Acewell Investments Ltd v. The Incorporated Owners of Nos.1 and 2 Canal Road East
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HCA1068/2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1068 OF 2009 --------------------- BETWEEN
--------------------- AND ACTION NO. 2256 OF 2009 ---------------------
Before : Hon Suffiad J in Court Dates of Hearing : 4-5 May 2011 Date of Judgment : 20 September 2011 ------------------------ J U D G M E N T ------------------------ 1.This trial involved two actions brought by the plaintiff against, in the first action, the Incorporated Owners of Nos. 1 and 2 Canal Road East (“the IO”) and, in the second action, against Ever Prosper Development Limited (“Ever Prosper”) respectively. 2.By the order of Registrar Au-Yeung dated 27 October 2009, both actions are to be heard together and consolidated. 3.For the sake of clarity and convenience, the IO will be referred to as the 1st defendant in this Judgment and Ever Prosper as the 2nd defendant. Background 4.The plaintiff is the registered owner of the Ground Floor and Mezzanine Floor of No. 1 Canal Road East, Hong Kong (“the Property”). 5.The 1st defendant, as its name denotes, is the incorporated owners of the building in which the Property is situated, being Nos. 1 and 2 Canal Road East (“the Building”). 6.The 2nd defendant is the registered owner of the Rear Portion on the 2nd Floor (also known as Flat C on the 2nd Floor) of Nos. 1 and 2 Canal Road East. For the sake of convenience, it will be referred to as “Flat 2C” in this judgment. 7.The plaintiff acquired the Property when it entered into an Agreement for Sale and Purchase dated 16 April 2005 (“the Agreement”) as purchaser with one Leung Ying Kin (in his capacity as Administrator of the Estate of Leung Hon Cheung, deceased) as vendor for the sale and purchase of the Property. Leung Hon Cheung, deceased, was the developer of the Building (“the Developer”). 8.Pursuant to the Agreement, the Property was assigned to the plaintiff by the vendor by an Assignment dated 17 May 2005 (“the Assignment to the plaintiff”). Accordingly, the plaintiff became the registered owner of the Property as from 17 May 2005. 9.Clause 1 of the Agreement provided as follows :
10.Clause 25 of the Agreement provided :
11.By the combined effect of Clause 1and the Schedule of the Assignment to the plaintiff, the Property was duly assigned to the plaintiff. Clause 1 of the Assignment to the plaintiff further provided as follows :
12.From Clause 1 of the Assignment of the Property to the plaintiff, it is quite clear that the Right To Affix was assigned to the plaintiff by the Vendor. 13.After the plaintiff became the registered owner of the Property, it came to the plaintiff’s attention that Messrs Deca Lin & Partners, solicitors acting for the IO had given an opinion to the IO by letter dated 6 December 2006 in which the solicitors opined that the IO had the right to rent out the external wall of the Building on behalf of all the owners of the Building. 14.By letter dated 14 December 2006, the plaintiff, through its solicitors informed and put the IO on notice of the plaintiff’s Right To Affix which had been assigned to the plaintiff by the Vendor. 15.Thereafter numerous correspondences passed between their respective solicitors on that issue in dispute. 16.Despite that dispute which was on-going between the plaintiff and the IO as to who had the right to affix signs and signboards to the external walls of the Building, the IO had without the consent of the plaintiff entered into a contract with Easy Advertising Agency Limited (“EAA”) dated 12 March 2008 purporting to appoint EAA as its agent to rent out the external wall in question for advertisements. The said wall was eventually rented out and advertisements had been put on the external wall of the Building. 17.Despite letters from the plaintiff’s solicitors to EAA and to the IO asserting the right of the plaintiff to affix signs to the external wall of the Building and despite repeated demands made, no attempt was made by either the IO or EAA to take down the advertisements from the external wall of the Building. 18.As a result, HCA1068/2009 was commenced against the 1st defendant seeking a declaration that the plaintiff is entitled to the free and uninterrupted right to affix signs on the external wall of the Building. The plaintiff further claimed injunctive and consequential reliefs against the 1st defendant. 19.The plaintiff’s claim against the 2nd defendant is for rectification of the Assignment dated 24 February 1973 in respect of Flat 2C of the Building and arises as follows. 20.The First Assignment of part of the Building was between the Developer and Ng Kum Chu and Nip Shau Kun by an instrument registered in the Land Registry by Memorial No. UB5843349, dated 7 September 1972 whereby the Developer holding all 22 equal undivided parts or shares of and in the Land assigned 1 equal undivided 22nd parts or shares to Ng Kum Chu and Nip Shau Kun, and “EXCEPTING AND RESERVING unto [the Developer] … the remaining twenty-one equal undivided twenty-second parts or shares of and in the [Land] … AND EXCEPTING AND RESERVING unto [the Developer] his assigns and licensees and all other persons by him authorized a free and uninterrupted right to affix and fit up signs or signboards whether illuminous or not perpendicular to the exterior walls of the said Building fronting Canal Road East and/or Tang Lung Street in such position as [the Developer] shall think fit Provided that the party making such signs or signboards shall make good at his own expenses all damages done to the exterior walls of the said Building caused by the fixture of such signs or signboards.” 21.Quite apart from the First Assignment referred to above, the Developer had consistently and similarly reserved and excepted this right to affix signs and signboards to himself in all of the later assignments to other purchasers of the various units in the Buildings by the Developer except one. The one exception was in relation to the assignment by the Developer to one Li Fung dated 24 February 1973 in respect of Flat 2C of the Building. 22.The assignment of Flat 2C of the Building to Li Fung was pursuant to a formal written sale and purchase agreement dated 27 March 1971 between the Developer and Li Fung for the sale and purchase of Flat 2C. In that sale and purchase agreement, Clause 22 provided as follows :
23.Indeed an identically worded Clause 22 as the above appears in all those sale and purchase agreements entered into between the Developer and other purchasers of other units in the Building which had been registered in the Land Registry. It should be noted however, that the wording contained in all of the Clause 22 of all the sale and purchase agreements differs somewhat from the reservations and exceptions reserved by the Developer to himself and his assigns in respect of the Right To Affix contained in all of the assignments with the exception of the assignment relating to Flat 2C to Li Fung in which the reservation of that right by the Developer is glaringly missing despite the presence of Clause 22 in the sale and purchase agreement between them. 24.Based on the presence of Clause 22 in the sale and purchase agreement relating to Flat 2C with Li Fung, it is the plaintiff’s case that the absence of any reservation and exception clause in the assignment dated 24 February 1973 in respect of Flat 2C to Li Fung can only be due to a common mistake and/or typographical error when the assignment was prepared since both the sale and purchase agreement as well as the assignment relating to Flat 2C to Li Fung were prepared by the same firm of solicitors, Messrs Yung Yu Yuen & Co. 25.On this basis, the plaintiff seeks for the rectification sought by it so as to reflect the true intention of the parties at the time the assignment of Flat 2C was made to Li Fung. 26.The 2nd defendant is now the present registered owner of Flat 2C of the Building and is therefore made a defendant for the relief sought by the plaintiff by way of rectification of the assignment to Li Fung, being the predecessor in title of the 2nd defendant. The Defence and Counterclaim 27.The defence raised by the defendants can be summarized as follows. 28.In respect of the plaintiff’s claim to exclusive right to use the external walls of the Building for affixing signs and signboards, it was submitted by the defendants that the right to erect perpendicular signs or signboards on the external wall of the Building fronting Canal Road East and/or Tang Lung Street reserved to the Developer in all but one of the assignments is merely a right to support and which, by its wording in all the assignments, clearly show that there was no exclusive right reserved by the Developer. In any event, the instrument ought to be strictly construed against the person making the reservation. 29.As such, the right to erect perpendicular signs or signboards on the external wall, being only a right to support, can be no more than an easement or quasi easement i.e. a right over the land of another. 30.In that sense, and in the context of multi-storey buildings in Hong Kong, which is normally on the basis of undivided shares in common of the land, it can only be a quasi easement for support. 31.It was also submitted by the defendants that when the Deed of Mutual Covenant (“the DMC”) which was dated the same date as the First Assignment, namely, 7 September 1972, is properly construed, there can be no question but that the conclusion must be that all the external walls of the Building form a common part or common area of the Building owned by all the owners for the time being. 32.As for the plaintiff’s claim for rectification of the assignment to Li Fung dated 24 February 1973 to include the reservation of the right to erect signs and signboards in the same terms as Clause 22 the defendants submit that the plaintiff has no locus to claim such relief since the plaintiff is not the assignee of such right due to the fact that the Assignment to the plaintiff only gave it the Right to Affix, which is differently worded than Clause 22. 33.Secondly, it was contended that if the relief sought by the plaintiff is for rectification of the assignment to Li Fung dated 24 February 1973 to include the reservation of the Right to Affix, then the plaintiff has failed to prove common mistake since Clause 22 appearing in the sale and purchase agreement between the Developer and Li Fung is, once again, so differently worded than the Right to Affix. 34.Thirdly, it was also submitted by the defendants that in any event, rectification as an equitable remedy should not be granted in favour of the plaintiff by reason of the fact that the 2nd defendant was a bona fide purchaser of Flat 2C and also by reason of laches of some 36 years. 35.There is also a counterclaim by the 1st defendant seeking for declarations that:
36.At the trial, counsel for the defendants indicated that the defendants were no longer seeking the declaration contained in (b) above. The evidence 37.It can safely be said that there is no factual dispute of the evidence relating to this matter and the parties quite properly saw fit to agreeing between themselves to admit into evidence all of the witness statements in this case for both parties without the need for cross‑examination of any of the factual witnesses. Decision 38.I shall deal with the claim for rectification first as it is only after deciding that issue would it be possible to determine the rights of the plaintiff from what was assigned to it by the Developer. 39.The first question to decide in resolving this issue must be whether there was a common mistake between the Developer and Li Fung when the assignment to Li Fung was executed. 40.There is no dispute that the sale and purchase agreement between the Developer and Li Fung contained the Clause 22 rights which had been reserved by the Developer to himself. That sale and purchase agreement was dated 27 March 1971. 41.It is also not in dispute that when the assignment of Flat 2C to Li Fung was executed, that prior agreement between them reserving the Clause 22 rights to the Developer was not reflected in the assignment. Neither did that assignment contain any reservation of the Right To Affix as in all other assignments to other purchasers for the sale of other units in the Building by the Developer and executed before and after 24 February 1973. That assignment to Li Fung was dated 24 February 1973. 42.There was no evidence put before me of any change of intention between the parties between 27 March 1971 and 24 February 1973 which would lead to the conclusion that by the time of the assignment to Li Fung on 24 February 1973 both parties had changed their mind as to what had been agreed between them and contained in Clause 22 of the sale and purchase agreement. 43.Furthermore, the fact that the Developer had reserved to himself the Right To Affix in all the other assignments of other units to other purchasers both before and after the assignment to Li Fung is a clear indication to me that the failure to expressly state any reservation of rights whether along the wording of the Clause 22 rights or the Right To Affix, must have been a common mistake between the parties probably due to a clerical error by the solicitors handling the matter and in drafting the assignment to Li Fung. Moreover, it was likely that this error remained undetected for all this time until this dispute arose. 44.I am therefore satisfied that there was a common mistake between the Developer and Li Fung when the assignment to Li Fung was executed. 45.In coming to this decision, I have not lost sight of the argument put forward by the defendants that if the rectification claimed by the plaintiff is the Clause 22 rights, then the plaintiff has no locus to claim for such since the Assignment to the plaintiff only gave it the Right To Affix. On the other hand, if the claim for rectification by the plaintiff is the Right To Affix, then the plaintiff has not shown any common mistake since only the Clause 22 rights had been contained in the sale and purchase agreement between the Developer and Li Fung. 46.I am unable to accept that argument put forward by the defendants for the following reasons. 47.Both the rights reserved to the Developer under the Right To Affix and the Clause 22 rights are by nature the right to affix signs and signboards to the external walls of the Building. While admittedly, there are differences in wording such that it would appear that the Right To Affix was more restrictive by its wording than the Clause 22 rights, they nevertheless reserve the same rights in nature to the Developer and or his assignees, in particular with respect to the Ground floor. 48.Moreover, the Right To Affix is clearly, by its wording more restrictive than the Clause 22 rights, since it restricts the signs and signboards having to be perpendicular to the external wall, secondly, it is only the external wall fronting Canal Road East and/or Tang Lung Street which is affected and thirdly, the proviso enjoins any damage to the external wall caused by the signs and signboards having to be made good by the party affixing such signs or signboards. 49.By the doctrine of merger, it would appear that although the Clause 22 rights appear to have been reserved in all of the sale and purchase agreements including that of Li Fung, but that the Right To Affix having been reserved in all of the assignments (save and except that to Li Fung), the Developer has in all cases reserved to himself the more restrictive of the two rights in all the instances apart from Flat 2C. 50.Therefore in so far as rectification is concerned, I am of the view that the assignment to Li Fung dated 24 February 1973 ought to be rectified by the inclusion of the Right To Affix which is the more restrictive of the two and which would conform with all the other assignments to other purchasers of units in that Building as well as conforming to what had been assigned to the plaintiff when the plaintiff purchased the Ground floor from the executors of the Developer. 51.A further argument put forward by the defendant is that it would be inequitable to order any rectification now since there has been a laches for some 36 years and that the 2nd defendant was a bona fide purchaser of Flat 2C of the Building. 52.The short answer to that must be that for all these years since the assignment to Li Fung, there had been no complaint by the owner/occupier of Flat 2C including Li Fung even when the Developer purported to exercise his rights so reserved by renting out the external wall of the Building to San Miguel Brewery in 1991 for advertising purposes. 53.Even if the 2nd defendant had purchased Flat 2C with no idea that there had been a common mistake in the assignment to its predecessor-in-title, this had in no way prejudiced the 2nd defendant since it had never done anything or asserted any rights, after it became the registered owner of Flat 2C of the Building in May 2007, which would be inconsistent with the Right To Affix which had been reserved by the Developer to itself, although such rights reserved by the Developer was not reflected in the earlier assignment to Li Fung (being the predecessor in title of the 2nd defendant) due to the common mistake. 54.Moreover, on the evidence before me, it is accepted by the 2nd defendant that it also became the registered owner of Flat 3C of the Building in December 2006, a time which was before that when it became the registered owner of Flat 2C. As such, it had or ought to have had knowledge of the Right To Affix which had been reserved by the Developer from day one to himself from the assignment relating to Flat 3C. 55.For the above reasons, it cannot be inequitable vis-à-vis the 2nd defendant for rectification to be granted as a relief now. 56.I turn now to deal with the claim against the IO and the rights of the plaintiff which it is entitled to pursuant to the Right To Affix. 57.In this respect, it should be noted that the plaintiff does not claim ownership of the external wall pursuant to the Right To Affix. The plaintiff does not dispute that the ownership of the external wall remains with the IO, but the plaintiff says that Right To Affix entitles the plaintiff to the “free and uninterrupted right” to affix sings and signboards on the external wall in question (paragraph 19 of plaintiff’s written opening refers). 58.It would, however, appear from paragraph 28 of the plaintiff’s opening that the plaintiff is claiming the exclusive right to affix signs on the external wall of the Building. 59.In this respect, the word “exclusive” is not to be found in the clause reserving the Right To Affix in any of the assignments by the Developer to the other purchasers of units of the Building. Nor does the word “exclusive” appear in the clause containing and assigning such Right To Affix when the Ground floor of the Building was assigned to the plaintiff. 60.As opposed to the word “exclusive” (which was used by the Developer when reserving to himself the rights in relation to the roofs, the open yards and flat roofs of the Building) when it came to the reservation of the Right To Affix, that right was only qualified by the words “free and uninterrupted right”. 61.I accept the submission of Ms Chan, counsel for the defendants, that reservations and exceptions are strictly construed against the person making them. (See The Law of Real Property by MeGarry & Wade, 2000 ed., paragraph 18-094.) 62.On a strict construction of the Right To Affix reserved by the Developer and assigned to the plaintiff upon the plaintiff purchasing the Ground floor of the Building, I hold that the right of the plaintiff thereunder though not an exclusive right, is nevertheless a “free and uninterrupted right”. That right is further limited by the wording thereof such that the plaintiff is only entitled to affix and fit up signs and signboards to the exterior walls (of the Building) fronting Canal Road East and/or Tang Lung Street and that the signs and signboards so affixed have to be perpendicular to those external walls. 63.Dealing now with the defendants’ argument that the Right To Affix can, at best, be an easement or quasi-easement for support, I have no hesitation in rejecting that contention by the defendants. 64.In my view, there can be no question of any easements arising here for the simple reason that there is here no dominant or servient tenement. There is only a free and uninterrupted right reserved by the Developer to himself when selling off other parts or units of the Building to other purchasers. That right was ultimately assigned by the Developer to the plaintiff with the Property. Therefore no question of easement arises. 65.As for quasi-easement, counsel for the defendants had sought reliance on the decision of the Court of Final Appeal in the case of Kung Ming Tak Tong Co. Ltd v Park Solid Enterprises Ltd and anor [2008] 6 HKC 42. In that case, the court was faced with a very different factual situation. In 2000, the appellant purchased from the 1st respondent and became the registered owner of Shop 2B on the 1st floor and also the entire 2nd and 3rd floors of a multi-storey building in Tsuen Wan. Shop 2B was divided into Shop 2B-A and Shop 2B-B. Shop 2B-B was long and narrow with one of its long side fronting a passageway of the building referred to as the Entrance Lobby but the exclusive use of which had been retained by the 1st respondent. When the appellant became the owner of Shop 2B, the Entrance Lobby served as a passageway giving direct access to pedestrians from the MTR station outside the building (on an elevated pedestrian walkway) into the building and to a staircase leading up to the 2nd and 3rd floors. 66.On the long side of Shop 2B-B fronting the Entrance Lobby was erected a counter from which customers could, using the Entrance Lobby, approach the counter and make purchases of refreshments from Shop 2B-B. 67.In 2001, the 1st respondent sold the Entrance Lobby to the 2nd respondent who intended to erect a shop leaving only a small part of that Entrance Lobby to give access into the building and the staircase to the 2nd and 3rd floors. In so doing the shop put up by the 2nd respondent would completely block off the frontage to the counter of Shop 2B-B. 68.The appellant claimed (inter alia) a right of way of its customers over the Entrance Lobby to approach the counter of Shop 2B-B and injunctive relief to prevent the 2nd respondent from blocking off its counter by putting up a shop at the Entrance Lobby. 69.It was held by the Court of Final Appeal that in a multi-storey building the system of co-ownership used did not give rise to separate tenements and therefore rights granted over one unit in favour of the owner of another unit were not easements properly so-called. 70.However, in deciding what rights should be implied into a transaction between co-owners, it was possible for the court to imply an intention to convey as part of the assignment, continuous and apparent quasi-easements which are “at the time of the grant obviously necessary for the reasonable enjoyment of the land conveyed”. In this sense, the rule in Wheeldon v Burrows became highly relevant. 71.The Court of Final Appeal further decided that on the facts of that case :
72.It can be seen from that decision of the Court of Final Appeal that there was implied a contractual quasi easement in the form of a right of way over the Entrance Lobby giving access to the 2nd and 3rd floors at the time of the grant (i.e. when the 2nd and 3rd floor was sold by the 1st respondent to the appellant but that exclusive use of the Entrance Lobby was retained by the 1st respondent itself). 73.That was between co-owners of different parts or units of the building, with the 1st respondent assuming the role of the grantor and the appellant the grantee. The Chief Justice said at paragraphs 52 and 53 of the judgment:
74.The facts of the case of Kung Ming Tak Tong Co. Ltd differs significantly from the facts of the present case. There it was a transaction between co-owners which gave rise to the analogous roles of grantor and grantee. That is absent in our present case. Without there being any grantor and grantee, an easement simply cannot arise, a fortiori therefore, no question of quasi-easement arising. 75.In so far as the real dispute between the plaintiff and the 1st defendant is concerned, that dispute arose by reason of the fact that the 1st defendant has seen fit to appoint EAA as the agent to rent out the external wall of the Building for advertisement purposes. 76.In this respect, the agreement entered into between the 1st defendant and EAA dated 11 March 2008 (but signed by the parties respectively on 12 and 13 March 2008) has been produced. It bears Agreement No. 080311. 77.That agreement was expressly stated to be for a period of three years with a fixed term from 1 April 2008 to 31 March 2010 and an optional tenancy from 1 April 2010 to 31 March 2011. 78.Moreover, the Advertising Location is expressly stated therein to be the external wall advertisement board of Nos. 1 and 2 Canal Road East Causeway Bay Hong Kong. Effectively, that is the exterior wall of the Building fronting Canal Road East as is shown by the photographs produced at trial. 79.By Agreement No. 080311, EAA was authorized by the 1st defendant to enter into Advertising Agreement with any companies, individuals or non-company organizations and authorized to put up advertisements on the said Advertising Location. The effect therefore of Agreement No. 080311 is that, at the very least, a licence was granted to EAA by the 1st defendant to put up advertisement on the exterior wall of the Building fronting Canal Road East. 80.As such there can be no question but that by granting such a licence to EAA the 1st defendant has wrongfully interfered with and is in breach of the plaintiff’s Right To Affix. 81.Accordingly, and for the reasons given above, the plaintiff is entitled to a declaration as sought in prayer (1) of the Re-Amended Statement of claim. 82.I am not prepared to grant the declaration sought in prayer (2) of the Re-Amended Statement of Claim. Had the plaintiff asked for a declaration to the effect that the 1st defendant, by entering into Agreement No. 080311 with EAA, has wrongfully interfered and is in breach of the rights of the plaintiff, I would have had no difficulty with granting same. The declaration sought in prayer (2), however, goes far beyond the facts of the present dispute and is not necessary in light of the declaration given in prayer (1). 83.I will therefore make the following orders :
Costs 84.There will be a costs order nisi that :
Ms Phoebe Man, instructed by Messrs Hampton, Winter & Glynn,for the Plaintiff Ms Winnie Chan, instructed by Messrs Deca Lin & Partners,for the 1st and 2nd defendants | |||||||||||||||||||||||||||||||||||
Further hearings and rulings under HCA 1068/2009