Shine Empire Ltd v. The Incorporated Owners of San Po Kong Mansion and Others

CACV 19/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 19 OF 2005

(ON APPEAL FROM HCA 3444/2001)

______________________

BETWEEN:

Before: Hon. Rogers V-P, Le Pichon JA and Yuen JA in Court

Date of hearing: 23 September 2005

Date of Judgment: 22 March 2006

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JUDGMENT

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Hon. Rogers V-P:

1.I agree with the judgment of Yuen JA and the orders proposed at para. 53.

Hon. Le Pichon JA:

2.I agree with the judgment of Yuen JA.

Hon. Yuen JA:

Introduction

3.The Plaintiff has since 1987 been the owner of 16/800 undivided shares ("the relevant shares") of land in San Po Kong on which there stands a building erected in 1968.  Under the Deed of Mutual Covenant ("the DMC"), the owner of the relevant shares is entitled to exclusive possession of the roof, subject to a right of way for management to have access to water tanks, cooling towers and pipes located on the roof.  There are also two machine rooms and two lift shafts with machine rooms above them.  The area of the roof is about 16,800 sq. ft. 

4.The 1^st Defendant, the Incorporated Owners of the building ("the IO") started in 1995 to give licences to telecommunications companies (the 2^nd to 6^th Defendants) to install equipment on the roof.  The IO claimed that it was entitled to do so because it had dispossessed the Plaintiff for the requisite period of 20 years prior to the Plaintiff’s commencement of this action. 

5.In the action commenced by writ issued on 1 August 2001, the Plaintiff sought amongst other things the following relief:

(1)     an order for possession of the roof against all defendants;

(2)     the sum of $2,540,490 against the IO, being the known licence fees received by the IO from the telecommunications companies from April 1998 to 30 June 2001;

(3)     damages and mesne profits to be assessed against all defendants;

(4)     an account or enquiries as to the permitted fee, licence fee and/or income received by the IO from the telecommunications companies or others since the IO took possession of the roof.

6.The IO filed a Defence and Counterclaim.  The relief in the Counterclaim included:

(1)     a declaration that by reason of s.7(2) of the Limitation Ordinance, Cap. 347, the Plaintiff had lost the right to bring an action for recovery of possession and that its title had been extinguished under s.17 of the same Ordinance, and that the IO was entitled to ancillary orders for vesting and registration in the Land Registry;

(2)     alternatively to (1), if the Plaintiff is adjudged to the "the true owner of the roof", an order that it be ordered to pay arrears of management fees and reimbursement of rates, property tax, and renovation and repair expenses incurred by the IO for the roof.

7.In its Reply and Defence to Counterclaim, the Plaintiff pleaded that by virtue of Clause 14 of the DMC, the Plaintiff was not obliged to pay any expenses or outgoings in relation to the renovation or repair of the roof (para. 3c(i)), and in any event it had never received any notices from the IO that it would have to pay any maintenance or repair cost in relation to the roof (para. 3c(iv)).  As for rates and property tax, the Plaintiff pleaded (para. 12):

"Further or alternatively, if, which is denied, that there was any rates or property tax that have been paid by the [IO] in respect of the roof, the Plaintiff admits that upon a full restoration to the Plaintiff of all the unlawful enrichment that has been pocketed by the [IO] since 1995, the Plaintiff will be ready and willing to reimburse such rates and property tax that would have been legally payable by the Plaintiff if it has been informed of the same before".  (Emphasis added).  

8.On 20 October 2004, Sakhrani J gave an order that:

"all issues of liability between the Plaintiff and the [IO] be tried first, leaving the question on quantum between the Plaintiff and the [IO], and issues of liability and quantum between the Plaintiff and other Defendants to be tried after determination of the liability issues between the Plaintiff and the IO ".

Although the Order did not specifically define "issues of liability" or "quantum", it is clear from the judge’s notes of the hearing that the "issues of liability" between the Plaintiff and the IO were said to be "who is entitled to possession of the roof".  It follows therefore that by "quantum" was meant all monetary sums consequent upon a finding that the IO had not dispossessed the Plaintiff, i.e. paras. (2), (3) and (4) of the Plaintiff’s claim and para. (2) of the IO’s Counterclaim.  Even if no reference is made to the judge’s notes, that would in any event be a reasonable interpretation of his order because if the IO were to succeed in its case that it had dispossessed the Plaintiff, there would be no point expending time and costs on either the Plaintiff’s or IO’s monetary claims.

9.The trial was held before Deputy Judge Mayo, who heard evidence from representatives of the Plaintiff and its predecessors-in-title and witnesses called by the IO. 

10.In his judgment handed down on 3 December 2004, Deputy Judge Mayo found that there had been no discontinuance of possession by the owner of the relevant shares and that the IO had not dispossessed the paper title owner of the roof.  He held that the Plaintiff was not estopped from claiming the return of the licence fees by the doctrine of estoppel or by estoppel by convention and that the Plaintiff’s claim was "fully justified and ... when the question of quantum is considered pursuant to Sakhrani J’s order consideration will need to be given to this".  He ordered that damages should be assessed on the basis of unjust enrichment.  He dismissed the IO’s counterclaim.

11.Before I deal with the issues on appeal, it may be helpful to summarize the relevant facts.

Relevant facts

12.The building in question is a composite development in Kowloon with commercial premises from the Ground to the 5^th floors (including a purpose-built cinema, a restaurant - now a shopping mall - and car parks) and residential units in the 15 floors above. 

13.The roof is bounded by parapet walls 255 millimetres (approximately 10 inches) wide. 

14.Sixteen shares had been specifically allocated for the roof, with exclusive possession of the roof reserved to the developer and its assigns. 

15.The owner of those shares also has the right to build "one or more additional floor or penthouse ... and extend the lift to serve floor or penthouse ... (all of which shall be its exclusive property) if and when the plans thereof are approved by the Building Authority": clause 19, DMC. 

16.Although no additional floors have been built, the shares allocated to the roof have been assigned a few times after the completion of the building.  The assignees were connected in some way but that is not material for present purposes.

17.At no time did any of the owners of the relevant shares enclose or restrict access to the roof, but it could not lawfully have done so as there was a right of way running more or less across the middle of the roof for access to the machine rooms and water tanks. 

18.The judge found that there were regular inspections of the roof by staff of the owners of the relevant shares and that they had never discontinued possession.  He also found that the IO had failed to prove that it had dispossessed the owner of the relevant shares of its possession of the roof for at least 20 years prior to 1 August 2001 when the writ was issued.

Appellant’s case

19.In arguing that the judge was wrong in having failed to find discontinuance of possession or dispossession, Miss Eu SC presented her case on behalf of the IO on the basis of three different scenarios:

(1)     that the Plaintiff and its predecessors in title had never taken possession of the roof in the first place;

(2)     even if possession had been taken at some stage, subsequently it had been abandoned (in other words, possession was discontinued);

(3)     even if possession had been taken at some stage, the IO had dispossessed the paper title owner of the roof.

Possession taken

20.With respect to Miss Eu, I think Scenario (1) is a non-starter.   It was not necessary for the Plaintiff to prove that the developer actually took possession.  As Slade J held in Powell v McFarlane (1977) 38 P&CR 452, in a passage adopted by Lord Browne-Wilkinson in JA Pye (Oxford) Ltd v Graham [2003] AC 419, §40:

"In the absence of evidence to the contrary, the owner of land with the paper title is deemed to be in possession of the land, as being the person with the prima facie right to possession.  The law will thus, without reluctance, ascribe possession either to the paper owner or to persons who can establish a title as claiming through the paper owner".

21.Since the first "paper title owner" of the roof was the developer of the building, it must be deemed to have taken possession.  A developer having erected the building starts off with exclusive possession of the entire building.  When the developer starts "selling units" in the building (to put it colloquially), exclusive possession of individual units is given to the respective buyers, and (except for common parts) the developer retains exclusive possession of the rest of the building.

22.Since it is clear from the DMC that the roof was not a common part and had shares allocated for it which were retained by the developer, it is clear beyond peradventure in this case that the developer did have possession of the roof.  There was also evidence that after the developer sold the relevant shares to Kiu Fung Co Ltd, employees of Kiu Fung and thereafter its assignee Chi Kwok Co Ltd, and thereafter Chi Kwok’s assignee the Plaintiff, inspected the roof regularly.  Of course if the roof could have been locked up, the developer (or its assignees) might have protected the right to exclusive possession by enclosing it (e.g. by putting a gate at the landing on the roof and locking it up), but in the present case, the roof could not have been enclosed because of the right of way for access to the machine rooms and water tanks.

23.Accordingly there is no evidential basis to support the contention that the Plaintiff and its predecessors in title had never taken possession of the roof.   

No discontinuance of possession

24.In respect of Scenario (2), as I have said, the owner not only had 16/800 shares in the land, it also had a right under the DMC to build an additional floor on it.  As such, abandonment should not be inferred too easily without clear evidence. 

25.In any event, the judge accepted the evidence of the employees of the respective owners of the relevant shares from 1973 onwards that after the first managers appointed under the DMC left, they inspected the roof regularly once or twice a year.  They said they did so without having to ask anyone to give them access (Transcript pp.3, 29) and their evidence was accepted by the judge (para. 29).  It was on one of those visits that an employee noticed the telecommunications equipment which led to the Plaintiff’s inquiries with the IO which in turn gave rise to the dispute between the parties.  The judge was clearly entitled to find that those visits showed that there was no discontinuance of possession (para. 109).

26.It was argued on behalf of the IO that the failure to pay for replacement of gutters and sewage pipes in 1982 was evidence that the owner of the relevant shares had abandoned possession.  In respect of this,

(a)      there is no evidence that the IO ever informed the owner of the relevant shares that it had to pay part of those costs, and

(b)     in view of the terms of the DMC, even if the owner of the relevant shares  had notice from the IO’s annual accounts that it (the IO) had expended money for those purposes, the fact that the owner of the relevant shares  made no contribution would not have been clear evidence that it had abandoned possession.

No dispossession for requisite period

27.So that leaves Scenario (3), which requires the IO to prove that it dispossessed the owner of the relevant shares of the roof for 20 years starting from August 1981 (the writ in this case having been issued on 1 August 2001).

28.The House of Lords in Pye has said that whilst the term "adverse possession" should be avoided as no intention of hostility to the paper title owner is required (paras. 36, 69), it is still necessary for the party ("the squatter") claiming that it has dispossessed the paper title owner to prove two separate elements: (1) a sufficient degree of factual possession in the sense of physical control, and (2) an intention to possess.  To establish factual possession, the squatter has to show absence of the paper title owner’s consent, a single and exclusive possession and such acts as demonstrated that in the circumstances, in particular, the nature of the land and the way it was commonly used, it had dealt with it as an occupying owner might normally be expected to do and that no other person had done so (para. 41).  To establish an intention to possess, the squatter has to show that he intended to occupy and use the land as his own (para. 71), to exclude the world at large, including the paper title owner, so far as was reasonably possible (para.43).     

29.The factual possession alleged by the IO (Re-re-Amended Defence para. 4), and the evidence at trial were as follows :

(a)      "allowing" residents to use the roof for drying clothes, blankets and quilts and installing television aerials (referred to as "fishbone antennae") on the parapet walls of the roof - according to Miss Liu’s evidence at trial, this commenced in the "1970’s and 1980’s", although the fishbone antennae were replaced by a central antenna installed on top of a water tank in 1995-6;

(b)     holding gatherings for residents during Mid-Autumn Festival and fireworks nights - according to Miss Liu’s evidence, this started in 1994-5;

(c)     licensing occupiers of a structure at areas of the roof above units D3 and D4 of the 19^th floor - the evidence from Miss Liu in support of this allegation (Transcript p.46) turned out to be hearsay  evidence and guesswork which the judge did not accept;

(d)     maintaining sewage pipes and gutters and carrying out water proofing work - according to Miss Liu’s evidence, this was done in 1982-3;

(e)      building the management office on part of the roof - the evidence at trial was that this was mainly on the right of way and occurred only in 1996.

The installation of a gate at the roof which was locked from midnight to 7 a.m. was not pleaded.  

30.The judge focussed on the installation of the gate, but as it was installed only in 1984 (Transcript p.75) - less than 20 years before the issue of the writ in 2001 - he held correctly that this evidence did not advance the IO’s case (para. 64). 

31.I would also have thought that the building of the management office on the roof (although mainly on the right of way) might well have been an act of dispossession, but this only took place in 1996.  This was consistent with the judge’s finding that "it was only in more recent years that the [IO] exercised any meaningful control" (para. 64). 

32.The judge did not analyse in detail the other acts alleged to constitute dispossession but considered that "virtually all of the action Miss Liu referred to which had been taken by the [IO] over the years appeared to me to be consistent with duties normally undertaken by Incorporated Owners" (para. 65).  He also noted "the paucity of first hand evidence concerning the actions and intentions of the [IO]" (para. 110) and concluded: "it is difficult not to come to the conclusion that all that the [IO] claims to have done comes within the ambit of the activities which are normally undertaken by Incorporated Owners" (para. 111).

33.Although the judge did not identify the acts he was referring to, I think the most significant one, in terms of timing, would have been the letter that the IO wrote to the Wong Tai Sin Civil and Administration Office in January 1981 (the writ having been issued in August 2001)  in which it asked the DLO to investigate and remove illegal structures on the roof.  However, that action was not unequivocally the act of a possessor of the roof.  The letter was based on the need to "maintain a good living environment for our tenants" and the IO’s concern was said to be because the illegal structures "pose potential hazard to the fire and structure of the building".  In other words, the IO’s act was not unequivocally done in the capacity of possessor of the roof, but possibly (and on an objective reading of the letter, probably) in the capacity of the representative of concerned neighbours.

34.The need for acts to be unequivocal was set out in Powell v McFarlane (p.472) as quoted and referred to in Pye (paras. 76-77):

"76.      ... It is in cases where the acts in relation to the land of a person claiming title by adverse possession are equivocal and are open to more than one interpretation that those acts will be insufficient to establish the intention to possess. ...

77.       The conclusion to be drawn from such acts by an occupier is recognised by Slade J in Powell v MacFarlane, at p.472:

‘If his acts are open to more than one interpretation and he has not made it perfectly plain to the world at large by his actions or words that he has intended to exclude the owner as best he can, the courts will treat him as not having had the requisite animus possidendi and consequently as not having dispossessed the owner’".

35.I think what the judge meant at the passages I have set out in para. 32 was that a court would not lightly find that an owners incorporation, whose statutory remit is to manage common parts and ensure compliance with the DMC, would intend to occupy private property as its own, in breach of the DMC.  That is not within the statutory powers and duties of an owners incorporation, and it is unlikely that the IO would have intended to act outside its statutory remit.  Certainly no resolution to that effect was produced or asserted.  (Of course, dispossession of land may occur through mistake on the part of the squatter - i.e. even an IO - believing that the land was his - i.e. common parts -: see the discussion at Gray and Gray, Elements of Land Law 3^rd ed. p.267 and cases cited.  It was not however the IO’s case that such a mistake had occurred and this issue was not argued before the judge).

36.I accept however that the fact that an act is consistent with a normal activity of an owners incorporation does not necessarily mean that it cannot be an unequivocal act of dispossession.  A simple example is the building of the management office on the roof.  The issue remains: had the IO taken physical control with the intention of using and occupying the land as its own?

37.It is therefore necessary to examine the alleged acts of dispossession.  It can be seen from the acts pleaded (which I have listed in para. 29) that most acts took place after 1981.  The only acts which according to Miss Liu’s evidence took place before 1981 were the drying of clothes, blankets and quilts on the roof, and the installation of fishbone antennae on the parapet walls. 

38.I do not accept that the drying of clothes, blankets and quilts were acts of dispossession.  By their very nature, these are temporary activities (especially the sunning of blankets and quilts), trivial acts of trespass of individuals intended to last only for as long as it takes their clothes to dry (and given the purpose of the activity, presumably the quicker the better).  These are not acts done with the intention of dispossessing the paper title owner.  Thus, in Pye, Lord Browne-Wilkinson held:

" ... there is no doubt in my judgment that there are two separate elements in legal possession.  So far as English law is concerned intention as a separate element is obviously necessary.  Suppose a case where A is found to be in occupation of a locked house.  He may be there as a squatter, as an overnight trespasser, or as a friend looking after the house of the paper owner during his absence on holiday.  The acts done by A in any given period do not tell you whether there is legal possession.  If A is there as a squatter he intends to stay as long as he can for his own benefit: his intention is an intention to possess.  But if he only intends to trespass for the night or has expressly agreed to look after the house for his friend he does not have possession.  It is not the nature of the acts which A does but the intention with which he does them which determines whether or not he is in possession" (para. 40).  (Emphasis added).   

39.As for the fishbone antennae, they had been fixed on the parapet walls which were about 10 inches wide.  I would not consider that to be an assertion of physical control of the floor-space of the roof which as I have said occupies an area of some 16,800 sq. ft. 

40.In any event, no occupant was called to testify to his intention regarding the bit of the parapet wall on which he fixed his antenna. By the very nature of the act, presumably his intention would have been to occupy the spot where he installed his antenna for his own purposes, not for the benefit of co-owners.  Far from intending to make it a common part, he would have been intending to exclude other owners.  The impression given by Miss Liu’s evidence was "every man for himself".  As for the IO itself, it did not assert control of an owner over the parapet walls until 1995 when it required the fishbone antennae to be taken off to be replaced by a central antenna on top of the water tank.  Miss Liu’s evidence was as follows:

"Q. ... I have to go back to the antennae again.  Now am I right to say that in fact for your case when you erect your antenna at the roof, you did not apply for permission from anybody?

A. Well, everyone can go up and put up an antenna there.

Q. So you did not need to seek permission of (the) Incorporated Owners to erect your antenna.

A. No need".  (Transcript p.58) 

41.In my view the putting up of the fishbone antennae was no more than individual acts of minor trespass on the parapet walls.  The judge was entitled to arrive at the finding that this did not warrant a finding that the IO had dispossessed the Plaintiff (para. 59).

Dismissal of defence of acquiescence

42.I then come to Miss Eu’s alternative issue on appeal that the judge erred in dismissing the IO’s defence of acquiescence.  I do not agree.  The hanging of clothes, etc. to dry was intermittent (Transcript p.5) and the installation of fishbone antennae on the parapet walls were minor acts of trespass.  It would be unfortunate and in my view wrong for a neighbour’s tolerance of minor acts of trespass to be elevated to a defence of acquiescence. 

43.As for the illegal structures on the roof, the Plaintiff had through its lawyers itself written to the authorities asking for removal (Transcript, p.22).  The management office was built mainly on the right of way and in any event there is no evidence of the time taken to build it and the extent to which the Plaintiff had known about it before the building work was completed.

44.As for the telecommunications equipment on the roof,  the Plaintiff’s evidence was that it did not at first know what the structures were.  Mr Kwan of the Plaintiff tried to make inquiries with the IO as to what they were and why they were there but he received no assistance.  The chairman’s attitude was in fact obstructive (judgment, para. 19).  In those circumstances, the IO can hardly advance a defence of acquiescence.

Dismissal of counterclaim

45.Miss Eu also argued that contrary to the order for split trial, the judge “appeared to have conducted a mini-hearing on quantum”, resulting not only in unfair criticism of the chairman of the IO but also the dismissal of a set-off and counterclaim. 

46.It is clear from the judgment that the judge was aware of the order for split trial as he referred to it both at the start and at the end of his judgment (paras.  15, 133).  It is in that context that his dismissal of the counterclaim should be understood.  It is clear from other parts of his judgment that he had not intended to dismiss the IO’s right (if any) to set-off arrears of management fees, rates, property tax, and renovation and repair expenses.

47.As far as the criticism of the chairman of the IO is concerned, the IO was trying to advance a case of estoppel and as part of that case, alleged that management fees for the building had been subsidized by licence fees received from the telecommunications companies.  It was therefore incumbent upon him to prove that allegation, obviously by reference to the accounts of the IO.  The judge found that he had failed to do this because the accounts were in an unsatisfactory state (paras. 44-47, 128). 

48.It would be noted that what the judge did was to reject the IO’s contention that management fees payable by the other co-owners had been subsidized.  As a result, the Plaintiff was not debarred from claiming any part of the licence fees (para. 133).  This was not equivalent to a finding that the Plaintiff itself was not liable under the DMC to pay management fees (a matter which had its own controversy in view of the terms of the DMC). 

49.Although the IO’s counterclaim was alternatively for an order that the Plaintiff pay certain sums, it was actually by nature a set-off, although the term was not used in the Defence and Reply to Counterclaim.

50.As far as rates and property tax were concerned, the judge ordered damages to be assessed on the basis of unjust enrichment and it has been acknowledged in the Reply and Defence to Counterclaim that rates and property tax would have to be taken into account: see para. 7 above.

51.As far as arrears of management fees and renovation and repair expenses were concerned, the judge had held first, that there was “ambiguity” on the issue whether the DMC provided that the developer and its successors in title would not have to contribute towards maintenance payments (para. 8).  Further, in another part of the judgment, he refers to conflicting clauses in the DMC regarding the liability of the owner of the relevant shares to contribute to expenses incurred for repairs (para. 112-113) without resolving the conflict.  He could not therefore have decided against the IO’s claim to set-off.  I do not agree with Mr Mok when he says that the judge had determined the issue whether the Plaintiff was  liable to pay those fees or charges in paras. 112-113.  In that part of his judgment the judge was still dealing with the issue of "adverse possession" (see the opening words of para. 114).  

52.It is therefore clear that when the judgment is read as a whole, that when the judge dismissed the counterclaim, it was with reference to the counterclaim regarding the IO’s right to possession of the roof which was the issue of liability identified in Sakhrani J’s order.

Order

53.In the circumstances, I would dismiss the appeal with an order nisi that the appellant IO is to pay the respondent Plaintiff’s costs.

Miss Audrey Eu SC and Mr Donald Leo instructed by Y.C. Lee Pang & Kwok for the 1^st Defendant (Appellant)

Mr Y.C. Mok and Mr Yeung Ming Tai instructed by Peter Mo & Co for the Plaintiff (Respondent)