Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd And Another

FACV No. 1 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 1 OF 2008 (Civil)

(ON APPEAL FROM CACV No. 227 of 2005)

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Dates of Hearing: 7 – 11 July 2008

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J U D G M E N T

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Chief Justice Li:

1. This is the judgment of the Court to which all of its members have contributed.

2. This appeal raises questions concerning the rights and obligations of co-owners of property in a multi-storey building. It falls to be determined whether and to what extent rights in the nature of easements or “quasi-easements” arise and whether the rule against derogation from grant applies in the present case.

A. The dispute

3. The dispute can shortly be described as follows.

(a) It concerns properties in Fou Wah Centre in Tsuen Wan, a 23-storey building consisting of a 19-storey residential tower resting on a four-storey commercial podium (on the ground to third floors).

(b) The appellant owns (to put it non-technically) a shop known as “Shop 2B” on the first floor as well as the entire second and third floors, having purchased those properties from the 1^st respondent in early 2000. They were bought subject to existing tenancies and Shop 2B is physically divided into two separately let portions, referred to as Shops 2B-A and 2B-B. This appeal is concerned with Shop 2B-B and the second and third floors.

(c) The 1st respondent retained parts of the building, including a passageway on the first floor referred to as the “Entrance Lobby”. It provides the most direct access into the commercial podium at first floor level for pedestrians using an external elevated public walkway connecting Fou Wah Centre with the Mass Transit Railway station at Tsuen Wan. The Entrance Lobby leads to a staircase which goes up to the second and third floors where tenants operate two restaurants and a bookshop.

(d) Shop 2B-B is and has since 1998 been let to a tenant called Tin Tin Vegetarian Food Co Ltd (“Tin Tin”). It is a small shop, long and narrow in shape. Its longer side (measuring some 13 feet 3 inches in length) fronts the Entrance Lobby and is lined with display cabinets which serve as a counter over which food and drinks are sold to passers-by. Its narrow side is only about 19 inches wide, opening onto the external pedestrian walkway and used as the entrance through which staff enter the shop.

(e) On 12 March 2001, the 1st respondent sold the Entrance Lobby to the 2^nd respondent. Although the substance of this transaction was “hotly contested” at the trial before Madam Recorder J Leong SC,[1] nothing now turns on this sale, it being accepted that the respondents are to be treated as if they were the same person for the purposes of this appeal.

(f) On 26 April 2001 the appellant was informed that the respondents were about to put up a new shop which would occupy a large part of the Entrance Lobby and would abut upon and entirely block off Tin Tin’s shop counter. A much narrower Entrance Lobby would continue to allow pedestrians to enter the commercial podium from the external walkway. Alarmed at the effect this would have upon Shop 2B-B and at the possible effect on access via the staircase to the second and third floors, the appellant commenced the present proceedings and obtained interlocutory injunctions against the respondents proceeding with erection of the new shop.

(g) In the course of the trial the Recorder conducted a site visit and found that Shop 2B-B “is able to operate as a shop only because one side ... measuring over 13 feet in length is open to the [Entrance Lobby] forming a counter from which food is sold to customers standing in the[Entrance Lobby]”.[2]

B. The issues and the decisions of the courts below

4. The appellant argues that upon purchase of the properties it became entitled by implication to a right of way as a legal easement or as a “quasi-easement” (in the sense explained below) over the Entrance Lobby for the benefit of Shop 2B-B as well as of the second and third floors, making it unlawful for the respondents to erect the proposed shop in the Entrance Lobby. This argument was rejected both by the Recorder[3] and by the Court of Appeal.[4] It was decided that since the parties hold their interests as tenants in common, the dominant and servient tenements necessary for the creation of an easement or quasi-easement cannot and do not exist.

5. The appellant’s alternative argument was that the threatened blocking off by the respondents of Shop 2B-B would constitute a derogation from grant which ought to be restrained. It also failed. The Recorder thought that having rejected the implication of an easement, the issue of derogation did not arise.[5] The Court of Appeal rejected the derogation argument on the basis that the respondents’ intended course of action would not render Shop 2B-B unfit or materially less fit for the purpose for which the grant was made.[6]

6. These remain the principal arguments urged by the appellant. Certain subsidiary arguments, including one based on section 16(1) of the Conveyancing and Property Ordinance[7] (“CPO”) do not require separate treatment.

C. The rights conveyed and acquired

7. It is necessary to look more closely at the conveyancing background to the dispute. The property upon which Fou Wah Centre stands is registered as Tsuen Wan Town Lot No 233. It was granted to Fou Wah Weaving Mills Limited, the original developer (“the developer”), by a Crown Lease dated 14 June 1974 (which we shall call “the government lease”). That lease was varied by a Modification Letterdated 3 March 1977 which inserted two special conditions of relevance. Special condition 3(c), to which we shall return, restricted the manner in which the developer could assign away or part with possession of interests in the lot; and sc 5(h)(i) required the developer to construct the elevated pedestrian walkway encircling the building at first floor level and linking it to the MTR station, previously mentioned.

8. By March 1978, the developer was in a position to sell off units in the property. In accordance with the usual Hong Kong practice, the property was notionally divided into 9,700 equal undivided parts or shares and particular parts of the building were allotted to specified parcels of such shares. As stipulated in the deed of mutual covenant dated 7 March 1978 (“the DMC”), the first floor was allotted to a parcel of 1,320/9,700 shares and the second and third floors were each allotted to parcels of 720/9,700 shares. The rest of the undivided shares had allotted to them the ground floor and units in the residential tower. Such residential units were sold to purchasers by assigning to them specified parcels of undivided shares together with “the right to exclusive use and enjoyment” of the unit in question, subject to and with the benefit of the DMC. The developer initially retained all rights in the commercial podium.

9. Until 1990, the Entrance Lobby did not exist. It was only in that year that it was created out of what had been a shop space. At that stage, it belonged, along with the rest of the commercial podium, to the developer.

10. Parts of the podium were leased by the developer to tenants. The tenancies presently relevant were granted in 1996 and 1997 to Joint Publishing (Hong Kong) Co Ltd (“Joint Publishing”) over the third floor for use as a bookshop; and to Fairwood Fast Food Limited (“Fairwood”) and Jardine, Matheson & Co Ltd (“Jardine”) for each of them to operate a restaurant on the second floor.

11. In 1997 the 1st respondent purchased the entire commercial podium from the developer with the intention of immediately on-selling certain shop units on the first floor to individual purchasers. To cater for such on-sales, the newly partitioned spaces in the podium were allotted to defined parcels of undivided shares under a sub-deed of mutual covenant (“the Sub-DMC”). The second and third floors each continued to be allotted to parcels of 720/9,700 shares, while Shop 2B and the Entrance Lobby were allotted to parcels of 65/9,700 and 26/9,700 shares respectively.

12. The 1^st respondent’s purchase was effected by an assignment dated 27 June 1997, whereby it acquired from the developer 4,153 equal undivided 9,700^th shares in the property together with the exclusive right to hold use occupy and enjoy the whole of the ground, second and third floors of the building as well as portions of the first floor including Shop 2B and the Entrance Lobby, subject to and with the benefit of the DMC and also subject to existing tenancies.

13. In early 2000, the appellant acquired its interests in Fou Wah Centre. By an assignment dated 24 January 2000, for a consideration of $52,000,000.00, the 1st respondent assigned to the appellant 785/9,700 shares in the property “together with the sole and exclusive right and privilege to hold use occupy and enjoy” Shop 2B on the first floor as well as the whole of the third floor, subject to and with the benefit of the DMC and the Sub-DMC and subject to existing tenancies. By a similar assignment dated 24 February 2000, in consideration of $74,500,000.00, the 1st respondent assigned to the appellant 720/9,700 shares in the property together with exclusive occupation of the whole of the second floor. As previously noted, the...