said building have been converted into ‘common area’ by means of common usages of the residents of and visitors to the said building since 1976.

3.The Director of Lands, claims legal ownership to the said carparks through bona vacantia after the developer company wound up in 1993 without disposing of the legal titles of the said carparks.

4.Mr. Merry, Counsel for the Plaintiff (the “I.O.” of the said building), submitted that the owners have collectively acquired the equitable rights to the said carparks from Kingstown, the developer.  That these rights is binding on Kingstown’s successor-in-title.  It is Mr. Merry’s submission that the Plaintiff’s claim is based on constructive trust and proprietary estoppel, whether the said carparks became a part of common area is an issue to be decided at trial.. 

5.The I.O. claimed the intention of Kingstown was indicated in 1976 and 1977 when it reserved the said carparks for common use for loading and unloading goods at the carpark floor.  Such intention was further expressly represented to the then owners and manager of the said building.  Mr. Merry argued that the Director of Lands is therefore estopped from claiming possession of the said carparks for purposes other than common use. 

6.The I.O. further place reliance on the fact that the owners in 1976 and 1977 and their successors-in-title have been using the said carparks as common areas and some had purchased their respective units after 1977 in reliance of the said common usage.  The I.O. further relied on the acquiescence and encouragement of Kingstown and the Defendant after Kingstown’s winding up in 1993.  As the I.O. was incorporated in 1992, Mr. Merry argued that it had relied on the acquiescence of Kingstown and the Defendant from 1976 to 2003. 

7.Mr. Merry submitted the issue should be left to the trial judge to consider after hearing evidence and to decide if the legal owner’s asserting its legal title is unconscionable or that the developer’s expressed intention and promise should be respected by and binding on the legal owner.  Further, the trial judge should consider whether the said carparks were under a constructive trust upon the winding up of Kingstown. 

8.The Plaintiff in this action seeks:-

(1)  a declaration that the said carparks have been converted into a common area of the building and the Plaintiff has acquired a propriety interest therein;

(2)  a declaration that the Defendant’s purported sale of the said carparks to be null and void;

(3)  an order compelling the Defendant to convey the said carparks to the Plaintiff at a nominal consideration.

9.Mr. Ho, Government Counsel representing the Director of Lands, argued that since the Plaintiff accepted the said carparks became vested in the Government as bona vacantia, the I.O. in effect accepted the said carparks are not common parts of the said building.  Furthermore, Clause 1 and First Schedule of the DMC of the said building excluded the carparking space from the common parts. 

10.Mr. Ho further argued that the Plaintiff’s reliance on the doctrine of promissory estoppel, relying on the Defendant’s failure to pay management fees as detrimental to the Plaintiff’s interest claiming that the Defendant is estopped from repossession and sale of the said carparks to a third party is flawed.  For the collection of management fees is a management matter that the manager could have recovered in a civil action.  Mr. Ho argued that it was not a detriment since recovery of unpaid management fee could be enforced.  He relied on the decision in Hang Yick Properties Management Ltd. v. Incorporated Owners of Tuen Mun Kar Wah Building [2005] 2 HKLRD 499, that even management fees outstanding before the incorporation of the I.O. could be enforced by the I.O.

11.Mr. Ho further referred to p. 893 of volume 11 of Halsbury’s Laws of Hong Kong para. 170.121:-

“[170.121] Elements in the estoppel When A stands by while his right is being infringed by B, it has been said that the following circumstances must be present in order that an estoppel may be raised against A:

(1)  B must be mistaken as to his own legal rights; if he is aware that he is infringing the rights of another, he takes the risk of those rights being asserted;

(2)  B must expend money, or do some act, on the faith of his mistaken belief; otherwise, he does not suffer by A’s subsequent assertion of his rights;

(3)  acquiescence is founded on conduct with a knowledge of one’s legal rights, and hence A must know of his own rights;

(4)  A must know of B’s mistaken belief; with that knowledge it is inequitable for him to keep silence and allow B to proceed on his mistake;

(5)  A must encourage B in his expenditure of money or other act, either directly or by abstaining from asserting his legal right.”

12.Mr. Ho criticised the Plaintiff’s Statement of Claim for failing to specifically plead estoppel or mistaken belief on the Plaintiff’s part of their legal rights.

Pleading of estoppel and mistaken belief

13.Mr. Merry submitted that para. 10 of the Statement of Claim did set out the belief (or mistaken belief) of the owners and occupiers of the said building that the said carparks were part of common area.

14.It is not disputed that para. 10 of the Statement of Claim indeed stated the owners and occupiers of the said building’s belief (be it mistaken or not).  In fact, the Statement of Claim simply set out the facts and background of the Plaintiff’s case, it reads like an affidavit rather than the statement of claim.  Nevertheless, the background particulars have been pleaded. 

15.Under para. 20 of the Statement of Claim, it is further stated that the Plaintiff had acquired proprietary interest in the said carparks.  Under reply No. 12 of the Further and Better Particulars, the Plaintiff specifically pleaded its reliance on the equitable doctrine of estoppel and the Plaintiff’s claim under proprietary interest.

16.Based on the above, I find the Plaintiff has satisfied the rules of pleading and practice note 18/8/11 of the Hong Kong Civil Procedure 2004.

The Doctrine of Proprietary Estoppel

17.In Halsbury’s Laws of Hong Kong para. 171.121, the author explained the five elements in the estoppel referred to above in para. 11 and said further:-

“The more recent cases raise the question whether it is essential to find all the five tests literally applicable and satisfied in any particular case.  The real test is said to be whether upon the facts of the particular case the situation has become such that it would be dishonest or unconscionable for the plaintiff, or the person having the right sought to be enforced, to continue to seek to enforce it.  The belief on which the person seeking protection from equity relies need not relate to an existing right nor to a particular property.  It may be easier to establish acquiescence where the right in question is equitable only.  Where, on the hypothesis that liability has been established, the question is whether equitable relief should be withheld in the case of a continuing legal wrong, the true test is that the facts must be such that the owner of the legal right has done something beyond mere delay to encourage the wrongdoer to believe that he does not intend to rely on his strict rights, and the wrongdoer must have acted to his prejudice in that belief.  The modern approach is a broad one and the tendency is to reject any classification of equitable estoppel into exclusive and defined categories.

This principle is a particular instance of estoppel by acquiescence, and differs from other estoppels in that it may give rise to a cause of action rather than being available merely as a defence; but whether the principle is called proprietary estoppel, estoppel by acquiescence or estoppel by encouragement has been said to be really immaterial.

There is no hard and fast rule that ignorance of a legal right is a bar to acquiescence in a breach of trust, but the whole of the circumstances must be looked at to see whether it is just that a complaining beneficiary should succeed against a trustee.”

18.Mr. Merry submitted that the Plaintiff accepted the said carparks were not common parts, but the Plaintiff is relying on the doctrine of proprietary estoppel and the said carparks are subject to the proprietary interests of the I.O.

19.Mr. Merry referred to para. 13-001 on p. 727 of Megarry and Wade’s Law of Real Property (6^th ed. 2000) which summarised the equitable doctrine of proprietary estoppel as follows:-

“(i) An equity arises where-

(a) the owner of land (O) induces, encourages or allows the claimant (C) to believe that he has or will enjoy some right or benefit over O’s property;

(b) in reliance upon this belief, C acts to his detriment to the knowledge of O; and

(c) O then seeks to take unconscionable advantage of C by denying him the right or benefit which he expected to receive.

(ii)  This equity gives C the right to go to court to seek relief.  C’s claim is an equitable one and subject to the normal principles governing equitable remedies.

(iii) The relief which the court may give may be either negative, in the form of an order restraining O from asserting his legal rights, or positive, by ordering O either to grant or convey to C some estate, right or interest in or over his land, to pay C appropriate compensation, or to act in some other way. 

The issue in any given case is whether it would be unconscionable for O to deny that which he has allowed or encouraged C to assume to his detriment.  The courts no longer inquire (as once they did) whether the circumstances can be “fitted within the confines of some preconceived formula”.”

20.It is essential that the elements of estoppel to be established must satisfy the Court on three matters: (i) encouragement or acquiescence, whether it be active or passive; (ii) detrimental reliance e.g. expenditure on the Claimant’s part; and (iii) unconscionability, by the owner to take advantage of the Claimant ‘by denying him the right or benefit which he expected to receive’.  (see Chapter 13 of Megarry and Wade’s Law of Real Property).

21.I am satisfied that the Plaintiff’s pleadings have raised a reasonable cause of action based on proprietary estoppel.  The background of the case clearly showed a prime facie case that the developer and original legal owner of the said carparks did encourage the owners and occupiers of the said building to use the said carparks for loading and unloading purposes.  This has been acquiesced by Kingstown and, to a certain extent, the Defendant.

22.The Plaintiff, and, before its incorporation, the owners through the manager did not collect any management fees for the said carparks.  This in effect meant that the other owners had to take up the responsibility of maintaining the said carparks which the legal owner to the said carparks should contribute in the form of management fees.  Consequently, all the other owners would have suffered a detriment to their interests.  In spite of the Hang Yick decision, it is debatable if 30 years of management fees are recoverable given the restrictions of the Statute of Limitations. 

23.Whether the Defendant is unconscionable remains to be ascertained by the trial judge, as with the issue of whether true detriment had been suffered by the Plaintiff and the individual owners, or whether there had been a breach of trust when the Defendant attempted to enforce its legal ownership by selling the said carparks to a third party.

Locus Standi of the I.O.

24.Mr. Ho raised the issue of the locus standi of the Plaintiff when the said carparks were not part of the common parts of the said building.  I refer to the judgment of Godfrey JA (as he then was) in the case of Incorporated Owners of Block F1 – F7 Pearl Island Holiday Flats v. Incorporated Owners of Pearl Island Garden [1997] 4 HKC at p. 42A:-

“The true construction of s 18 (2)(g)

This question as to the true construction of s 18 (2)(g) is the central question; and upon it I agree with the judge.  The point does not admit of much elaboration.  I am of the opinion that s 18 (2)(g) was properly construed by the judge as enabling the plaintiffs to maintain this action against the defendants in the plaintiffs’ own names.  We are not in the realm of the common law rule as to actions brought by an agent on behalf of his principal.  We are concerned with the statutory regime for building management prescribed by the Ordinance.  The statutory language is quite general enough to admit of the construction placed upon it by the judge and I see no reason whatever to strain to give s 18 (2)(g) a narrower construction.”

25.Base on the aforesaid dictum, clearly the Plaintiff has the locus to represent the owners all of whom has an interest to the use of the said carparks.

26.For the aforesaid reasons, this case should go to trial and the Defendant’s application to strike out the Plaintiff’s Statement of Claim is dismissed. 

27.Cost nisi – costs of application and hearing be costs in the cause to be taxed if not agreed with Certificate for Counsel.

Parties:

Mr. Malcolm Merry instructed by Messrs. Haldanes for the Plaintiff.

Mr. Ho Chi Sum, Senior Government Counsel of Department of Justice for the Defendant.