So Kee Transportation Co Ltd v. The Secretary for The Environment, Transport and Works

cacv 363/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 363 of 2005

(on appeal from LDRW NO. 36 of 2003)

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BETWEEN

Before: Hon Rogers VP, Le Pichon and Cheung JJA in Court

Date of Hearing: 4 October 2006

Date of Handing Down Judgment: 12 October 2006

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J U D G M E N T

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Hon Rogers VP:

1.This was an appeal from a decision of the Lands Tribunal given 17 October 2005.  The matter before the Tribunal was an application for compensation pursuant to section 34, (item 1 and item 2(b) of Part II of the Schedule) of the Railways Ordinance, Cap. 519 (“the Ordinance”).  The land in question was a large area upon which the applicant had been operating a container yard and transportation business since about 1998.  The land was resumed so that work could be carried out on the Sheung Shui to Lok Ma Chau spur line of the Kowloon-Canton Railway Corporation East Rail extension.  The Tribunal heard argument on a preliminary point namely as to whether the applicant was entitled to make a claim.  The Tribunal ordered that the applicant’s application be dismissed and that it pay the respondent’s costs of the application.  At the conclusion of the hearing of this appeal, this court reserved judgement which we now give.

Background

2.The land upon which the applicant’s container yard and transportation business was carried on was resumed pursuant to a notice dated 18 July 2002.  The applicant had occupied the site pursuant to two tenancy agreements.  The first is a nine-year tenancy agreement with Pacific Cargo Service.  That commenced on 18 December 1988.  There was also an eight-year tenancy agreement with Fulways International Ltd which commenced on 1 July 1999.  These were for two separate parts of the relevant site.  The owner of the site had originally been Man Shin Kang Tong (“the Tong”).  On 1 January 1994 the Tong had granted a 10 year lease to Man Yiu Chuen and eight others.  This has been referred to as the Head Lease.  It is accepted by the respondent that there was a direct chain of title between the Head Lease and the applicant’s tenancy agreements despite the fact that the Head Lease and the tenancy agreements and other leases had not been registered at the Land Registry.  On 14 September 1999 the Tong assigned the land in question to Mass Ocean International Ltd (“Mass Ocean”).

3.In the notice of opposition filed by the respondent it was denied that the applicant had any right to claim compensation under the Ordinance.  At the hearing of this appeal, this court observed that that statement hardly gave any proper indication of the point that would be taken.  Since the hearing in this court, the respondent has sent this court copies of two letters, without, it would seem, the consent of the applicant.  I would simply say that whatever justification there might be for referring matter to a court after a hearing, no communication should be made without the concurrence of all parties.  The first letter was from the applicant’s solicitors.  It was dated 19 March 2003 and it refers to a “Without Prejudice” letter of 29 January 2003 from the respondent.  This court has not been shown the letter of 29 January 2003.  The letter of the applicant’s solicitors appears to answer a large number of points, many of which do not appear to be of any present relevance.  One matter which may be observed is that it was stated that Mass Ocean had recognized the Head Lease.  It was also said that the Tong had never denied or challenged the validity of the Head Lease.

4.At the commencement of the hearing of the application before the Tribunal, the respondent contended that the applicant had failed to establish that it was a person “having an estate or interest in the land” as required under section 2 the Ordinance.  The Tribunal then took the course, apparently suggested by the parties, that there should be a trial of a preliminary issue.  The matter was then adjourned so that the parties could file skeleton arguments directed to the preliminary issue.  It was at that stage that the respondent first put on paper in an open manner, as opposed perhaps to “Without Prejudice” correspondence, what its point really was.  The point taken was that the applicant’s tenancy agreements were invalid.  In the first place the Head Lease was invalid because it did not bear all the signatures of the managers of the Tong.  In the second place the Head Lease was null and void against the purchaser of the land from the Tong.  The Tribunal then proceeded to hear argument on the matter, without, it would seem, hearing any evidence.

5.The Tribunal held that the Head Lease was not valid because it had been signed by only two out of the three managers of the Tong.  Since the third manager of the Tong had signed the assignment to Mass Ocean there was no question that the third manager who had not signed the Head Lease had been alive and of full capacity when the other two managers had signed the Head Lease.  Relying on the proposition that managers of a Tong were in the position of trustees, the Tribunal appears to have gone so far as to hold that all the managers of the Tong had to sign a lease.

6.In coming to this conclusion the Tribunal relied upon the proposition that all trustees in dealing with the leasehold interest and any rights arising out of it had to act jointly.  That, however, is not the same as saying that all the managers of the Tong have to sign a lease.  A Tong is not governed by articles of association, as is a company.  It would be perfectly feasible for the managers of a Tong to consent to the execution of a lease by the Tong, with the lease being signed by some of the managers only or even by an agent.  When Chu J said in the case of Tang Kam Wah and others v Tang Ming Yat HCA 10141/1998, 26 November 2002, at paragraph 72, that the consent of only one manager from each of the two Ts’os in question (which were treated as equivalent to Tongs) was insufficient to make the lease a valid and binding one, she was not saying that all the managers of the Ts’o in question had to sign but that, simply, it had to be validly signed with their consent.

7.This matter was clearly not considered by the Tribunal which decided the matter only on the basis of the absence of a signature by one of the managers.  One of the factors which would undoubtedly have to be taken into consideration would be that the Head Lease had been in existence for a number of years with, seemingly, no objection on the part of the manager who had not signed the lease nor on the part of the Tong.  Furthermore, the assignment to Mass Ocean had not contained any covenant as to vacant possession.  That would be consistent with the existence of a lease over the property.

8.In my view, the Tribunal’s consideration of the matter was clearly not complete and on a wrong basis.  What the Tribunal should have considered was whether the respondent had established that the lease had not been validly granted and hence whether it was correct to hold that no consent to the grant of the lease had been given by one of the managers of the Tong.  It was not sufficient to consider, simply whether one of the managers had not signed the document.  In my view the matter must therefore be remitted to the Tribunal to be heard again.

9.It remains only to consider the other aspect namely the absence of registration of the Head Lease and the sub-leases and tenancy agreements in the Land Registry under the Land Registration Ordinance.  In this respect the point at issue is the effect of section 3(2) of the Land Registration Ordinance Cap. 128.  That provides that instruments in writing, such as a lease, which are not registered shall be “absolutely null and void to all intents and purposes” “as against any subsequent bona fide purchaser … for valuable consideration.”  This provision means that a lease which is unregistered is not binding against such a purchaser.  It does not mean that the tenant may simply walk away from a lease, the option is one which is given to the purchaser.  If the purchaser chooses to acknowledge the lease he may hold the tenant to the lease.  The provision furthermore, gives no right to any third party.

10.In this case the chronology of what happened is instructive.  As already noted Mass Ocean took assignment of the property in September 1999.  In April 2002 Mass Ocean brought proceedings against the applicant for possession of the land claiming simply that the applicant had been an unlawful occupier.  That was met with a defence filed the following month in which the applicant relied upon the various leases and joined in Pacific Cargo Service and Fulways International Ltd as third parties.  The following year, in June 2003 Mass Ocean served a notice to quit on the Head Lessees to take effect on 31 December 2003 on termination of the tenancy created by the Head Lease.  The Tribunal referred to this but simply said that it did not imply recognition of the validity of the Head Lease.

11.Quite apart from the matter that it would be difficult to discern why a notice to quit in six months time on termination of a tenancy was not on the basis of the existence of that tenancy which was thereby acknowledged, the point remains that it is not a matter for the respondent to argue that the Head Lease was not binding on the Mass Ocean by reason of the non-registration.  Rather it is for the respondent to show that Mass Ocean did indeed treat the Head Lease as not binding upon them.

12.Moreover, the Tribunal did not take into account the fact that the tenancy agreements between the applicant and Pacific Cargo Service and Fulways International Ltd remained in full force and effect notwithstanding the assignment of the property to Mass Ocean.  In this respect it will be noted that as between each other the applicant would not have been permitted to challenge the title of its landlords and, for their part, the landlords would not have been permitted to deny their own title.

13.As has been noted, far from disputing any rights under the Head Lease or of Pacific Cargo Service and Fulways International Ltd, Mass Ocean simply served a notice to quit on termination of the Head Lease.  As regards the action brought against the applicant, that was concluded by a consent order dated 18 May 2004 whereby Mass Ocean was given leave to discontinue the action with no order as to costs of the action between the applicant and Mass Ocean notwithstanding any previous orders as to costs.

14.In my view this matter must be remitted to the Tribunal for retrial.  I would therefore set aside the judgement below and make an order as to costs that the costs below and in this court be costs in the application.

Hon Le Pichon JA:

15.I agree.

Hon Cheung JA:

16.I agree with the judgment of Rogers VP.  I would like to make the following observations.

Section 4(1) of the Conveyancing and Property Ordinance

17.The Tribunal relied on section 4(1) of the Conveyancing and Properties Ordinance (Cap. 219) which requires a legal estate in land to be created only by deed.  The exception to this requirement, namely, the granting of a lease taking effect in possession for a term not exceeding three years under section 4(2)(d) is, of course, not available because the head lease that the claimant is relying upon exceeds three years. 

18.The agreement between the Tong and the head lessees on the letting of the land is not by way of deed and is therefore caught by section 4(1).  However, this clearly is not the end of the matter because if the validity of the letting is established, then it is an agreement to lease which is sufficiently evidenced by writing and part performance.  There is no evidence indicating that it was incapable of being specifically performed at the time of resumption.  Applying the principle in Walsh v. Lonsdale (1882) 21 Ch. D. 9 that ‘a contract for a lease is as good as a lease’ because ‘equity looks on that as done which ought to be done’, the parties, namely, the Tong and the head lessees will be treated as if the lease had been granted with proper formalities : see Megarry & Wade on The Law of Real Property 6^th Ed paras 14–039 to 14–046.

The Tribunal’s conclusion is wrong in law

19.Hence the ultimate question is still whether the agreement itself is a valid one.  The conclusion by the Tribunal that it is invalid is wrong.  First, it failed to distinguish the legal requirement that all three managers must act jointly in letting the Tong land on the one hand and the formal requirement of signing the agreement by the managers on the other hand.  Second, based on the existing evidence where, among other things, Mass Ocean had without qualification, expressly referred to the letting by the Tong to the head lessees in the notice to quit, the Tribunal was wrong to come to the finding that the agreement is invalid.  Both are errors of law which entitle this Court to intervene.

Evidence

20.Whilst the right of the claimant to compensation must be determined by reference to his status on the land at the time of the resumption, I can see no justifiable reason why it cannot rely on evidence that is available after the resumption which may support its case on the validity of the lease.  The question of status and the evidence in support of such status are different matters.

Mr Benjamin Chain and Mr Kenneth YF Wong, instructed by Messrs Chan & Tsu, for the Applicant/Appellant

Mr Nelson Miu, instructed by Department of Justice, for the Respondent/ Respondent