Weekly review: 25 – 29 July

Chinese customary trusts

Section 15 of the New Territories Ordinance requires a clan, family or t’ong that owns land to appoint a manager who will then have the power to deal with the land as if he were sole owner thereof. Any sale requires the consent of the Secretary for Home Affairs. Consent will not be given in the face of an objection to the sale by a member of the clan, family or t’ong. Million Way Ltd v To Shing Wo illustrates that the manager is a trustee of the property. He contracts in his own name and not as agent of the members. Members remain free to object to the sale even though a contract has been entered into and even if they have signed the form seeking the necessary consent to the sale. Buyers could protect themselves, for example, by getting binding commitments not to object from the members.

Easements

The rights that Incorporated Owners reserve out of a grant of a sale are not easements strictly speaking (because the whole development is in common ownership). Nevertheless, there is clearly a close resemblance between those rights and easements strictly-so-called. In Cogi Enterprises Ltd v IO of Malahon Apartments the Court of Appeal decided that the reservation of a right for the developer / Incorporated Owners to use pipes and so on ‘which now are or may at any time hereafter be in under or passing through the said lands’  did not give the Incorporated Owners any right to enter areas that had been assigned to owners to install new pipes.

Partition walls: part of an apartment or common parts?

The owners of neighbouring apartments sometimes want to knock down the dividing wall between them to create a larger unit out of two smaller ones. They can only do that if they own the wall (and they obtain any necessary consents). In Tam Sze Man v Shan Tsui Court (IO) the owners of the adjoining units failed. There was nothing in the wording of the transfer to suggest that the walls belonged to them. They sought to rely on the fact that the walls had been coloured on the plan attached to the assignments to them  (as if to indicate that the wall was included in their ownership). This failed. Colouring and notes on a plan attached to a deed are not reliable guides to the parties’ intentions. When construing an agreement, the court tries to discover what a reasonable person would have understood the parties to mean (Jumbo King v Faithful Properties Ltd). The approach taken here was that the wording used in the assignments indicated that the assignment was of the floor and ceiling surfaces and the air space between them. Nothing more. An assignment of ‘Flat X’ includes the floor and ceiling surfaces in the Flat and the air space between them (Nation Group Development Ltd v New Pacific Properties Ltd ([2000] 3 HKCFAR 427 at 436G).

Similarly in Central Management Ltd v Light Field Investment Ltd  the Court of Appeal gave no weight to a note on the plan attached to the first assignment of a unit in the development. The Court of Appeal inferred from the definitions of ‘common parts’ in the DMC and the Building Management Ordinance that structural walls should be common parts. The common parts had been kept back from the sales of units and ownership had been transferred to the plaintiff. The structural parts of the walls did not belong to the unit owners.

Clearly, if the partition walls have been designated from the beginning of the scheme as common parts then they cannot be included in any sale. Whether the walls are common parts has to be determined by looking at the intention of the parties to the Deed of Mutual Covenant and the first assignment. This will be found by looking at the words used construed in the light of the surrounding factual circumstances at the time the deeds were entered into. In The Incorporated Owners of Westlands Garden v Oey Chiou Ling and Wong Fung Ling  each of two sisters owned one of two neighbouring flats. The Court of Appeal held that the sisters did own the wall. It was not a common part. The Court of Appeal made the powerful point that it was unlikely that the developer intended, at the time of the first sale, to turn all of the partition walls into common areas. To do have done so would have made it unlawful for it later to redraw the size of units or itself to turn smaller units into larger ones. The Court of Appeal distinguished Tam Sze Man on the basis that the latter case had turned on whether the internal wall was a boundary wall and the term ‘boundary wall’ was not apt to include an internal wall. Tang ACJHC argued that if the draftsman of the Building Management Ordinance had intended that internal walls should be common parts then he would have said so (at para. 26). He saw the Court of Appeal’s decision in Central Management  as turning on the construction of the first assignment; he noted the court’s finding in Central Management that the note attached to the plan was irrelevant and that in that case the partitions walls had been assigned to the Incorporated Owners as common parts (para. 53 of Westlands Garden).

The upshot appears to be that internal partition walls are not common parts unless this is clearly the intention of the parties to the DMC and the first assignment.  Thus, the Court is left to decide on what the parties’ ownership intentions were (and the colouring and / or notes on the plan to the assignment are not to be taken as any guide to their intentions). The sensible result would be to decide that the neighbours are tenants-in-common of the wall (see para. 56 of the Court of Appeal decision in Westlands Garden). It is not clear that a readiness to hold that the partition walls are not common parts is compatible with a general proposition to the effect that an assignment of ‘Flat X’ does not include an interest in the walls. Somebody has to own them and the developer clearly did not intend to retain ownership for itself.

Requisitions on title

There have been two blog posts this week about requisitions on title. Both concerned recent judgments. In Smart Max Enterprise Ltd v Speedy Way Ltd  the Court of Appeal held that a reply to requisitions sent a few hours before completion did not allow the buyer enough time to consider the reply and make observations. In Profit World Trading v Ho So Yung the Court of Appeal held that where a seller had built part of the property to be sold on common parts of a development, it could not make title to the property. It could not force the property on the buyer. Whether the buyer should have raised the matter in requisitions or not is irrelevant. It is the seller’s duty to show good title to the property.

Squatters: acknowledgement of title of formal owner

Section 23 of the Limitation Ordinance provides that time starts to run again if the squatter acknowledges the title of the formal owner. In Edginton v Clark ([1964] 1 Q.B. 367, CA (Eng)) a squatter wrote two letters to the owner’s agent offering to buy the relevant land. The English Court of Appeal stated that there is no general rule as to what constitutes an acknowledgement; each case turns on its own facts. It held that the two letters were clearly an acknowledgement and so time had started to run afresh.

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